RT COMMUNICATIONS v. STATE BD. OF EQUAL.

• Decision Date: 29 September 2000
• Docket Number: No. 99-319.,99-319.
• Citation: 11 P.3d 915,2000 WY 183
• Parties: RT COMMUNICATIONS, INC.; TCT West, Inc.; and Union Telephone Company, Appellants (Petitioners), v. The STATE BOARD OF EQUALIZATION FOR the STATE OF WYOMING, and The Department of Revenue for the State of Wyoming,
• Court: Wyoming Supreme Court

11 P.3d 915

2000 WY 183

RT COMMUNICATIONS, INC.; TCT West, Inc.; and Union Telephone Company, Appellants (Petitioners), v. The STATE BOARD OF EQUALIZATION FOR the STATE OF WYOMING, and The Department of Revenue for the State of Wyoming,

No. 99-319.

Supreme Court of Wyoming.

September 29, 2000.

Rehearing Denied October 26, 2000.

Representing Appellant: Bruce S. Asay of Associated Legal Group, LLC, Cheyenne.

Representing Appellee Department of Revenue: Gay Woodhouse, Attorney General; Rowena L. Heckert, Deputy Attorney General; and P. Olen Snider, Jr., Assistant Attorney General.

Before LEHMAN, C.J., and THOMAS, GOLDEN, HILL & KITE, JJ.

KITE, Justice.

Appellants RT Communications, Inc., TCT WEST, Inc.,¹ and Union Telephone Company (the Telephone Companies) filed a consolidated Petition for Review of a decision of the State Board of Equalization,² which affirmed the 1995 final determinations by Appellee Department of Revenue of the fair market value of the state-assessed industrial property of the three companies. The Telephone Companies argued that the values improperly included the value of intangible property exempted by statute and the Department of Revenue failed to adjust the values of TCT WEST and RT Communications for economic obsolescence. We affirm the State Board of Equalization's order and conclude the valuation of the Telephone Companies was consistent with applicable statutes and regulations.

ISSUES

The Telephone Companies present five issues for review:

Issue One: Was the inclusion of the "acquisition adjustment" in the department's valuation of the petitioners' property erroneous and contrary to statute?

Issue Two: Was the decision of the Board of Equalization which allowed an acquisition adjustment contrary to statutory interpretation[?]

Issue Three: Was the decision of the Board of Equalization supported by the record?

Issue Four: Was the Department's exclusive reliance on the purchase price erroneous?

Issue Five: Was the Department's failure to consider obsolescence erroneous?

The Department of Revenue counters with a statement setting out nine issues for consideration:

1. Is the unitary method of valuing telephone company property a rational valuation method?

2. Is the unitary valuation method the generally accepted appraisal standard of valuing telephone company property?

3. Was the Department of Revenue's use of the unitary valuation method arbitrary and capricious, an abuse of discretion or contrary to law?

4. Do acquisition adjustments, going-concern values and related intangibles differ materially from the "intangible personal property" exempted by the Legislature?

5. Does the Department of Revenue's use of the unitary valuation method result in the taxation of intangible personal property?

6. Would the disregard of the enhancing effect of going-concern value upon a telephone company's tangible property result in an unconstitutional undervaluation of that tangible property?

7. Did the Department of Revenue's 1995 valuations of these telephone companies' properties account for obsolescence?

8. Has the Department of Revenue consistently applied the unitary valuation method to and among these telephone companies?

9. Was the State Board of Equalization's decision supported by substantial evidence?

FACTS

In May 1994, the Telephone Companies executed letters of intent to purchase certain rural telephone exchanges located throughout the State of Wyoming from U.S. WEST Communications, Inc. They were aware at the time of the purchase that many of the assets and facilities were in poor condition and in need of immediate repair and/or replacement. At that time, the certificates of convenience and necessity were exclusive and unlimited in duration. Following a review by federal and state regulatory authorities, the transactions were approved, and on October 25, 1994, the exchanges were transferred to the Telephone Companies. The amounts paid for their respective exchanges were $17,000,000 by Union Telephone Company, $52,200,000 by RT Communications, and $15,400,000 by TCT WEST. Those costs were significantly higher than the "book value" of the exchanges. That difference is called the "acquisition adjustment," and it reflected the value of the purchases above and beyond the physical components of the exchanges. According to their annual reports, the acquisition adjustments for each company were: Union Telephone Company-$6,517,330; TCT WEST-$5,713,196; and RT Communications-$21,130,751. The acquisition adjustments associated with the exchanges purchased by the Telephone Companies lie at the heart of this dispute. Furthermore, as a condition of the sales, the Public Service Commission required the Telephone Companies to immediately replace certain facilities and equipment that were obsolete and upgrade the plant to provide enhanced telecommunications services.

In 1995, the Department of Revenue commenced its annual appraisal of the Telephone Companies. In January, it sent its annual reporting form for the telecommunications industry to the Telephone Companies. Based upon information provided by the Telephone Companies in the returned reports, the Department of Revenue valued the companies to determine their fair market value. The Department of Revenue's appraisals utilized the unitary valuation method, which values a company as a whole working unit rather than looking at each individual asset separately and simply adding the values. The Department of Revenue's regulations authorize the use of the market, cost, and income approaches to establishing unitary value. Because RT Communications and TCT WEST had existed for only a short period of time prior to the appraisal, the Department of Revenue could only use a historical cost approach to determine the fair market value of those utilities. Similarly, without a reliable estimate of future income, the Department of Revenue claimed it was unable to perform the calculations necessary to establish the amount of economic obsolescence associated with the exchanges purchased from U.S. WEST by TCT WEST and RT Communications. The result was valuations of $28,554,396 for Union Telephone Company, $13,803,651 for TCT WEST, and $52,640,000 for RT Communications.

The Telephone Companies filed objections to the final assessments of the Department of Revenue on the grounds that they improperly included tax-exempt property, the acquisition adjustments, and failed to account for the economic obsolescence of the systems purchased by TCT WEST and RT Communications. After a contested case hearing, the State Board of Equalization affirmed the assessments. It concluded that the Department of Revenue had properly accounted for the acquisition adjustments to the extent that they enhanced the value of the Telephone Companies' taxable, tangible personal property and that the refusal to account for the economic obsolescence of the exchanges was appropriate given the absence of information necessary to make the calculations. The Telephone Companies appealed from that decision to the district court, which has certified the matter to us.

STANDARD OF REVIEW

Wyo. Stat. Ann. § 16-3-114(c) (LEXIS 1999) delineates the scope of appellate review for agency decisions:

(c) To the extent necessary to make a decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. In making the following determinations, the court shall review the whole record or those parts of it cited by a party and due account shall be taken of the rule of prejudicial error. The reviewing court shall:

(i) Compel agency action unlawfully withheld or unreasonably delayed; and

(ii) Hold unlawful and set aside agency action, findings and conclusions found to be:

(A) Arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law;

(B) Contrary to constitutional right, power, privilege or immunity;

(C) In excess of statutory jurisdiction, authority or limitations or lacking statutory right;

(D) Without observance of procedure required by law; or

(E) Unsupported by substantial evidence in a case reviewed on the record of an agency hearing provided by statute.

When faced with contested issues of fact, we examine the entire record to determine if the agency's findings are supported by substantial evidence. Laramie County Board of Equalization v. Wyoming State Board of Equalization, 915 P.2d 1184, 1189 (Wyo.1996). If they are, we do not substitute our judgment for that of the agency and will uphold the factual findings on appeal. Id. Substantial evidence is more than a scintilla of evidence; it is evidence that a reasonable mind might accept in support of the conclusions of the agency. Id. Borrowing from the Third Circuit Court of Appeals, we have articulated the difference between findings of basic fact and ultimate fact as follows:

"Basic facts are the historical and narrative events elicited from the evidence presented at trial, admitted by stipulation, or not denied, where required, in responsive pleadings. Inferred factual conclusions are drawn from basic facts and are permitted only when, and to the extent that, logic and human experience indicate a probability that certain consequences can and do follow from the basic facts. No legal precept is implicated in drawing permissible factual inferences. But an inferred fact must be distinguished from a concept described in a term of art as an `ultimate fact.' So conceived, an ultimate fact is a mixture of fact and legal precept...."

Union Pacific Railroad Company v. Wyoming State Board of Equalization, 802 P.2d 856, 860 (Wyo.1990) (quoting Universal Minerals, Inc. v. C.A. Hughes & Company, 669 F.2d 98, 102 (3rd Cir.1981) (citations omitted)).

If a conclusion of law is in accord with the law, it is affirmed. Id. We consider three distinct possibilities when reviewing agency...