[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:

[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 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:

[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).

CONCLUSION

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

ORDER

          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 2^nd day of January, 2004.

                                                                STATE BOARD OF EQUALIZATION

                                                                _____________________________________

                                                                Roberta A. Coates, Chairman

       
                                                                 _____________________________________                                                                                  

                                                                Alan B. Minier,     Vice-Chairman

                                                                _____________________________________

                                                                Thomas R. Satterfield, Member

ATTEST:

_______________________________

Wendy Soto, Executive Secretary