CenterPoint Energy Resources Corp. v. Commissioner of Renvenue
| Decision Date | 14 October 2016 |
| Docket Number | 8763-R |
| Parties | CENTERPOINT ENERGY RESOURCES CORP., Appellant, v. COMMISSIONER OF REVENUE, Appellee. |
| Court | Tax Court of Minnesota |
This matter came before The Honorable Bradford S. Delapena, Judge of the Minnesota Tax Court, on appellee Commissioner of Revenue's motion for summary judgment, and on appellant CenterPoint's motion to accept supplemental evidence. We grant CenterPoint's motion and deny the Commissioner's motion.
Paul B. Kilgore, Fryberger, Buchanan, Smith & Frederick, P.A represented appellant CenterPoint Energy Resources Corporation.
Sara L. Bruggeman, Assistant Minnesota Attorney General represented appellee Commissioner of Revenue.
ORDER GRANTING CENTERPOINT'S MOTION TO ACCEPT SUPPLEMENTAL EVIDENCE AND DENYING THE COMMISSIONER'S MOTION FOR SUMMARY JUDGMENT
CenterPoint appeals an order of the Commissioner which valued as a single economic unit all of the personal property constituting CenterPoint's gas transmission pipeline, and based on which the Commissioner furnished to numerous local taxing districts values for CenterPoint's operating property lying within those districts. In preparation for trial, CenterPoint obtained a fee appraisal indicating a unit value approximately twenty percent lower than the valuation underlying the Commissioner's assessment.
A fee appraisal indicating that a taxing authority's assessment is excessive defeats the prima facie validity of the assessment and creates a triable issue of fact concerning the subject property's market value. Rather than acknowledging this well-settled rule, the Commissioner instead moves for summary judgment proposing a legal theory: (1) that would render unbearable a taxpayer's burden to overcome the prima facie validity of a utility assessment; (2) under which CenterPoint could not carry that burden; and (3) in accordance with which we would be compelled to affirm the Commissioner's (possibly excessive) assessment rather than determining the market value of CenterPoint's pipeline. Urging us to adopt her theory, the Commissioner requests summary judgment on the ground that CenterPoint “cannot meet its burden to rebut the prima facie validity of the Commissioner's” assessment.[1] CenterPoint opposes summary judgment and also moves the court to accept as supplemental evidence a document that it requested from the Commissioner during discovery, but that the Commissioner willfully withheld until after we heard oral argument on her summary judgment motion.
Agreeing with CenterPoint that the Commissioner wrongfully withheld documents fatal to her theory of summary judgment, we grant CenterPoint's motion to accept supplemental evidence. And, concluding that the Commissioner's theory of prima facie validity is unsupported by law-and, indeed, that it would defeat legislatively conferred rights to contest the Commissioner's utility valuations-we deny the Commissioner's motion for summary judgment.
The court, upon all the files, records, and proceedings herein, now makes the following:
1. CenterPoint's motion to accept supplemental evidence is granted.
2. The Commissioner's motion for summary judgment is denied.
3. Within 30 days of the date of this order, the parties shall jointly contact the tax court administrator to schedule trial in this matter.
IT IS SO ORDERED.
Under Minnesota law, “[a]ll property shall be valued at its market value.” Minn.Stat. § 273.11, subd. 1 (2014). This case involves the market value of the personal property constituting CenterPoint's gas transmission pipeline.
Normally, local authorities estimate the value of the taxable personal and real property lying within their jurisdictions. See Minn.Stat. §§ 273.062 (personal property), 273.17 (real property) (2014). The legislature has determined, however, that “[t]he personal property, consisting of the pipeline system ..., of pipeline companies ... shall be listed with and assessed by the commissioner of revenue and the values provided to the city or county assessor by order.” Minn.Stat. § 273.33, subd. 2 (2014)
Pursuant to her rulemaking authority, see Minn.Stat. § 270C.06 (2014), the Commissioner has adopted an administrative rule for estimating the market value of gas transmission pipelines and other utilities. See generally Minn. R. 8100 (2015). The Rule employs a unitary valuation method that “value[s] an integrated group of assets which function as a single economic unit without reference to the value of the independent component parts.”[2] Although the Rule relies principally upon the cost and income approaches to value, Minn. R. 8100.0300, subps. 3 & 4, giving those approaches dominant weighting, id., subp. 5, it also authorizes limited use of the market approach, id., subps. 4a & 5.
Under the Rule, the Commissioner: (1) “establishes an estimate of the unit value for each utility company;” (2) allocates a fair share of that value “to each state in which the utility company operates;” (3) deducts exempt and locally assessed property from Minnesota's allocation; and (4) apportions a fair share of Minnesota's allocation “to the various taxing districts within the state” in which the utility operates. See Minn. R. 8100.0200. If necessary, the values furnished to local authorities may be “equalized based on sales/assessment ratios.” Id.; Minn. R. 8100.0700
Although Rule 8100 sets forth a default method for estimating unit values, see Minn. R. 8100.0300, it nevertheless authorizes the Commissioner “to exercise discretion whenever the circumstances of a valuation estimate dictate the need for it.” Minn. R. 8100.0200. The Commissioner's discretion to deviate from the Rule's default method may be used, inter alia, “to ensure that a reasonable estimate of market value is derived.” Id. Thus, Notwithstanding the Rule's specification of a default valuation method, market value remains the governing legal standard. Minn.Stat. § 273.11, subd. 1
The Legislature has created three separate avenues for appealing the Commissioner's Rule 8100 assessments. See Minn.Stat. § 273 .372, subd. 1(b) (2014) (). First, a taxpayer can file an administrative appeal with the Commissioner. Id., subd. 4(a). A taxpayer who remains aggrieved after an administrative appeal may appeal to court. Id. Second, a taxpayer can challenge the Commissioner's assessment by filing an appeal under Minnesota Statutes chapter 271. Id., subd. 2(b). Finally, a taxpayer can challenge a local taxing authority's implementation of the Commissioner's assessment by filing an appeal under chapter 278. Id., subd. 2(c)
In accordance with the foregoing provisions, the Commissioner estimated a system unit value of $729, 225, 900 for CenterPoint's pipeline as of the January 2, 2014 valuation date.[3] Based in part on this unit value, the Commissioner determined that Minnesota's apportionable market value was $636, 254, 800 and, by order, furnished apportioned values to local assessors.[4] Dissatisfied with the Commissioner's unit valuation, CenterPoint appealed to this court.[5]
During the pendency of this appeal, each party obtained a fee appraisal of CenterPoint's pipeline. CenterPoint's appraiser, Mr. Thomas K. Tegarden, MAI, CAE, estimated a unit value of $580, 000, 000[6]-approximately $150, 000, 000 or 20 percent below the unit-value estimate upon which the Commissioner based her assessment.[7]
The parties also engaged in written discovery and conducted depositions. CenterPoint's August 2014 written discovery included: (1) an interrogatory asking the Commissioner to identify all appraisals prepared for her; (2) a document request asking the Commissioner to produce “[a]ll documents referred to in any response to the above interrogatories;” and (3) a definition specifiying that documents means, among other things, “reports” and “drafts of any of the foregoing.”[8]
After the parties exchanged written appraisal reports, CenterPoint deposed the Commissioner's expert appraiser, Mr. Brent Eyre, ASA.[9] During that deposition on February 17, 2016, CenterPoint asked Eyre whether he had furnished a draft of his appraisal report (the “Eyre Draft”) to “the Department of Revenue or the Attorney General's Office.”[10] After Eyre responded in the affirmative, CenterPoint asked whether any changes had been made “from that draft to the final appraisal.”[11] Eyre replied: “If there would have been changes, they would have been cosmetic in nature, proofreading-type changes.”[12]
CenterPoint next asked the Commissioner's counsel to furnish it with a copy of the Eyre Draft. Counsel did not object to this request on any ground, but instead responded, “[i]f I have it, yes.”[13] Following up on this response by counsel, CenterPoint asked Mr. Eyre: “Do you remember, did you provide that draft to the Attorney General's Office or to the Department of Revenue?”[14] Eyre replied: “It would have been to counsel.”[15]
During the balance of the deposition, Mr. Eyre testified, among other things: (1) that the Commissioner's counsel had instructed him “to perform a Rule 8100 compliant opinion of value” rather than to produce “my own independent opinion of value, ” as the Commissioner had instructed in another recent case;[16] (2) that specified portions of the Rule's default method for the market approach had not prevented him from achieving “a valid market indicator value;”[17] (3) that in...
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