Opinion ID: 1179917
Heading Depth: 2
Heading Rank: 2

Heading: The Valuation of Utility Property and the Calculation of Levy Limits

Text: The rules for valuing utility property are currently set forth in A.R.S. § 42-144.02. To summarize, operating utility plants are valued according to original plant in service cost (OPIS) less certain adjustments. A.R.S. § 42-144.02(B). The OPIS value is the actual cost of acquisition or construction. A.R.S. § 42-144.02(H)(5). Before becoming operational, utility plants are valued as construction work in progress (CWIP), which is 50% of the amount expended in building the plant as of December 31 of the preceding calendar year. A.R.S. § 42-144.02(C), (H)(1). This system of valuation has a direct effect on the calculation of the maximum levy in the tax year in which new utility property first becomes operational and, as a result, is first taxed as OPIS rather than CWIP. The dispute in this case arises as a consequence of this change in valuation. As we noted above, the levy limit formula of A.R.S. § 42-301(A) contains a proportion used to account for additions to and deletions from the tax rolls for the current tax year. In that proportion, the current assessed value of all property subject to taxation in the current tax year is divided by the current assessed value of property subject to taxation in the prior tax year. If we assume for purposes of illustration that no other property has been added to or deleted from the tax rolls, we can isolate the question of how the utility property in question should be treated. [5] The numerator contains the current (OPIS) value of the utility property subject to taxation in the current year. The question in this case is what value to use in the denominator as the current value of utility property subject to taxation in the prior tax year. The County used the difference of OPIS-minus-CWIP, or the value for the previous year. Because OPIS-minus-CWIP is roughly (due to adjustments) 50% of OPIS, the maximum levy for the 1986 tax year  and thus the maximum rate at which all property, including utility property, is taxed  increased. This is the outcome reached in Arizona Tax Research. The result treats the new valuation figure  OPIS  as if it reflected new construction. On the other hand, SRP argues that the OPIS value, as the current value of the property completed but taxed as CWIP in the previous year, should be used in the denominator. Because the numerator and denominator would then be equivalent, there would be no increase in the maximum levy or tax rate  despite the fact that the tax base actually increased. This is the result reached in the present case and its companion, El Paso Electric Co. v. Maricopa County, 171 Ariz. 489, 831 P.2d 865 (Ct.App. 1992). The narrow issue, thus, is whether the OPIS or the OPIS-minus-CWIP value should be used when calculating the assessed value for the current tax year of all property in such entity that was subject to tax in the preceding tax year, A.R.S. § 42-301(A)(3), pursuant to the constitutional mandate that the levy limit be increased by the amount of ad valorem taxes levied against property not subject to taxation in the prior year and shall be decreased by the amount of ad valorem taxes levied against property subject to taxation in the prior year and not subject to taxation in the current year. Ariz.Const. art. 9, § 19(6).