BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
THUNDER BASIN COAL COMPANY )
COAL CREEK MINE FROM A )
DECISION OF THE CAMPBELL COUNTY ) Docket No. 2002-160
BOARD OF EQUALIZATION - 2002 )
PROPERTY VALUATION )
FINDINGS OF FACT,
CONCLUSION OF LAW,
DECISION AND ORDER
Lawrence J. Wolfe, P.C., Holland & Hart, LLC, for Thunder Basin Coal Company, Coal Creek Mine.
James P. Schermetzler and Charlene Lynde, Deputy County Attorneys, Campbell County, Wyoming, for Jerry R. Shatzer, Campbell County Assessor (Assessor).
This matter was considered by the State Board of Equalization (State Board), Roberta A. Coates, Chairman, Alan B. Minier, Vice-Chairman, and Thomas R. Satterfield, Member, on written information and oral argument, pursuant to a Briefing Order dated March 13, 2003, as modified by the Order dated April 10, 2003. This matter arises from a decision of the Campbell County Board of Equalization (County Board), concerning the 2002 valuation of personal property owned by Thunder Basin Coal Company (Thunder Basin) at its Coal Creek Mine. The issue is:
Was the County Board’s decision on the valuation of Thunder Basin’s property supported by substantial evidence, according to procedures required by law, and neither arbitrary, capricious, nor inconsistent with law?
For the reasons set forth below, the State Board finds that there is substantial evidence in the record to support the decision of the County Board, and finds that the decision is consistent with law, and affirms the decision of the County Board.
PROCEEDINGS BEFORE THE COUNTY BOARD
The County Board conducted a hearing on August 9, 2002, with Hearing Officer Randall T. Cox presiding. The County Board hearing in this case followed immediately after the close of the hearing of In the Matter of the Appeal of Thunder Basin Coal Company, LLC (Black Thunder Mine 2002 Personal Property valuation), County Board Docket 02-12, and the parties agreed to incorporate the record in County Board Docket No. 02-12 into the record in this case. County Board Docket No. 02-12 was appealed to the State Board as In the Matter of Thunder Basin Coal Company Black Thunder Mine From a Decision of the Campbell County Board of Equalization - 2002 Property Valuation, Docket No. 2002-161.
Thunder Basin called three witnesses. The Assessor called two witnesses. Two volumes of exhibits were admitted into the record. The parties submitted proposed Findings of Fact and Conclusions of Law which stated their respective positions at length. The County Board adopted the Assessor’s proposed findings, with minor changes.
The State Board is required to “hear appeals from county boards of equalization.” Wyo. Stat. Ann. § 39-11-102.1(c). The County Board entered its Order on December 2, 2002, and Thunder Basin filed a timely Notice of Appeal on December 30, 2002. Rules, Wyoming State Board of Equalization, Chapter 3, § 2.
Thunder Basin appeals from an order of the Campbell County Board of Equalization affirming the assessed value of Thunder Basin’s property as determined by the Campbell County Assessor for 2002. Petitioner challenged the valuations set by the Assessor for Petitioner’s coal mining machinery, equipment and related structures and improvements located at its Coal Creek Mine. The Assessor valued the personal property at the Mine at $17,946,290. Thunder Basin’s appraiser valued the personal property at the Mine at $9,724,320. The County Board affirmed the Assessor’s valuations.
In its Notice of Appeal, Thunder Basin raised two broad issues: (1) whether the valuation determined by the County Assessor violated state constitutional standards for equal and uniform taxation, and (2) whether the County Assessor appraised the Coal Creek Mine property in conformance with the Rules of the Department of Revenue (Department).
In its briefing, Thunder Basin refined these two issues to the single issue of whether the County Board’s decision on the valuation of Thunder Basin’s property was supported by substantial evidence, according to procedures required by law, and was not arbitrary, capricious, or inconsistent with law. Thunder Basin specifically claims that:
1. The County Board Order fails to adequately explain the rationale for its decision, particularly as to the basis for approving the Assessor’s economic obsolescence percentage.
2. The County Board Order adopted the Assessor’s appraisal, and the Assessor’s appraisal failed to account for all forms of depreciation in determining the valuation.
3. The Assessor’s methods for determining economic obsolescence are flawed and not supported by substantial evidence, and do not reflect a mere difference of opinion with Thunder Basin’s appraiser.
4. The Assessor’s valuation is not equal or uniform with other similarly situated properties, as the result of failure to appraise the property in accordance with Wyoming statutes and rules, and with generally accepted appraisal standards. In particular, the Assessor’s valuation of buildings is excessive.
We conclude that there is substantial evidence in the record to support the result reached by the County Board.
STANDARD OF REVIEW
When the State Board hears appeals from a county board, it acts as an intermediate level of appellate review. Laramie County Board of Equalization v. Wyoming State Board of Equalization, 915 P.2d 1184, 1188 (Wyo. 1996); Union Pacific Railroad Company v. Wyoming State Board of Equalization, 802 P.2d 856, 859 (Wyo. 1990). In its appellate capacity, the State Board treats a county board as the finder of fact. Id. In contrast, the State Board acts as the finder of fact when it hears contested cases on appeal from final decisions of the Wyoming Department of Revenue. Wyo. Stat. Ann. § 39-11-102.1(c). This sharp distinction in roles is reflected in the State Board Rules governing the two different types of proceedings. Compare Rules, Wyoming State Board of Equalization, Chapter 2 and Rules, Wyoming State Board of Equalization, Chapter 3. Statutory language first adopted in 1995, when the State Board of Equalization and the Department of Revenue were reorganized into separate entities, does not express the distinction between the State Board’s appellate and de novo capacities with the same clarity as our long-standing Rules. 1995 Wyo. Sess. Laws, Chapter 209, Section 1, § 39-1-304(a).
By Rule, the State Board’s standards for review of a county board’s decision are nearly identical to the Wyoming Administrative Procedure Act standards for judicial review of administrative action. Wyo. Stat. Ann. §16-3-114(c)(ii). However, unlike a district court, the State Board will not rule on claims that a county board has acted “[c]ontrary to constitutional right, power, privilege or immunity.” Wyo. Stat. Ann. § 16-1-114(c)(ii)(B). The State Board’s review is limited to a determination of whether a county board action is:
(a) Arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law;
(b) In excess of statutory jurisdiction, authority or limitations or lacking statutory right;
(c) Without observance of procedure required by law; or
(d) Unsupported by substantial evidence.
Rules, Wyoming State Board of Equalization, Chapter 3, § 9.
The State Board Rules are patterned on the judicial review provision of the Wyoming Administrative Procedure Act. The State Board looks to precedent under Wyo. Stat. Ann. § 16-3-114(c) for guidance. For example, we must apply this substantial evidence standard:
Our task is to examine the entire record to determine if substantial evidence exists to support the [county board’s] findings. We will not substitute our judgment for that of the [county board] if [its] decision is supported by substantial evidence. Substantial evidence is relevant evidence which a reasonable mind might accept in support of the agency’s conclusions.
Clark v. State ex rel. Wyoming Workers’ Safety and Compensation Division, 934 P.2d 1269, 1272 (Wyo. 1997).
The Petitioner in this case claims that the County Board failed to adequately articulate the grounds for its decision. The County Board’s determination must “reflect the reasons why one expert’s view [of the facts] was chosen over the other expert’s view [of the facts.” Mountain Fuel Supply Co. v. Public Service Commission of Wyoming, 662 P.2d 878, 888 (Wyo. 1983). We must determine whether the record is sufficient to permit us “to follow the [County Board’s] reasoning from the evidentiary facts to its eventual legal conclusions.” Jackson v. State ex rel. Wyoming Workers’ Compensation Division, 786 P.2d 874, 878 (Wyo. 1990). The State Board’s analysis must address whether the County Board’s decision reflects the ways in which the testimony of the Assessor’s expert accords with acceptable criteria, and the ways in which the testimony of the Petitioner’s expert does not. Mountain Fuel Supply, id., at 887-888. “When an agency does not make adequate findings of basic fact, we do not have a rational basis upon which to review its ultimate findings and conclusions... In cases where the findings do not adequately explain the rationale for the agency’s decision, we remand the matter to the agency so that it can make additional findings.” Scott v. McTiernan, 974 P.2d 966, 969-970 (Wyo. 1999).
THE DECISION OF THE COUNTY BOARD
1. The Campbell County Assessor determined the value of the Coal Creek Mine for 2002 property taxes. The Mine is owned by Thunder Basin. Thunder Basin is owned and operated by Arch Coal, Inc. Thunder Basin filed a timely appeal with the Campbell County Board of Equalization. [County Board Findings, ¶ 1-3, with record citations].
2. The Assessor relied on an appraisal method used for all personal property at all coal mines in Campbell County to reach a value for the machinery, equipment and buildings located at the Coal Creek Mine. Mr. Danny Hendrix of Thos.Y. Pickett & Co., Inc., prepared the appraisal, which is referenced in the record as a mass appraisal. Mr. Hendrix has done similar appraisals in Campbell County since the mid-1980's. Mr. Hendrix used information provided by Mr. Robert Branham, a property tax manager for Arch Coal, to prepare his appraisal for the Coal Creek Mine. Mr. Branham provided his information as part of customary procedures used by the Assessor. [County Board Findings, ¶¶ 5-9, 14-15, with record citations].
3. Thunder Basin employed Mr. John C. Coates to prepare an individual, or fee, appraisal in support of the appeal. Mr. Coates did not use the information provided to Mr. Hendrix and the Assessor by Mr. Branham, but instead used information provided by Ms. Christine Wiard, the business manager for Thunder Basin. [County Board Findings, ¶¶ 17-22, with record citations].
4. Both appraisers established expert credentials. [County Board Findings, ¶¶ 6,17, with record citations].
5. Both appraisers used a Cost Approach appraisal method. [County Board Findings, ¶¶ 11, 21, 23, with record citations]. In this context, “Cost Approach” is a term of art. The Wyoming Department of Revenue authorizes County Assessors to determine the value of personal property by use of several appraisal methods, including the Cost Approach. Wyo. Stat. Ann. § 39-13-103; Rules, Wyoming Department of Revenue, Chapter 9, §6. The Sales Comparison Approach and the Income or Capitalized Earnings Approach are other authorized appraisal methods. Rules, Wyoming Department of Revenue, Chapter 9, §6(a),(c).
6. Although both appraisers used a Cost Approach, they reached final values that differed by $8,221,970. [County Board Discussion; County Board Findings, ¶ 23]. The decision of the County Board rests principally on its evaluation of the competing expert opinions.
7. At the close of the hearing, the County Board invited the parties to submit proposed findings of fact and conclusions of law with respect to the Coal Creek Mine. [Record, Other Than Exhibits, pp. 19-61]. The Assessor’s proposed findings and conclusions broadly accepted the testimony of the Assessor’s appraisal expert, Mr. Hendrix, and rejected the testimony of Thunder Basin’s appraisal expert, Mr. Coates; Thunder Basin’s proposed findings did the opposite. [Record, Other Than Exhibits, pp. 19-61; hereafter, Assessor’s Proposed CCM Findings and Thunder Basin’s Proposed CCM Findings]. With minor wording changes, the County Board adopted the proposal of the Assessor in its entirety. [Record, Other Than Exhibits, pp. 62-75].
8. The Assessor can meet state constitutional standards for reaching an equal and uniform valuation by employing a “rational method of appraisal, equally applied to all property, which results in essential fairness.” Wyoming Constitution, Article 15, Section 11; Teton Valley Ranch v. State Board of Equalization, 735 P.2d 107, 115 (Wyo. 1987). Further, there is presumption that the value assigned property by an Assessor is valid, accurate, and correct. Teton Valley Ranch v. State Board of Equalization, 735 P.2d at 113. The taxpayer has the initial burden to present sufficient credible evidence to overcome the presumption, and a mere difference of opinion as to value is not sufficient. Id.
9. For the most part, we can determine the result the County Board intended and the County Board’s reasoning by reference to the findings and conclusions that the County Board adopted. We will also draw inferences from the proposed findings and conclusions that were rejected.
FOUNDATION FOR THE COUNTY BOARD DECISION
10. Each year, the Campbell County Assessor must determine a value for all of the personal property of Thunder Basin located at the Coal Creek Mine. Wyo. Stat. Ann. § 39-13-103(b). The Assessor must abide by the Rules of the Department when he determines the value. Id.; Rules, Wyoming Department of Revenue, Chapter 9.
11. The Assessor determined the value of Coal Creek Mine personal property by use of a Cost Approach. As part of its appeal to the County Board, Thunder Basin prepared an alternative valuation, also using a Cost Approach. One subsection of the Rules of the Department establishes minimum requirements for use of the Cost Approach. Wyo. Stat. Ann. § 39-13-103(b)(ii); Rules, Wyoming Department of Revenue, Chapter 9 § 6(b). The subsection address such matters as the principal elements of the Cost Approach, and various specific methods and definitions associated with the Cost Approach. Id. We acknowledge that the terminology used in the Department Rules can be confusing: for example, one Appraisal Method is the Cost Approach, yet the Cost Approach includes a definition of the trended original cost method. Rules Id., at § 6(b)(v)(H). For the discussion and analysis that follows, the context of our discussion is always the Cost Approach, and not one of the alternative Appraisal Methods authorized by the Department Rules.
12. Broadly speaking, an appraiser using a cost approach must identify every item of taxable personal property held by a taxpayer. The appraiser then develops an estimate of the value of each item. The overall value is simply the total of the estimated value of all the items. Rules, Id. at § 6(b)(v)(H). The competing appraisals in this case are reflected in two lists. [Exhibit CCM-1 (Coates); Exhibit CCM-A (Hendrix); Exhibit CCM-1, p. CCM 024 (results compared)].
13. The parties do not dispute the identity of the items subject to taxation. Instead, all issues arise from the application of the Cost Approach by which the value of each item was calculated. Both appraisers followed similar steps which are generally authorized by the Department, although the appraisers parted company in the manner in which the steps were applied.
14. The first step for each appraiser was to determine a reproduction cost new (also known as a trended historical cost or trended original cost) for each item. Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(iii). Beginning with a specified acquisition cost and acquisition date, each appraiser multiplied the item’s acquisition cost by a trending factor to estimate a reproduction cost new. [Black Thunder Transcript pp. 191, 365, 405-408]. However, the two appraisers used different acquisition costs and dates. For the Coal Creek Mine, the resulting values were:
|Reproduction cost new||$108,179,276||$39,722,085|
[Exhibit CCM-1, p. 024; Exhibit CCM-A, p. 0006]. Although Mr. Coates computes a larger reproduction cost new (trended historical cost), he also deducts larger amounts in his subsequent steps.
15. The second step for each appraiser was to subtract an allowance for depreciation related to individual items, by asset class. The Department Rules require an appraiser using a Cost Approach to address depreciation, which may take three forms: physical depreciation (or deterioration); functional obsolescence; and economic obsolescence. Rules, Wyoming Department of Revenue, Chapter 9, §6 (b)(iv). In this second step, the focus was on the first two forms of depreciation.
16. Generally speaking, physical depreciation for a specific item is calculated by reference to a service life for the item, and to a residual value of the item. The residual value is usually expressed as a percentage of the original acquisition cost. Based on the service life of the item, a portion of the value of the item is subtracted for each year that the item is in service until a residual value is reached. An appraiser may not assign a value to an item that is less than the item’s residual value. The two appraisers used different depreciation factors and residual costs.
17. When depreciation is subtracted from the reproduction cost new of the item, the resulting value is known as reproduction cost new less depreciation (RCNLD).
18. The third, and final, step is to adjust the value of all items for economic obsolescence. Economic obsolescence is a uniform impairment to the value of all of the items of personal property due to factors external to the property. In this case, economic obsolescence generally meant a change in the market for coal produced by Coal Creek Mine, rendering the Mine idle. Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(v)(D)(III). Mathematically, economic obsolescence is an adjustment made after the calculation of reproduction cost new less depreciation (RCNLD). Each appraiser adjusted his list of items by applying a uniform factor to all listed items of personal property. By applying the factor, each appraiser reduced the reproduction cost new less depreciation of that item to reach a final value for the item, then added the final value for all items to reach a final value for the personal property at the Mine. Mr. Coates applied a reduction of 64.07%; Mr. Hendrix applied a reduction of 50.0%. [County Board Findings, ¶¶ 17, 24, with record citations].
19. The final results of all three steps were:
|Final indicated value||$9,724,320||$17,946,290|
[Exhibit CCM-1, p. CCM 024 (comparing two valuations); Transcript pp. 31-32 (regarding correction to value shown in Mr. Coates’ written appraisal); Exhibit CCM-A, p. 0009].
20. Different standards apply to an appraisal applying the same method to several properties (a mass appraisal), such as the appraisal of Mr. Hendrix, and to a fee appraisal of an individual property, such at the appraisal of Mr. Coates. [County Board Findings, ¶¶ 24-25]. In the context of Campbell County’s mines, a mass appraisal serves the important public purpose of assuring a uniform approach to the valuation of all mines, in turn assuring that no mine is afforded an unfair economic advantage by favorable taxation due to unique valuation techniques.
ISSUES OF ACQUISITION COSTS AND DATES
21. The principal issues about acquisition costs and dates reprise the Thunder Basin appeal that the State Board heard and resolved for tax year 2001. In the Matter of the Appeal of Thunder Basin, Black Thunder and Coal Creek Mines, Docket No. 2001-208, December 3, 2002, 2002 WL 31934383 (Wy. St. Bd. Eq. 2002)(hereafter, Thunder Basin 2001 appeal). For 2002 as well as 2001, the Assessor, with the assistance of Mr. Hendrix, requested information from Thunder Basin, as required by Wyo. Stat. Ann. § 39-13-103(b)(v), and inspected the property. [Black Thunder Transcript pp. 346-350]. Mr. Branham responded to the information request on behalf of Thunder Basin. Supra, ¶ 2, [Black Thunder Transcript pp. 107-110; Exhibits CCM 8, 9, 10, 11, 12]. Mr. Branham’s schedules of items of personal property reflected Thunder Basin’s current book costs. [Black Thunder Transcript pp. 103-104]. Mr. Branham took these current book costs from an appraisal by Pricewaterhouse Coopers LLP [Exhibit CCM 2, (not provided to Mr. Hendrix, Black Thunder Transcript p. 351)], following acquisition of Thunder Basin by Arch Minerals in a $1.14 billion transaction in June 1998. [Exhibit CCM-23].
22. For Mr. Hendrix’ purposes, a taxpayer’s adjustments to book costs resulting from a market sale reflect fair market value. [Black Thunder Transcript pp. 359-360]. Mr. Hendrix testified that he has used appraisals similar the Pricewaterhouse Coopers LLP appraisal to establish book costs for other mines in Campbell County, all as part of his customary mass appraisal procedures. [Black Thunder Transcript pp. 360-361, 435].
23. In contrast, for all personal property acquired before June 1998, Mr. Coates used historic costs and acquisition dates, rather than the updated book costs supplied by Mr. Branham. [County Board Findings, ¶ 20; Exhibit CCM-1, p. 013]. Thunder Basin now seeks to distance itself from the recent market information Mr. Branham provided to the Assessor. In doing so, Thunder Basin implicitly understates the statutory responsibilities of a taxpayer to provide information to an assessor. See: In the Matter of the Appeal of Mountain Cement Company, Docket No. 2003-11, October 20, 2003, 2003 WL 22506384 (Wy. St. Bd. Eq.).
24. The State Board has previously ruled in favor of the Assessor on Thunder Basin’s objections to the use of the purchase date and the prices reported by Mr. Branham and used by Mr. Hendrix. In our previous opinion, that issue was stated by Thunder Basin as follows:
The Assessor’s appraisal failed to fully account for all physical depreciation and functional obsolescence because it reset the economic lives of all the property to June 1, 1998, the date of the sale from ARCO to Arch Minerals, Inc. This had the effect of treating all property as if it were new on that date, thereby eliminating years of depreciation that had accrued for the time the equipment was actually acquired. The Assessor’s appraisal extended the economic life of some of the equipment and facilities beyond the time such equipment would be in use and beyond the life of the mine.
Thunder Basin 2001 Appeal, id. While there are some minor differences in the manner in which the information was provided to Mr. Hendrix for tax years 2001 and 2002, the conclusions of law we reached in our ruling for the 2001 tax year control the same issue for tax year 2002. Thunder Basin 2001 Appeal, id., at Conclusions of Law, ¶¶ 41-42. There is substantial evidence in the record to support this aspect of the County Board’s determination regarding the use of the values based in the Pricewaterhouse Coopers LLP appraisal and reported to the Assessor and Mr. Hendrix.
25. In this appeal, Thunder Basin raises new arguments to challenge the use of the values reported by Mr. Branham and used by Mr. Hendrix. In support of these arguments, Thunder Basin introduced a redacted form of the Pricewaterhouse Coopers LLP appraisal. [Exhibit CCM-2]. On its face, the appraisal refers to the valuation of both the tangible and intangible assets of several entities located in three states. [Exhibit CCM-2].
26. Thunder Basin makes two arguments that rest on language found on the second page of the Pricewaterhouse Coopers LLP appraisal. [Exhibit CCM-2, p.CCM 054].
27. First, Thunder Basin argues that, on its face, the Pricewaterhouse Coopers LLP appraisal states that its values are unreliable for assessment purposes. [Thunder Basin Proposed CCM Findings, ¶60]. Thunder Basin cites this paragraph of the appraisal:
The premise of Fair Market Value is applicable only for this engagement, and accordingly, our results should not be used for any other purpose. Further, the value reported does not represent the amount that might be realized from the sale of the individual assets on the open market or from their use for an alternate purpose.
[Exhibit CCM-2, p. 054].
28. Substantial evidence supports the County Board’s determination in favor of the Assessor. Pricewaterhouse Coopers LLP merely made a sensible disclaimer to forestall any misunderstanding that its estimates of value would warrant any expectation of a precise sale price on the open market. The County Board could and did disagree that this disclaimer vitiated the integrity of the appraisal.
29. Second, Thunder Basin argued that the Pricewaterhouse Coopers LLP appraisal was premised on value in continued use and not value in exchange. [Thunder Basin Proposed CCM Findings, ¶ 61]. This argument rests on an opinion of Mr. Coates that the Wyoming statutes define a value in exchange, as distinct from a value in continued use. [Thunder Basin Proposed CCM Findings, ¶ 24-25, 61; Black Thunder Transcript pp. 183-184]. However, the Pricewaterhouse Coopers LLP appraisal states:
We define Fair Market Value as the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts (Estate Tax Regs., Sec. 20.2031-(9b); Rev. Rul. 59-60, 1959-1 C.B. 237). In estimating the Fair Market Value in Continued Use, we assumed that the subject property would continue to be part of the respective ongoing businesses, unless otherwise specified.
[Exhibit CCM-2, p. CCM 054].
30. We conclude that substantial evidence supports the County Board’s determination in favor of the Assessor. “When a property is utilized at its highest and best use, its value in use and its value in exchange are the same.” Property Assessment Valuation, 2d. Edition, International Association of Assessing Officers (1996), p. 16. The assessed property was being utilized at its highest and best use, i.e., at a coal mine. Moreover, the Pricewaterhouse Coopers LLP appraisal embraced a wide variety of assets, including mineral reserves and above market contracts as well as personal property. [Exhibit CCM-2, pp. CCM 082-084]. The continued use premise is more significant for assets other than personal property.
31. As important, the definition of fair market value used in the appraisal is similar to that found in statute and in the Rules of the Department. Wyo. Stat. Ann. § 39-11-101(a)(vi); Rules, Wyoming Department of Revenue, Chapter 9, § 4(f). Mr. Coates is in no better position than the County Board to characterize the principles stated in the Department’s Rules. The County Board could readily have found that Mr. Coates’ interpretation of the statute and the Department’s Rules were of no assistance with regard to interpreting the Department’s Rules. See Wyoming Rules of Evidence, Rule 702.
32. As an alternative challenge to the Pricewaterhouse Coopers LLP appraisal, Thunder Basin offered the testimony of Mr. Howard Zabel to demonstrate that the Assessor’s appraised value of two buildings at the Coal Creek Mine was excessive, on a square foot basis, when compared with similar Campbell County buildings not located on mine properties. [Black Thunder Transcript pp. 137-175; Transcript pp. 20-25; Exhibits CCM-5, CCM-6, CCM-20, CCM-21]. Thunder Basin points to Mr. Zabel’s testimony to contest the overall appraisal, and particularly Mr. Hendrix’ calculation of economic obsolescence. [Thunder Basin Proposed CCM Findings, ¶¶ 44-48, 68-70]. Mr. Zabel’s testimony does not, however, supplant the testimony and valuation conclusions of Mr. Coates, but was intended to support Mr. Coates.
33. From the cross-examination of Mr. Hendrix in the companion Black Thunder docket, there is substantial evidence to support the County Board’s conclusion that the square foot value is merely a direct consequence of applying the values submitted by Mr. Branham. For the administration building, Thunder Basin counsel demonstrated the mathematical consequences of using the Pricewaterhouse Coopers LLP appraisal value instead of historic costs:
|Black Thunder/Coates||Black Thunder/Hendrix|
|Acquisition cost of admin. bldg.||$1,506,447||$2,191,700|
|Trended historical cost||$3,042,870||$2,267,314|
[Black Thunder Transcript pp. 397-403; Exhibit BTM-A, p. 0005; Exhibit BTM-1, p. BTM 055 (three entries must be combined for Mr. Coates’ value)]. The County Board could see that the administration building was not an inexpensive building even when originally constructed, and that the reproduction cost/trended historical cost calculated by Mr. Coates is substantially higher than that of Mr. Hendrix. The principal difference in the final values lies in the long application of depreciation by Mr. Coates, who chooses to ignore the market indicator of the 1998 sale. A similar pattern can be seen in the two Coal Creek Appraisals, using the Coal Creek administration building as the illustration:
|Coal Creek/Coates||Coal Creek/Hendrix|
|Acquisition cost of admin. bldg.||$1,301,841||$1,142,546|
|Trended historical cost||$2,185,791||$1,181,964|
[Exhibit CCM-1, p. CCM 046; Exhibit CCM-A, p. 0005].
34. There was substantial evidence from which the County Board could have concluded that the value calculated by Mr. Hendrix, anchored in a professional allocation based upon a recent sale value, was more reliable than the reduced value claimed by Mr. Coates and buttressed by Mr. Zabel. (We have taken depreciation into account in reaching our conclusion. Depreciation addresses the steps from trended historical cost to final value, and is considered in detail below.)
ISSUES RELATED TO PHYSICAL DEPRECIATION AND FUNCTIONAL OBSOLESCENCE
35. Where the depreciated value of improvements to land is estimated by a cost approach, depreciation must be applied “beginning at the first assessment date after the property is acquired.” Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(iv)(C). For personal property, depreciation “means a loss of utility and hence value from any cause. Depreciation may take the form of physical depreciation, function obsolescence, or economic obsolescence.” Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(v)(D). Physical depreciation “means the physical deterioration as evidenced by wear and tear, decay or depletion of the property.” Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(v)(D)(I). Although the Rules contemplate that the Ad Valorem Tax Division will provide tables of depreciation, “Other rates of depreciation may be developed by the appraiser.” Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(iv)(A).
36. Functional obsolescence “means the impairment of functional capacity or efficiency, which reflects a loss in the value brought about by such factors as defects, deficiencies, or super adequacies, which affect the property item itself or its relation with other items comprising a larger property.” Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(v)(D)(II).
37. Mr. Hendrix accounted for physical depreciation by using a single declining balance method of depreciation based on assigned service lives. [Black Thunder Transcript p. 361]. Mr. Hendrix applied the depreciation percentage for each asset against trended historical costs. [Black Thunder Transcript pp. 352, 358-360]. Mr. Hendrix used a residual value of 30%. His residual value was based on the research and experience of Thos. Y. Pickett & Co., Inc. [Black Thunder Transcript pp. 358, 381].
38. Mr. Coates determined annual physical depreciation and functional obsolescence percentages based on his own analysis of sales data. [Black Thunder Transcript pp. 192-193, 206-209]. The sales data includes sales made by Thunder Basin, sales made by other mining companies, and information from equipment resellers. [Black Thunder Transcript pp. 206-209]. Of nearly one hundred data points catalogued by Mr. Coates, seventy are from sales of Thunder Basin equipment in 2000. [Exhibit CCM-1, pp. CCM 043-045]. Another twenty-six are sales by Peabody (another producer) in 1999 and 2000. [Exhibit CCM-1, pp. CCM 043-045]. So, almost all of Mr. Coates’ data was based on equipment recently taken out of service at two mines. Mr. Coates plainly considered these items to be a sound representative sample to apply to the 1400 items being valued [Thunder Basin Proposed CCM Findings, ¶¶ 32-34], but this point was assumed, not demonstrated. Using this universe of information, Mr. Coates established residual values ranging between 6% and twenty-four percent 24%. [Exhibit CCM-1, pg. 029].
39. The Rules of the Department of Revenue state that, “The residual value shall be considered to be 25% for all personal property, unless the property tax appraiser has collected sufficient market information to indicate a different residual value.” Rules, Wyoming Department of Revenue, Chapter 9, Section 6 § (b)(iv)(D). Neither appraiser used the mandated 25%. Nonetheless, there is substantial evidence in the record for the County Board to accept the Assessor’s value, in the form of the expert testimony of Mr. Hendrix. Mr. Coates argued that his analysis justified use of residual values below 25% [Transcript, p. 206], but it was up to the County Board to accept or reject that testimony.
40. Although all of the Black Thunder evidence was incorporated into the Coal Creek docket, issues related to physical depreciation and functional obsolescence of machinery and mobile equipment were of relatively modest significance in the Coal Creek valuation. Coal Creek was a contract mining operation, so most of the mobile machinery and mining equipment was owned by contractors. [Transcript p. 14]. The majority of the value at Coal Creek is in buildings and site improvements. [Exhibit CCM-A, p. 0005]. So, Mr. Coates’ study of equipment sale data [Exhibit CCM-1, pp. CCM 043-045] does not have as much bearing on the Coal Creek Mine as on the Black Thunder Mine.
41. Mr. Hendrix specifically accounted for functional obsolescence in the calculation of his “eco factor,” which we discuss below. Infra, ¶ 50. He also testified that his calculation of reproduction cost new effectively took some functional obsolescence into account. [Black Thunder Transcript pp. 365-366]. We note that some of the arguments concerning functional obsolescence are controlled by our ruling for tax year 2001, Thunder Basin 2001 Appeal, id., ¶ 41, based on similar testimony for the two years. Therefore, there is substantial evidence in the record to support the County Board’s decision both based on our ruling in the previous appeal, and for reasons that follow.
ISSUES RELATED TO THE ECONOMIC OBSOLESCENCE COMPONENT OF THE COST APPROACH
42. The Department’s Rules specifically define economic obsolescence, and in doing so, specifically address the measurement of economic obsolescence. Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(v)(D)(III). The analysis required by the Rules answers two questions at once: whether there is economic obsolescence, and if so, how much. “The methods to measure economic obsolescence may include, but are not limited to:
(1.) Capitalization of the income...attributable to the negative influence;
(2.) Comparison of sales of similar properties which are subject to the negative influence with others which are not;
(3.) Identification of factors specifically analogous to the property, i.e., investments, capacities, and/or industry relationships.”
Rules, Wyoming Department of Revenue, Chapter 9, § 6(b)(v)(D)(III). None of the specified methods are at issue in this case. In particular, the capitalized income method did not apply because the Coal Creek Mine had no income. [Transcript p. 28; Exhibit CCM-1, p. CCM 037].
43. The Coal Creek mine was idle in 2001. [Transcript pp. 13, 58]. It was closed for economic purposes, and there were no plans to reopen the Mine. [Transcript p. 17] The profit and loss statement for 2001 shows no revenue. [Transcript p. 20; Exhibit CCM-1, p. CCM 037].
44. The Assessor’s appraiser, Mr. Hendrix, chose his economic obsolescence factor by reasoning that the Coal Creek Mine personal property was not valueless, but neither should it be valued at 100%. [Transcript p. 61]. He therefore simply averaged the two values to get 50%, which was his eco factor. [Id.] Mr. Hendrix testified that this approach is justified by his appraisal experience. [Id.]
45. Thunder Basin’s appraiser, Mr. Coates, used a production shortfall method. [Transcript pp. 28-29; Exhibit CCM-1, pp. CCM 035-036]. To make his calculation, Mr. Coates needed two pieces of data and a factor. First, he needed a base for the Mine’s production capacity. Mr. Coates used 18,000,000 tons per year, which is the Mine’s productive capacity, even though the Mine has never operated at that capacity. [Id., p. 29]. Second, he needed a figure for reduced production. Mr. Coates used a weighted average of three years, or 3,268,833 tons. His high year was 11,231,000 tons in 1999, and his low year was 0 tons in 2001. [Id., p. 29; Exhibit CCM-1, p. CCM 033]. Third, he needed a scaling factor, and used a “conservative” scaling factor of 0.6. [Id., p. 29]. Using these three inputs, Mr. Coates calculated 64.06% obsolescence. [Transcript, pp. 30-31].
46. Mr. Coates’ written appraisal included a section of commentary that explained the use of his production shortfall method. [Exhibit CCM-1, pp. CCM 035-036]. The commentary provided an example of a production line capable of 1000 units per day, but which actually produces only 750 units. [Exhibit CCM-1, pp. CCM 036]. The commentary includes the following point:
Third, a valid question can be raised regarding the proper capacity to use for developing value by the cost approach. If the economic conditions are such that the long-term production will be 750 units per day, it may be valid to calculate replacement cost on that basis.
[Exhibit CCM-1, pp. CCM 036].
47. Mr. Coates’ calculation depends heavily on the assumption that the appropriate basis for comparison is production at the rate 18,000,000 tons per year, even though that rate had never been achieved. The quoted commentary suggests that Mr. Coates’ rate is unreasonably high. In fact, the highest actual production which appears in the record is the rate of 11,231,000 tons achieved in 1999. If 11,231,000 is substituted for 18,000,000 in Mr. Coates calculation, economic obsolescence falls to 52.31%, a figure not markedly different from Mr. Hendrix’ estimate.
48. Mr. Coates also conceded that he would have preferred to have more data about previous years of past production. [Transcript p. 38]. He stated that a minimum of five years was desirable. [Transcript p. 37]. Mr. Coates could not say why Thunder Basin had not provided him information for more years, although he believes he requested additional information. [Transcript pp. 37-38]. The County Board could have concluded that using only three years pulled down the whole average and distorted the result. This can be seen by simply adding in the 1998 partial year production of 4,472,000 tons [from Exhibit CCM-1, p. CCM 040] and treating it as a full year. The weighted average production for the four years rises to 3,950,700 tons. If a base of 11,231,000 tons is used, and Mr. Coates’ same scaling factor is used, the indicated obsolescence is less than 50%.
49. The County Board could and did conclude that Thunder Basin had failed to introduce evidence sufficient to overcome the presumption in favor of the Assessor’s value.
Mr. Hendrix’ functional obsolescence
50. If we return to the overall result reached by Mr. Hendrix, the matter of functional obsolescence remains. The eco factor applied by Mr. Hendrix was intended, at least in part, to account for functional as well as economic obsolescence. [Black Thunder Transcript pp. 367, 400]. We conclude that, in this case involving an idle mine, with relatively little mobile machinery included in the value, it was within the appraisal judgment of Mr. Hendrix to account for functional obsolescence as part of a factor that also addressed economic obsolescence. We take into account the relatively recent sale of all Thunder Basin assets, and the annual revision of equipment lists since the 1998 sale. We also take into account the County Board’s duty, similar to our own when sitting as a trier of fact, to decide the dispute between the parties. See Amoco Production Company v. Wyoming State Board of Equalization, 12 P.3d 668 (Wyo. 2000).
51. To sum up, there is substantial evidence to support the County Board’s decision that the Assessor’s value of $17,946,290, should be affirmed. We find no support for Thunder Basin’s claim that the decision of the County Board was arbitrary and capricious, or otherwise contrary to law. We further conclude that the County Board’s determination, as reflected in its decision and claims that were rejected, was sufficient to permit us “to follow the [County Board’s] reasoning from the evidentiary facts to its eventual legal conclusions.” Standard of Review, supra. The County Board adequately explained the rationale for its decision.
THIS SPACE INTENTIONALLY LEFT BLANK
IT IS THEREFORE HEREBY ORDERED:
The decision of the County Board affirming the Assessor’s valuation of Petitioner’s property shall be and the same is, hereby affirmed.
Pursuant to Wyo. Stat. Ann. § 16-3-114 and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.
DATED this 2nd day of January, 2004.
STATE BOARD OF EQUALIZATION
Roberta A. Coates, Chairman
Alan B. Minier, Vice-Chairman
Thomas R. Satterfield, Member
Wendy Soto, Executive Secretary