Opinion ID: 1291283
Heading Depth: 4
Heading Rank: 3

Heading: Enhanced Value

Text: ¶ 35 Article XIII, section 3(1) of the Utah Constitution states in relevant part that [t]he Legislature shall provide by law a uniform and equal rate of assessment on all tangible property in the state, according to its value in money. Utah Code Ann. § 59-2-201(1) embodies that requirement: assessment of all nonexempt property shall be at 100% of fair market value. We have discussed the tax-exempt status of intangibles above. However, even excluding intangibles, the network structure of WilTel's physical transmission facilities makes them worth far more on the open market than mere wires, trenches, and transformer stations could command. Unitary property cannot be regarded as merely land, buildings, and other assets. Rather, its value depends on the interrelation and operation of the entire utility as a unit. Many of the separate assets would be practically valueless without the rest of the system. Ten miles of telephone wire or one specially designed turbine would have a questionable value, other than as scrap, without the benefit of the rest of the system as a whole. Louis G. Bertane, The Assessment of Public Utility Property in California, 20 UCLA L.Rev. 419, 433 (1973), quoted in Salt Lake City Southern R.R., 987 P.2d at 600. ¶ 36 WilTel maintains that this enhanced unitary value is a tax-exempt intangible. The Counties and the Commission view the enhancement as a taxable attribute of tangible property. The Commission used as an example a hillside home with a value-enhancing view, and proposed that the view is an inherent feature of a tangible asset. Although the view is more ephemeral than bricks and mortar, it is part of the assessed value of the property for tax purposes. Location is another such element of value. Location is the time-distance relationships, or linkages, between a property or neighborhood and all possible origins and destinations of residents coming to or going from the property or neighborhood. The Appraisal of Real Estate 44 (Appraisal Institute 10th ed.1992). In other words, the augmentation in value results from property and market components, however incorporeal, that are not separately quantifiable as tax-exempt intangibles. ¶ 37 The physical and functional integration that allows WilTel's wires, cables, and transmission facilities to operate as a unit is analogous to real property location as a time-distance relationship, or linkage, although it deals with origins and destinations of information rather than residents. This location factor is part of the value of the property itself and can neither exist nor be valued separately. ¶ 38 The Counties agree with the Commission's concept of enhanced value, but interpret it to include nonproperty intangibles. In their brief to this court, the Counties arrive at a taxable unit value of $2,423,000,000 by adding to WilTel's cost estimate of $817,000,000, WilTel's proposed values for assembled work force, customer relations, and goodwill and other intangibles. We eschew this approach in light of the specific exclusion of goodwill and other intangibles from taxable property under Utah Code Ann. § 59-2-102(19) as discussed above. ¶ 39 WilTel argues that under the principle of substitution, simple replacement cost sets an upper limit on value because a purchaser would not pay more for an asset than the amount for which it could be built or bought elsewhere. The petitioner in Salt Lake City Southern Railroad made a similar argument, contending that instead of using the income approach to valuation, the Division should have added together the separate value of its property items as reflected by its own balance sheets. 987 P.2d at 598. We choose to follow the Commission's appraisal, noting: In using the income approach of assessment, the Division attempted to capture the fair market value of the Company's property operating together as a single unit. Id. at 599. ¶ 40 Likewise, in the instant case, fair market value reflects the benefit stream created by unitary operation of tangible property. If the legislature had desired to limit assessed value to the materials and installation costs of tangible assets, it could easily have done so. Since it did not do so, we conclude that the statutory and constitutional fair market value requirements recognize some element of value that is not attributable to either intangibles or simple cost and that this enhanced value is taxable. ¶ 41 Therefore we uphold the Commission's ruling that it is not required to assess WilTel's property solely on the basis of cost.