Opinion ID: 2604259
Heading Depth: 1
Heading Rank: 10

Heading: Miscellaneous Rental Income (Account 510)

Text: As was true with respect to DIT, the debate over miscellaneous rental income, or income from ICC Account 510, is not over whether it exists or how much it amounts to. As the label suggests, Account 510 is an account reported to the ICC, so it is in any given year a known figure. The issue with respect to this proposed addition to the income stream is whether it appropriately is attributed to the railroad as part of the operating unit. Miscellaneous rental income is income from rail property that is being used, as of the assessment date, for nonoperating purposes. Apparently, it has been the administrative practice of the Department in the past to assess such property separately from the rail transportation unit and then to add the Oregon portion of such property as an adjustment after the railroad's operating system has been valued and the appropriate portion of that system allocated to Oregon. The Tax Court, however, held that such an administrative approach is inconsistent with the concept of valuing [the railroad as] an integrated whole and that there is no evidence that [the] property producing the account 510 income is not part of the integrated whole. 11 OTR at 169. UP argues that the Tax Court was in error in its inclusion of Account 510 income because, although the property that produces this miscellaneous rental income is considered rail transportation property for regulatory purposes by the ICC, the property is not, as of the assessment dates, necessary to or a part of the operating unit. UP points out that there was, in fact, testimony from Schoenwald as to the sorts of uses to which such property might be put, and that such uses were not integral to railroad operations. The essential question, UP argues, is why such miscellaneous property should be valued on a system-wide basis when it is not part of the operating unit and when the data specific to Oregon is known? The short answer to this argument is that Schoenwald's testimony does not persuade us. Because the Tax Court chose to include this item, the Department does not bear the burden of proof on the issue of whether the property should be included; UP bears the burden of showing that it should not. UP has not satisfied that burden. UP's second argument is that the amount of Account 510 income-producing property in Oregon is known and, therefore, it makes more sense simply to add that property below the bottom line for ad valorem tax purposes. Of course, to do so would be inappropriate if the property properly is attributed to the operating unit. Railroad property within the operating unit is supposed to be assessed on a unitary basis. In any event, the fact that there is another way that the property theoretically could be assessed does nothing to establish that the way the Tax Court chose to assess it is impermissible. So long as UP is not assessed twice for the propertyand there is no suggestion here that it has been or will be assessed twicean answer either way does not offend the purpose of ad valorem taxation. The Tax Court required that Account 510 (miscellaneous rental) income from railroad operating property be directly capitalized or discounted in the income approach. Because UP does not demonstrate that this was either legal or factual error, we also require that Account 510 income be directly capitalized.