T–mobile U.S. Inc. v. Utah State Tax Comm'n

• Decision Date: 03 June 2011
• Docket Number: 20090308.,Nos. 20090298,s. 20090298
• Citation: 683 Utah Adv. Rep. 36,2011 UT 28,254 P.3d 752
• Parties: T–MOBILE USA, INC., Plaintiff and Appellee,v.UTAH STATE TAX COMMISSION, Defendant and Appellant,andBeaver County, Box Elder County, Cache County, Davis County, Iron County, Juab County, Millard County, Morgan County, Salt Lake County, Summit County, Tooele County, Utah County, Wasatch County, Washington County, and Weber County, Affected Parties in Interest and Appellees.
• Court: Utah Supreme Court

254 P.3d 752

683 Utah Adv. Rep. 36

2011 UT 28

T–MOBILE USA, INC., Plaintiff and Appellee,

v.UTAH STATE TAX COMMISSION, Defendant and Appellant,andBeaver County, Box Elder County, Cache County, Davis County, Iron County, Juab County, Millard County, Morgan County, Salt Lake County, Summit County, Tooele County, Utah County, Wasatch County, Washington County, and Weber County, Affected Parties in Interest and Appellees.

Nos. 20090298

20090308.

Supreme Court of Utah.

June 3, 2011.

Mark K. Buchi, Steven P. Young, Salt Lake City, for plaintiff.Mark L. Shurtleff, Att'y Gen., Laron Lind, Asst. Att'y Gen., Salt Lake City, for defendant.David W. Scofield, Thomas W. Peters, Salt Lake City, for affected parties in interest and appellees.Justice PARRISH, opinion of the Court:

INTRODUCTION

¶ 1 The Utah State Tax Commission (the “Commission”) assessed T–Mobile USA, Inc.'s (“T–Mobile”) taxable Utah property for the 2003 tax year. T–Mobile sought a de novo review of the Commission's assessment in the district court, sitting as a tax court, pursuant to Utah Code sections 59–1–601 and 602. Several Utah counties ¹ (the “Counties”) now appeal the tax court's final decision. The Counties seek review of the tax court's decision on four issues: (1) whether the tax court employed the correct standard of review and standard of proof, (2) whether the tax court erred in excluding T–Mobile's accounting goodwill from its taxable property, (3) whether the tax court erred in admitting the testimony of T–Mobile's expert witness, and (4) whether the tax court erred in its valuation of T–Mobile's taxable property.

¶ 2 We conclude that the tax court correctly reviewed the Commission's decision by a trial de novo and correctly required that the parties prove the value of T–Mobile's taxable property by a preponderance of the evidence. We also conclude that the tax court did not err when it excluded T–Mobile's accounting goodwill from taxation or when it admitted the testimony of T–Mobile's expert witness, and that it did not err in its final valuation of T–Mobile's taxable property. We therefore affirm the decision of the tax court.

BACKGROUND

¶ 3 On May 1, 2003, the Utah State Tax Commission's Property Tax Division (the “Division”) assessed the value of T–Mobile's taxable Utah property at $124,577,850. T–Mobile and the Counties petitioned the Commission for a revaluation of the property pursuant to Utah Code section 59–2–1007(1)(a). The Commission held a formal hearing and reassessed T–Mobile's property at $117,850,000. The Commission's assessment was based on a historic cost approach ² valuation.

¶ 4 The Counties appealed the Commission's decision to this court (“administrative appeal”) pursuant to Utah Code section 59–1–602(1). Concurrently, T–Mobile exercised its option to appeal the Commission's decision for de novo review in the district court, acting as a tax court, pursuant to Utah Code section 59–1–602(1)(a). The administrative appeal to this court was stayed pending a final resolution of the appeal to the tax court. The tax court issued its final order on March 11, 2009. Subsequently, in Beaver County v. Utah State Tax Commission, we dismissed the Counties' administrative appeal pursuant to rule 15 of the Utah Rules of Appellate Procedure. 2010 UT 50, ¶ 15, 254 P.3d 158.

¶ 5 During the tax court proceeding, the Counties filed a motion in limine to exclude T–Mobile's expert, J. Phillip Cook, under rule 702 of the Utah Rules of Evidence. The Counties argued that Mr. Cook's testimony was inadmissible because he was not qualified to conduct unitary appraisals ³ and because he employed the wrong unit in his valuation of T–Mobile's Utah taxable property. Specifically, the Counties took issue with Mr. Cook's “Utah only unit” valuation, arguing that it applied the wrong geographical unit to appraise T–Mobile's property. The Counties argued that his allegedly inappropriate choice of appraisal unit showed that Mr. Cook was not experienced in unitary appraisals. The tax court reserved ruling on the Counties' motion until after hearing all the evidence. At the close of the evidence, the tax court denied the Counties' motion in limine. The court determined that while Mr. Cook chose an improper unit for his “Utah only unit” valuation, Mr. Cook presented other valuations employing the correct unit of appraisal. Consequently, the court did not use the “Utah only unit” valuation in its final assessment but instead relied on Mr. Cook's historic cost valuation.

¶ 6 In determining the fair market value of T–Mobile's taxable property, the tax court considered the appraisals presented by the experts at trial. The tax court concluded, however, that most of the appraisals were flawed. First, the tax court found that the discounted cash flow analysis performed by the Counties' expert appraiser, Brent Eyre, used capital expenditures that exceeded depreciation except for the terminal year, which was inconsistent with rule R884–24P–62 of the Utah Administrative Code. Second, the tax court found that the Commission's pro rata allocation of T–Mobile's accounting goodwill to its valuation was not based on any standard valuation approach and was erroneous because goodwill is intangible property that is exempt from tax under Utah Code section 59–2–1101 and the Utah Constitution.⁴ Third, the tax court determined that Mr. Cook's “Utah only unit” appraisal was erroneous because it did not employ the correct unit of valuation.

¶ 7 The tax court concluded that there were only two appraisals in evidence that were not erroneous—Mr. Cook's historic cost valuation and Mr. Eyre's reworking of the Commission's cost approach to exclude goodwill. The tax court therefore relied on these two appraisals in its valuation of T–Mobile's property. Specifically, it averaged these appraisals to value T–Mobile's taxable Utah property at $74,750,000. In so doing, the tax court gave no deference to any prior administrative assessment and required that the parties prove the correct assessment by a preponderance of the evidence.

¶ 8 The Counties and the Commission now appeal the tax court's valuation of T–Mobile's taxable Utah property. Specifically, the Counties take issue with the tax court's valuation because they argue that it was based on inadmissible evidence and erroneously excludes the value of goodwill. Additionally, the Counties and the Commission argue that the tax court's decision is in error because it did not give proper deference to the Division's and/or the Commission's prior assessments. We have jurisdiction pursuant to Utah Code section 78A–3–102(3)(j).

STANDARD OF REVIEW

¶ 9 When reviewing a district court's decision, “[w]e review the district court's factual findings for clear error and review its legal conclusions for correctness.” Houskeeper v. State, 2008 UT 78, ¶ 18, 197 P.3d 636. The interpretation of a statute is a question of law, which we review for correctness. Harvey v. Cedar Hills City, 2010 UT 12, ¶ 10, 227 P.3d 256.

ANALYSIS

¶ 10 The parties have raised a number of procedural and substantive issues, each of which we will discuss separately. First, we address the tax court's application of a de novo standard of review and a preponderance of the evidence burden of proof in reviewing the Commission's assessment of T–Mobile's Utah property. Second, we review the correctness of the tax court's final valuation by addressing whether the tax court correctly designated T–Mobile's accounting goodwill as intangible property, thereby excluding it from the final valuation. Third, we determine whether the tax court abused its discretion when it admitted T–Mobile's expert witness testimony. Finally, we address whether it was clearly erroneous for the tax court to rely on its own valuation methodology in arriving at a final value for T–Mobile's taxable Utah property.

I. THE TAX COURT CORRECTLY CONDUCTED A TRIAL DE NOVO AND CORRECTLY REQUIRED PROOF OF VALUE BY A PREPONDERANCE OF THE EVIDENCE

¶ 11 The Commission and the Counties argue that the tax court should have applied a different standard of review and burden of proof in its review of the Commission's assessment of T–Mobile's taxable Utah property. The Commission argues that the tax court should give deference, or a presumption of correctness, to the Commission's assessment and that the appealing party must, by a preponderance of the evidence, prove a “substantial error” in that assessment. The Counties alternatively argue that the tax court should give deference, or a presumption of correctness, to the original assessment by the Division and that such assessment may not be overturned absent substantial error. Finally, T–Mobile argues that the tax court was correct in conducting a de novo proceeding where no deference was given to any prior assessment and in requiring proof by a preponderance of the evidence that T–Mobile's proposed property value is the correct assessment value. We agree with T–Mobile.

A. Utah Code Section 59–1–601 Requires a Trial De Novo With No Deference to Previous Commission Decisions

¶ 12 In 1998, the Utah Constitution was amended to provide the Legislature with authority to grant Article VIII courts jurisdiction to “adjudicate, review, reconsider, or redetermine any matter decided by the State Tax Commission relating to revenue and taxation.” Utah Const. art. XIII, § 6, cl. 4. The Legislature acted on this authority and reinstated Utah Code section 59–1–601,⁵ which states that “the district court shall have jurisdiction to review by trial de novo all decisions issued by the [C]ommission ... resulting from formal adjudicative proceedings.” Utah Code Ann. § 59–1–601(1). (2008). The Counties and the Commission argue that the district court, acting as a tax court pursuant to this section, must still afford some level of deference to either the Division's original assessment or to the Commission's assessment. We disagree.

¶ 13 “Under applicable rules of statutory construction, ‘we look...