IN RE TAX ASSESSMENT AGAINST ABPP

• Decision Date: 12 July 2000
• Docket Number: No. 27377, 27378.,27377, 27378.
• Citation: 539 S.E.2d 757,208 W. Va. 250
• Parties: In re TAX ASSESSMENT AGAINST AMERICAN BITUMINOUS POWER PARTNERS, L.P.
• Court: West Virginia Supreme Court

539 S.E.2d 757

208 W. Va. 250

In re TAX ASSESSMENT AGAINST AMERICAN BITUMINOUS POWER PARTNERS, L.P.

No. 27377, 27378.

Supreme Court of Appeals of West Virginia.

Submitted June 13, 2000.

Decided July 12, 2000.

Darrell V. McGraw, Jr., Attorney General, Stephen Stockton, Assistant Attorney General, Charleston, West Virginia, Attorneys for Appellant Joseph Palmer, State Tax Commissioner.

Frances C. Whiteman, Esq., Whiteman, Burdette & Radman, PLLC, Fairmont, West Virginia, Attorney for Appellant Marion County Commission.

Herschel H. Rose, Esq., Rose & Atkinson, Charleston, West Virginia, Attorney for Appellee American Bituminous Power Partners, L.P. McGRAW, Justice:

In these consolidated cases, the Marion County Commission and Joseph M. Palmer, Tax Commissioner of the State of West Virginia ("Tax Commissioner"), appeal the June 28, 1999 final order of the Circuit Court of Marion County, which ruled in favor of appellee American Bituminous Power Partners, L.P. ("ABPP"), on its claim that the Tax Commissioner violated applicable law by failing to employ an "income approach" to determine the fair market value of ABPP's electric-generating facility for the 1996 tax year. ABPP contends, and the lower court found as a matter of law, that the income approach method of valuation is mandated by 110 W. Va.C.S.R. § 1P-2 (1991). We conclude that the regulation in question affords the Tax Commissioner discretion in selecting the appropriate methodology for calculating the value of ABPP's power plant. As a consequence, we reverse.

I. BACKGROUND

ABPP completed construction of its Grant Town power plant in April 1993, at a total cost in excess of $100 million. The facility produces electricity using on-site "gob," or coal-processing refuse, which is burned by utilization of an innovative fluidized-bed technology. ABPP is not a public utility, but rather an independent producer of electric power, which is sold to Monongahela Power Company under a long-term contract. It is presently uncontested that the power plant incurred operating losses of $54,563 and $1,657,437 in 1993 and 1994, respectively, and showed positive net operating revenues of $2,061,884 in 1995.

The State Department of Tax and Revenue ("Tax Department") determined the market value of ABPP's property for tax year 1996 after making two calculations: First, an income-approach¹ valuation was obtained using only the income data for 1995 (the only year in which the power plant had then shown positive net operating revenues), which yielded a valuation of $44,444,444.² The Tax Department official who performed the income-based calculation, Jeff Amburgy, later testified that he relied exclusively upon 1995 income data due to the fact that the facility was operational for only part of 1993, and because the power plant experienced anomalous startup and maintenance expenses in 1994. Accordingly, Amburgy stated that in his opinion the 1995 net operating income was a "good figure going into the future."

A second valuation was made utilizing a cost approach,³ which produced a value of $45,409,310.⁴ The Department subsequently appraised the property at the latter value, basing its valuation exclusively upon the cost approach. The income approach was apparently rejected on the basis of the limited income history of ABPP's facility.

Pursuant to W. Va.Code § 11-3-24 (1979), ABPP protested the Tax Department's appraisal for the 1996 tax year before the Marion County Commission, sitting as the Board of Equalization and Review. Before the Commission, ABPP presented evidence intended to demonstrate that (1) the income approach was the most appropriate method for valuing the power plant; (2) the Tax Department's income-approach calculation was flawed by failing to take into account data from all of the three previous years, and also because it included as income revenue that flowed into a so-called "tracking account," which ABPP maintains was effectively a loan under its contract with Monongahela Power; and (4) the cost-approach calculation failed to account for functional obsolescence, in that some of the fuel handling equipment installed at the plant could not be used at full capacity given limitations in the fuel being recovered at the facility. Taking into account these factors, ABPP's witnesses testified that the power plant should be valued at $36,664,228 under a cost approach, and $1,218,750 under an income approach. Although ABPP maintained that the income approach should be the exclusive means of appraising its property, it nevertheless posited that an even weighting of its own calculations would result in an overall valuation of $18,941,489. The Tax Department's witnesses disputed all of these contentions. ABPP's arguments were effectively rejected by the County Commission, although the appraised value was reduced by $500,000, which was apparently intended to be an average of the Tax Department's cost- and income-approach valuations.

ABPP appealed to the circuit court in March 1996 pursuant to W. Va.Code § 11-3-25 (1967), once more asserting that the actual value of its power plant should be appraised at $18,941,489. In June 1999, the circuit court ruled in favor of ABPP in toto, concluding that (1) the Tax Department was required by regulation to employ both the income and cost approaches to valuation; (2) ABPP had proven by clear and convincing evidence that the tracking account should not have been included as current revenue⁵; and (3) the Tax Department was required by regulation to use data from the preceding three years in calculating the income-approach valuation. It is from this order that the Tax Commissioner now appeals.

II. STANDARD OF REVIEW

A taxpayer's initial avenue for relief from an allegedly erroneous property valuation lies with the county commission, sitting as a board of equalization and review. W. Va.Code § 11-3-24 (1979). The burden upon the taxpayer to demonstrate error with respect to the State's valuation is heavy in these adjudicative proceedings: " `It is a general rule that valuations for taxation purposes fixed by an assessing officer are presumed to be correct. The burden of showing an assessment to be erroneous is, of course, upon the taxpayer, and proof of such fact must be clear.' Syl. pt. 7, In re Tax Assessments Against Pocahontas Land Co., 172 W.Va. 53, 303 S.E.2d 691 (1983)." Syl. pt. 1, Western Pocahontas Properties, Ltd. v. County Comm'n of Wetzel County, 189 W.Va. 322, 431 S.E.2d 661 (1993). In challenging a tax valuation, "[t]he burden [of proof] clearly falls upon ... [the taxpayer] to demonstrate through clear and convincing evidence that the tax assessments were erroneous." In re Maple Meadow Min. Co., 191 W.Va. 519, 523, 446 S.E.2d 912, 916 (1994); see also Pocahontas Land, 172 W.Va. at 61, 303 S.E.2d at 699 ("It is obvious that where a taxpayer protests his assessment before a board, he bears the burden of demonstrating by clear and convincing evidence that his assessment is erroneous."); syl. pt. 2, in part, Western Pocahontas Properties, Ltd., supra ("The burden is on the taxpayer challenging the assessment to demonstrate by clear and convincing evidence that the tax assessment is erroneous.")

Upon receiving an adverse determination before the county commission, a taxpayer has a statutory right to judicial review before the circuit court. W. Va.Code § 11-3-25 (1967). The statute provides little in the way of guidance as to the scope of judicial review, although it does expressly limit review to the record made before the county commission. Given this limitation, we have previously indicated that review before the circuit court is confined to determining whether the challenged property valuation is supported by substantial evidence, see Killen v. Logan County Comm'n, 170 W.Va. 602, 295 S.E.2d 689 (1982),⁶ or otherwise in contravention of any regulation, statute, or constitutional provision, see In re Tax Assessments Against the Southern Land Co., 143 W.Va. 152, 100 S.E.2d 555 (1957),overruled on other grounds, In re Kanawha Valley Bank, 144 W.Va. 346, 109 S.E.2d 649 (1959).⁷ As this Court's previous cases suggest, and as we have recognized in other contexts involving taxation, e.g., Frymier-Halloran v. Paige, 193 W.Va. 687, 695, 458 S.E.2d 780, 788 (1995), judicial review of a decision of a board of equalization and review regarding a challenged tax-assessment valuation is limited to roughly the same scope permitted under the West Virginia Administrative Procedures Act, W. Va.Code ch. 29A.⁸ In such circumstances, a circuit court is primarily discharging an appellate function little different from that undertaken by this Court; consequently, our review of a circuit court's ruling in proceedings under § 11-3-25 is de novo. Cf. Wheeling-Pittsburgh Steel Corp. v. Rowing, 205 W.Va. 286, 293, 517 S.E.2d 763, 770 (1999).

Moreover, the sole question posed in this case is whether the Tax Commissioner contravened the requirements of 110 W. Va. C.S.R. § 1P-2 by failing to employ an income approach in appraising ABPP's power plant.⁹ As this issue raises a question of law, we undertake plenary review. Syl. pt. 1, Appalachian Power Company v. State Tax Dep't of West Virginia, 195 W.Va. 573, 466 S.E.2d 424 (1995) ("Interpreting a statute or an administrative rule or regulation presents a purely legal question subject to de novo review."). See also Shawnee Bank, Inc. v. Paige, 200 W.Va. 20, 22, 488 S.E.2d 20, 22 (1997).

III. DISCUSSION

The Tax Commissioner is charged by law with the task of valuing all industrial property within the state. W. Va.Code § 11-1C-10(c). Pursuant to this responsibility, the Tax Commissioner promulgated Title 110, Series 1P of the West Virginia Code of State Rules in July 1991,¹⁰ which governs the methodologies to be utilized in valuing commercial and industrial properties for purposes of taxation.

In the area of property valuation, the Tax Commissioner, as well as county tax assessors, are...