BEFORE THE STATE BOARD OF EQUALIZATION

FOR THE STATE OF WYOMING

IN THE MATTER OF THE APPEAL OF )

ECHOSTAR REAL ESTATE & )

SATELLITE CORP. FROM A )

DECISION OF THE LARAMIE COUNTY ) Docket No. 2003-107

BOARD OF EQUALIZATION- 2003 )

PROPERTY VALUATION )

DECISION AND ORDER

APPEARANCES

Echostar Real Estate and Satellite Corporation, Petitioner, appearing by and through Joel Terwilliger, having filed the Preliminary Statement, and Patrick Sullivan, appearing at the Oral Argument, of Echostar Communications Corporation.

Brenda Arnold, Laramie County Assessor, appearing by and through Mark T. Voss, Laramie County Attorney.

DIGEST

This is an appeal from the Laramie County Board of Equalization (County Board). The State Board of Equalization (State Board), comprised of Roberta A. Coates, Chairman, Alan B. Minier, Vice-Chairman and Thomas R. Satterfield, Board Member, considered the hearing record and decision of the County Board, briefs filed pursuant to a Briefing Order (Locally Assessed Property) dated October 17, 2003, and oral arguments heard on February 2, 2004. The Petitioner appealed a decision of the County Board affirming the Laramie County Assessor’s valuation of its real and personal property in Laramie County, Wyoming. Petitioner asks the State Board to remand this case to the County Board with a directive that: 1) Petitioner’s value for improvements to real property be reduced for functional obsolescence; 2) the personal property value be depreciated by a shorter economic life; and 3) the base value of the personal property be the current market value. We affirm the County Board’s decision as being supported by substantial evidence.

PROCEEDINGS BEFORE THE COUNTY BOARD

The County Board conducted a hearing on June 17, 2003. An Order was entered July 29, 2003, affirming the Assessor’s valuation. A Notice of Appeal was filed with the State Board on August 28, 2003, and after receiving briefs the State Board heard oral arguments on February 2, 2004.

JURISDICTION

The State Board is required to “hear appeals from county boards of equalization.” Wyo. Stat. Ann. §39-11-102.1(c). A timely appeal from the County Board decision was filed with the State Board. Rules, Wyoming State Board of Equalization, Chapter 3, §2.

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 the 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 Wyoming State Board of Equalization Rules, Chapter 2 and Wyoming State Board of Equalization Rules, Chapter 3. Statutory language first adopted in 1995, when the Board of Equalization and the Department of Revenue, Department, 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; Wyo. Stat. Ann. §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 which a district court must apply to hold unlawful and set aside agency action, findings of fact, and conclusions of law. Wyo. Stat. Ann. §16-3-114(c)(ii). However, unlike a district court, the 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 the 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;

(d) Unsupported by substantial evidence.

Rules, Wyoming State Board of Equalization, Chapter 3, §9.

Since the State Board Rules are patterned on the judicial review provision of the Wyoming Administrative Procedure Act, we look 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).

ISSUES

There are two classes of property being contested, real property improvements and personal property.

Petitioner states the real property issue as:

Whether the County Assessor’s use of the Computer Assisted Mass Appraisal System (CAMA) without consideration for additional factors such as economic or functional obsolescence constitutes “fair” and “equal and uniform taxation” as applied to the Petitioner’s unique property?

Petitioner states the personal property issues as:

Whether the mandate under Wyoming state law for valuing property at “fair market value” is properly implemented by the county assessor’s use of a cost approach based on the concept of “value and use?” (We will refer to the concept as “value in use”).

Whether the County Assessor’s categorization of Petitioner’s property as “CATV Microwave Systems, Origination, Service and Test” is supported by substantial evidence?

We find the County Board’s decision is supported by substantial evidence, and is not arbitrary, capricious or an abuse of discretion and is in accordance with law.

FACTS PRESENTED TO THE COUNTY BOARD

Real Property

1. This is an appeal from a value determination of the Laramie County Assessor of $10,469,605.00 for real property and improvements located at 530 Echostar Drive, Cheyenne, Laramie County, Wyoming. The lot was valued at $1,008,620 and the improvements were valued at $9,460,985. [Exhibit A, p. 159].

2. The property is located on 52 acres and has three buildings. The main structure is 9,015,377 square feet, the second structure is 3,640 square feet and the third structure is 3,811 square feet. The property was developed during the time period from 1995 to 1998. The building permits for the improvements showed a total cost for the project of $30,593,000. [Transcript, p. 56]. The main structure is seven years old and therefore the Assessor applied a depreciation factor. [Transcript, pp. 55-56, 67; Exhibit 1, p. 139].

3. The Petitioner is not questioning the value of the land as assigned by the Assessor. [Transcript, p. 52].

4. Petitioner agrees with the cost method the Assessor used in valuing the property. [Transcript, p. 35].

5. The Assessor believes the cost method is the most appropriate method for valuing this property. The Assessor testified that she considered the sales comparison approach but rejected that approach because of lack of sales. The Assessor rejected the income approach to value because of lack of income information and because no other property in the county is valued using income information. [Transcript, pp. 35, 54-55].

6. Petitioner agrees that the Assessor used the correct square footage in calculating value but argues that the building is “superadequate” due to multiple levels, big rooms, a lot of wire for computers and an enhanced cooling and HVAC system. The Petitioner argues the value derived from the cost method should be reduced for functional obsolescence. [Transcript, pp. 19, 27, 34].

7. Petitioner argues for a 25 percent reduction for functional obsolescence using two methods of reasoning. The first method is that the Petitioner estimates that another entity using the buildings will have to remodel and Petitioner estimates the cost of remodel will be $20 per square foot. Therefore, Petitioner argues for a 25 percent functional obsolescence reduction. [Exhibit 1, p. 139]. Other than Petitioner’s estimate for remodel costs no other evidence was presented to verify such costs. Also, the current use of the buildings does not demand a remodel.

8. The second method Petitioner used to argue for functional obsolescence was what Petitioner called a “pro-forma income” method. Petitioner first gathered rental price quotes for various structures in Denver, Larimer, and Weld counties, Colorado. The Petitioner also asked the Cheyenne Downtown Development Authority for rental information for office buildings in Downtown Cheyenne. [Exhibit 1, pp. 141-157]. There was no showing of similarity between the location and attributes of the buildings for which rental information was gathered and the subject property. The Petitioner estimated a rental income for the buildings as follows:

$7.50 per sq. ft. for floors 1 & 2, (72,272 sq. ft.) - Annual Income $542,040;

$6.00 per sq. ft. for basement, (57,268 sq. ft.) - Annual Income $343,608;

$3.00 per sq. ft. for utility buildings. (7,451 sq. ft.) - Annual Income $22,353.

[Exhibit 1, p. 140]. Using this assumed rental rate the Petitioner calculated an “Indicated Market Value” of $7,853,301 and then deducted the “Indicated Market Value” from the Assessor’s Value to conclude a 25 percent obsolescence should apply. [Exhibit 1, p. 140]. Because the rental calculation was supported by questionable evidence the County Board could reject the Petitioner’s ultimate argument.

9. The income evaluation was not an appraisal even though the evaluation was done by Petitioner’s employee, Patrick Sullivan, who has the training and ability to do an appraisal. Mr. Sullivan holds appraisal licenses in Colorado and Utah and is designated as a CMI by the Institute of Professionals for Taxation. Mr. Sullivan’s income evaluation did not use Petitioner’s income. Mr. Sullivan did some sales comparisons but agrees that this is not a “full-blown sales comparison approach.” [Transcript, pp. 19, 23, 32, 35, 37-38].

10. The Assessor disagrees that there should be an adjustment for functional obsolescence because the improvements were built to be a satellite center, the improvements are being used as a satellite center, and that is the highest and best use. If property is being used for its highest and best use there is no functional obsolescence. [Transcript, pp. 56, 60-61].

11. Petitioner agrees that the current use of the improvements by Petitioner is the highest and best use and the improvements are not functionally obsolete for the current use. [Transcript, p. 45].

12. The Assessor’s field agents visited the property and took pictures and measurements to verify the characteristics and measurements of the improvements. The Petitioner has not presented any evidence that the measurements or characteristics are incorrect. [Transcript, p. 57].

13. The Assessor used the cost method to value the improvements by using the CAMA system to input the characteristics and the measurements of the improvements. The CAMA system then utilized the Boeckh cost tables with adjustments to assign a value to the characteristics and measurements. The Boeckh cost tables are updated annually by the Department of Revenue, Department. [Transcript, pp. 53-54, 59]. The method used is a cost method using the assistance of a computer.

Personal Property

14. The Petitioner appealed the value for its personal property as set by the Assessor at $117,045,295 and argues the value for the 11,000 items of personal property should be $82,388,666. [Exhibit C, p. 465; Transcript, p. 71]. The reported original cost for the personal property was $181,048,776.01. [Exhibit C, p. 467].

15. The process to value personal property in Wyoming is as follows: 1) a taxpayer is to report its personal property including the acquisition dates, the type of equipment, and the original cost of acquisition to the assessor by March 1 every year; 2) the Assessor then assigns categories according to the Boeckh tables supplied by the Department of Revenue to each piece of equipment; 3) the Assessor enters the equipment information into the CAMA system. The CAMA system uses the Boeckh tables to adjust the acquisition costs for trending factors and depreciates the equipment using Boeckh’s assigned equipment life. [Exhibit C, pp. 478-480].

16. The Boeckh tables are adjusted annually by the Department. The Department utilizes Marshall & Swift/Boeckh cost information and information presented by industry in developing the equipment life tables. There is a floor of 25 percent depreciation for equipment in use. (None of Petitioner’s equipment has reached the floor level so that issue is not in question). [Transcript, pp. 104-106; Exhibit B, pp. 235, 256, 487].

17. Petitioner reported its equipment list to the Assessor on March 3, 2003, instead of March 1. [Transcript, p. 103]. Using the equipment tables as designed by the Department the Assessor assigned a large majority of Petitioner’s high technology equipment to Category 2849, Cable Television Microwave equipment (CATV), which has a nine year life economic life to calculate depreciation in value. [Exhibit 2, p. 290; Exhibit C, p. 467; Transcript, pp. 106-107].

18. An assessor is not allowed to establish depreciation schedules different from the Department’s tables unless the assessor first submits another table to the state for approval. [Transcript, p. 108; Exhibit B, p. 255].

19. Petitioner broadcasts a television signal and music signal and thus uses a great deal of high technology equipment. [Transcript, p. 82]. Petitioner is in competition with cable television because the service it provides to the ultimate consumer is very similar to the service provided by cable television. There are some factors that distinguish Petitioner’s digital television service from cable television and those are: 1) a viewer cannot watch one program and tape another on a VCR with digital service as on cable service; 2) there is a higher quality of picture on digital service than on cable television; 3) there is a more varied selection of channels on digital service as compared to cable television; and 4) digital service is a more extended area because it does not depend on cable lines as cable television service. However there are similarities such as: both services uses a radio spectrum, both use satellite transmission and both use microwave links. [Exhibit B, pp. 261, 265, 267-268, 270].

20. Petitioner argues the broadcasting equipment, the electronic equipment and the high-technology equipment should not have a nine year economic life, but rather a six to three year economic life. [Transcript, pp. 72-74]. Specifically, Petitioner testified that it uses a Divicom (M50 model) encoder to distribute signal since 1995 and 1996. This product is on the seventh or eighth model. When originally acquired the Divicom equipment cost was $47,000 per unit. Petitioner believes an improved mode can be purchased for $17,200 in 2003. [Transcript, p. 86; Exhibit B, p. 182]. Thus, Petitioner argues the Divicom encoders should have a three year instead of nine year economic life. [Transcript pp. 87-88]. When the Petitioner brought this argument to the Assessor the assessor wrote a letter requesting information to support the position that the high technology equipment should have a three life. There is no evidence of a response from the Petitioner to the Assessor. [Exhibit C, p. 486].

21. Petitioner argues that the correct economic life for its high technology equipment is found in Radio and Television Board Casting Equipment, Category 2710, in the Marshall & Swift/Boeckh cost tables. The economic life for this category of equipment is six years. [Transcript, pp. 75-76].

22. The definitions provided for the two categories at issue in the Boeckh cost tales are:

CATV - Program Origination; cameras, film chains, video tape recorders, lighting, and remote location equipment. Category 2849.

CATV - Service and Test; includes oscilloscopes, field strength meters, spectrum analyzers, and cable testing equipment. Category 2849.

CATV - Microwave Systems; includes towers, antennas, transmitting and receiving equipment, and broad band microwave equipment used in the preparation of common carrier services. Category 2849 (emphasis added).

Radio and Television Broadcasting = (sic) Includes assets used in radio and television broadcasting. Does not include transmitting towers. Category 2710

[Exhibit C, pp. 208-209; Transcript, pp. 81, 93].

23. Petitioner does not use cable testing equipment so it argues Category 2849 is not applicable. This ignores the additional portion of Category 2849, microwave systems. The Petitioner does use equipment similar to CATV-Microwave Systems. [Transcript, pp. 81-82].

24. Another category of equipment in the 2003 Boeckh tables that could be used for the Petitioners equipment is:

Telephone & Telegraph Station Equipment = (sic) Includes communications related assets used to provide domestic radio-telegraph, wire-telegraph, and satellite communications services. Includes such station apparatus and connections as teletypewriters, telephones, booths, private exchanges, and comparable equipment. Category 2667.

[Exhibit C, p. 209]. This category has an assigned economic life of nine years so it does not meet the economic life criteria the Petitioner would like.

25. The County Board denied Petitioner’s protest in an order dated July 30, 2003.

26. Petitioner appealed to the State Board by Case Notice for Review filed August 29, 2003.

DISCUSSION OF APPLICABLE LAW AND PETITIONER’S ISSUES

27. Petitioner timely filed an appeal from the County Board decision.

28. This Board has jurisdiction to hear and determine all issues raised by the Petitioner pursuant to Wyo. Stat. Ann. §39-13-109(b).

29. The Wyoming Constitution, Article XV, §11, states that:

(a) All property, except as in this constitution otherwise provided, shall be uniformly valued at its full value as defined by the legislature, in three (3) classes as follows:

(I) Gross production of minerals and mine products in lieu of taxes on the land where produced;

(ii) Property used for industrial purposes as defined by the legislature; and

(iii) All other property, real and personal.

30. All taxable property must be valued annually at fair market value. Wyo. Stat. Ann. §39-13-103(b)(ii). Fair market value is defined as:

[T]he amount in cash, or terms reasonably equivalent to cash, a well informed buyer is justified in paying for a property and a well informed seller is justified in accepting, assuming neither party to the transaction is acting under undue compulsion, and assuming the property has been offered in the open market for a reasonable time . . ..

Wyo. Stat. Ann. §39-11-101(a)(vi).

Real Property

31. An assessor’s valuation is presumed valid, accurate and correct. This presumption survives until overturned by credible evidence. Teton Valley Ranch v. State Board of Equalization, 735 P.2d 107,113 (Wyo. 1987). A mere difference of opinion as to value is not sufficient to overcome the presumption. J. Ray McDermott & Company v. Hudson, 370 P.2d 364, 370 (Wyo. 1962). The presumption is especially valid where the Assessor valued the property according to the Department’s Rules and Regulations which provide for the use of the CAMA system in the assessment of real property. Rules, Wyoming Department of Revenue, Chapter 9, §6(b), (d).

32. The Wyoming Supreme Court has recognized the validity of valuations derived from the CAMA system. Gray v. Wyoming State Board of Equalization, 896 P.2d 1347 (Wyo. 1995). In fact, the Court rejected the use of actual sales price for properties in favor of the value established by the CAMA system because of the equality and uniformity derived by its use. Id. at 1351.

33. In this case, the Assessor utilized the CAMA system to value Petitioner’s property.

34. Petitioner alleges error because there was no adjustment for functional obsolescence because the building is “superadequate.” A “superadequacy” is defined as a condition in which the component is more than adequate for its intended function. Property Assessment Valuation, Second Edition, International Association of Assessing Officers, 1996, p. 169. The superadequacies identified by Petitioner are: multiple levels, big rooms, a lot of wire for computers and an enhanced cooling and HVAC system. These components are essential for the current use of the building. Therefore, while the building is being used for its intended use there are no “superadequacies.”

35. The formulas the Petitioner presented to calculate functional obsolescence are not supported with evidence that demands the County Board accept the calculation of functional obsolescence. The remodel formula has no evidence to support a $20.00 per square foot remodel cost. Indeed, we have found the building does not need to be remodeled for its current use. The “rental income” formula is not supported by data demonstrating that rental rates are comparable to the type of building and location of Petitioner’s building.

38. The decision of the County Board affirming the Assessor’s value of Petitioner’s real property was supported by substantial evidence, was in accordance with procedures required by law, and was not arbitrary, capricious nor inconsistent with law.

Personal Property

38. The Department has promulgated rules prescribing the methods for valuing personal property. The acceptable methods include a sales comparison approach, a cost approach, and an income or capitalized earnings approach. Rules, Wyoming Department of Revenue, Chapter 9, §6 (a), (b), (c). The Department has further noted that, “[f]or personal property, the valuation methodology selected shall reflect the trade level at which personal property is found, and shall account for factors influencing the value in place including utility, usefulness to the owner or the actual income produced.” Rules, Wyoming Department of Revenue, Chapter 9, §6.

39. In this case, the Assessor utilized the cost approach to value Petitioner’s property and the Petitioner agrees with this approach. The Petitioner questions the economic life used to calculate depreciation and the Petitioner asserts that the base cost for calculating value should be the current cost of the equipment, value in exchange, instead of the historical cost, value in use. The Assessor’s valuations are presumed valid, accurate and correct. Teton Valley Ranch v. State Board of Equalization, 735 P.2d 107,113 (Wyo. 1987). Thus, the burden is on Petitioner to rebut the presumption with sufficient credible evidence.

40. The cost approach is used “to establish value for personal property through the process of cost estimation. The cost approach relies on the principle of substitution in which an informed buyer will not pay more for a property than its comparable replacement.” Rules, Wyoming Department of Revenue, Chapter 9, §6(b).

41. When equipment is assigned a category under the Boeckh tables those tables set an economic life for the life of the equipment. Using the economic life, the equipment’s historical cost is adjusted for depreciation. The economic life is determined for each category of equipment by the Department. Rules, Wyoming Department of Revenue, Chapter 9 §6(b)(iv) and §6(b)(v)(H). The Department develops economic life tables “based on information from such sources as, but not limited to, the Internal Revenue Service publications 534 and 946 as well as Marshall Swift Valuation Service and recommendations from the Wyoming County Assessors Association.” The County Assessor may develop different economic lives but only after approval for the County’s tables is received by the Department with an assurance that the tables result in uniformity throughout the state. Rules, Wyoming Department of Revenue, Chapter 9 §6(d)(iii). The Petitioner does not point to any deficiencies in the tables as developed by the Department. Instead, the Petitioner chooses to attack the category its “high technology” equipment has been assigned by the Assessor.

42. The pivotal issue is whether the Assessor correctly assigned the Petitioner’s “high technology” equipment to Category 2849, CATV Microwave Systems, Origination, Service and Test. Considering that Petitioner’s major competition is Cable Television and that the “Microwave Systems” describes Petitioner’s equipment, the category assigned by the Assessor and affirmed by the County Board is correct. The category the Petitioner advocates does not describe Petitioner’s equipment. Great deference should be accorded an assessor when she assigns equipment to a category. Annually, the Department reviews the Personal Property Valuation Manual and it is during this process that economic lives are assigned to categories. If a taxpayer disagrees with the economic life assigned to a particular category it is incumbent upon the taxpayer to convince the Department that another economic life is appropriate.

43. The Petitioner points to one category of equipment, the Divicom encoders, to argue that the category assigned by the Assessor is incorrect and that the economic life of nine years is incorrect. The County Board was not arbitrary in rejecting an argument based on one type of equipment.

44. The Petitioner points to the current market price for encoders to demonstrate that the “value in exchange” is lower than the depreciated historical cost. The Assessor argues that Petitioner’s equipment should be valued as “value in use” by depreciating historical cost. When we examine generally accepted appraisal principles we agree with the Assessor.

Value in use As applied to personal property, the concept of value in use implies that equipment is installed and in continual use for generating income or performing its function. Value in use usually sets the upper limit of value and is the concept used with the cost approach.

The following tests are used to determine whether the concept of value in use applies to industrial machinery and equipment:

• the machine is installed

• the highest and best use is as installed for the purpose of producing income or a product/service

• the machine is employed; that is, it is part of the business enterprise used to produce income

• the machine is state of the art or a percentage of its productivity is measurable and economical; that is, its operation is economically feasible

Value in Exchange As applied to personal property, the concept of value in exchange implies that the equipment is a commodity and is not installed or, if installed, is to be removed from its present site and reinstalled elsewhere.

The following tests are used to determine whether the concept of value in exchange applies to industrial machinery and equipment:

• the machine is not installed, or is to be removed if in place

• highest and best use is not considered because the property is not in use

• the machine is not employed as part of the business enterprise

• the machine is not state of the art

Property Assessment Valuation, Second Edition, International Assessing Officers,1996, pp. 344 - 345, 377.

The evidence demonstrates that the value to be used is “value in use.” The encoders are installed. As installed, they are being used for their highest and best use. They are part of the business enterprise used to produce income. Their operation is economically feasible. It is important to note that Petitioner is pointing to only one category of equipment to make the argument that all equipment should be reduced in value.

45. The County Board’s decision on the valuation of Petitioner’s property was supported by substantial evidence, according to procedures required by law, and neither arbitrary, capricious, nor inconsistent with law.

THIS SPACE INTENTIONALLY LEFT BLANK

ORDER

IT IS THEREFORE HEREBY ORDERED that the Laramie County Board of Equalization Order denying the Petitioner’s protest and affirming the 2003 assessment of Petitioner’s property is 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 at the appropriate district court by filing a petition for review within 30 days of the date of this decision.

Dated this 18^th day of March, 2004.

STATE BOARD OF EQUALIZATION

________________________________

Roberta A. Coates, Chairman

________________________________

Alan B. Minier, Vice-Chairman

________________________________

Thomas R. Satterfield

ATTEST:

_________________________________

Wendy J. Soto, Executive Secretary