Minnesota Legislature
SF 12
as introduced - 91st Legislature, 2020 3rd Special Session (2020 - 2020) Posted on 08/13/2020 08:52am
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A bill for an act
relating to taxation; property; modifying valuation and taxation of railroad property;
amending Minnesota Statutes 2018, sections 270.80, subdivisions 1, 2, 3, 4, by
adding subdivisions; 270.81, subdivisions 1, 3, by adding a subdivision; 270.82;
270.83, subdivisions 1, 2; 270.84; 270.86; 270.87; 272.02, subdivision 9; repealing
Minnesota Statutes 2018, sections 270.81, subdivision 4; 270.83, subdivision 3;
Minnesota Rules, parts 8106.0100, subparts 1, 2, 3, 4, 5, 6, 7, 8, 10, 12, 13, 14,
17, 17a, 18, 19, 20, 21; 8106.0300, subparts 1, 3; 8106.0400; 8106.0500; 8106.0600;
8106.0700; 8106.0800; 8106.9900.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Section 1.
Minnesota Statutes 2018, section 270.80, subdivision 1, is amended to read:
Subdivision 1.
Applicability.
The following words and phrases when used in sections
deleted text begin 270.80deleted text end new text begin 273.3712 new text end to deleted text begin 270.87deleted text end new text begin 273.3719new text end , unless the context clearly indicates otherwise, have
the meanings ascribed to them in this section.
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 2.
Minnesota Statutes 2018, section 270.80, subdivision 2, is amended to read:
Subd. 2.
Railroad company.
"Railroad company" means:
(1) any company which as a common carrier operates a railroad or a line or lines of
deleted text begin railwaydeleted text end new text begin railroad new text end situated within or partly within Minnesota; or
(2) any company owning or operating, other than as a common carrier, a railway
principally used for transportation of taconite concentrates from the plant at which the
taconite concentrates are produced in shipping form to a point of consumption or port for
shipment beyond the state; or
(3) any company that produces concentrates from taconite and transports that taconite
in the course of the concentrating process and before the concentrating process is completed
to a concentrating plant located within the state over a railroad that is not a common carrier
and deleted text begin shalldeleted text end new text begin does new text end not use a common carrier or taconite railroad company as defined in clause
(2) for the movement of the concentrate to a point of consumption or port for shipment
beyond the state.
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 3.
Minnesota Statutes 2018, section 270.80, subdivision 3, is amended to read:
Subd. 3.
Operating property.
"Operating property" means all property owned or used
by a railroad company in the performance of railroad transportation services, including
deleted text begin without limitation franchises, rights-of-way, bridges, trestles, shops, docks, wharves,
buildings and structuresdeleted text end new text begin but not limited to road, locomotives, freight cars, and improvements
on leased property. Operating property is listed and assessed by the commissioner where
the property is locatednew text end .
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 4.
Minnesota Statutes 2018, section 270.80, subdivision 4, is amended to read:
Subd. 4.
Nonoperating property.
"Nonoperating property" means deleted text begin and includesdeleted text end all
property other than property defined in subdivision 3. Nonoperating property deleted text begin shall includedeleted text end
new text begin includes new text end real property deleted text begin whichdeleted text end new text begin that new text end is leased or rented or available for lease or rent to any
person deleted text begin whichdeleted text end new text begin that new text end is not a railroad company. Vacant land shall be presumed to be available
for lease or rent if it has not been used as operating property for a period of one year
new text begin immediately new text end preceding the valuation date. Nonoperating property also includes land deleted text begin whichdeleted text end
new text begin that new text end is not necessary and integral to the performance of railroad transportation services and
deleted text begin whichdeleted text end new text begin that new text end is not used on a regular and continual basis in the performance of these services.
Nonoperating property also includes that portion of a deleted text begin generaldeleted text end corporation office building
and its proportionate share of land deleted text begin whichdeleted text end new text begin that new text end is not used for deleted text begin railwaydeleted text end new text begin railroad new text end operation or
purpose.new text begin Nonoperating property is assessed by the local or county assessor.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 5.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 6. new text end
new text begin Company. new text end
new text begin
"Company" means any corporation, limited liability company,
association, partnership, trust, estate, fiduciary, public or private organization of any kind,
or any other legal entity.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 6.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 7. new text end
new text begin Unit value. new text end
new text begin
"Unit value" means the value of the whole integrated system of a
railroad company operating as a going concern without regard to the value of its component
parts.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 7.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 8. new text end
new text begin Book depreciation. new text end
new text begin
"Book depreciation" means the accumulated depreciation
shown by a railroad company on its books or allowed to the company by the Surface
Transportation Board.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 8.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 9. new text end
new text begin Equalization. new text end
new text begin
"Equalization" means the adjustment of the estimated value of
railroad operating property to the apparent sales ratio of commercial and industrial property.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 9.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 10. new text end
new text begin Exempt property. new text end
new text begin
"Exempt property" means property which is nontaxable
for ad valorem tax purposes under Minnesota Statutes, including personal property exempt
from taxation under chapter 272.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 10.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 11. new text end
new text begin Original cost. new text end
new text begin
"Original cost" means the amount paid for an asset by the
current owner as recorded on the railroad's books or allowed by the Surface Transportation
Board.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 11.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 12. new text end
new text begin System. new text end
new text begin
"System" means the total property, real and personal, of a railroad,
that is used in its railroad operations.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 12.
Minnesota Statutes 2018, section 270.80, is amended by adding a subdivision to
read:
new text begin Subd. 14. new text end
new text begin Minnesota allocated value. new text end
new text begin
"Minnesota allocated value" means the value of
a railroad company's operating property that is assigned to Minnesota for tax purposes.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 13.
Minnesota Statutes 2018, section 270.81, subdivision 1, is amended to read:
Subdivision 1.
Valuation of operating property.
The operating property of every
railroad company doing business in Minnesota shall be valued by the commissioner in the
manner prescribed by sections deleted text begin 270.80deleted text end new text begin 273.3712 new text end to deleted text begin 270.87deleted text end new text begin 273.3719new text end .
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 14.
Minnesota Statutes 2018, section 270.81, subdivision 3, is amended to read:
Subd. 3.
Determination of type of property.
new text begin (a) new text end The commissioner deleted text begin shall havedeleted text end new text begin has
new text end exclusive primary jurisdiction to determine deleted text begin whatdeleted text end new text begin whether railroad property new text end is operating
property deleted text begin and what isdeleted text end new text begin or new text end nonoperating property. In making deleted text begin suchdeleted text end new text begin the new text end determination, the
commissioner deleted text begin shalldeleted text end new text begin may new text end solicit information and opinions from outside the department and
afford all interested persons an opportunity to submit data or views on the subject in writing
or orally.
new text begin (b) new text end Local new text begin and county new text end assessors may submit written requests to the commissioner, asking
for a determination of deleted text begin the nature of specificdeleted text end new text begin whether new text end property owned by a railroad and
located within their assessing jurisdictionnew text begin is operating or nonoperatingnew text end . deleted text begin Any determination
made by the commissioner may be appealed by the assessor to the Tax Court pursuant to
chapter 271.deleted text end new text begin The requests must be submitted by April 1 of the assessing year. The
commissioner must send the assessor a written determination by May 1. Assessors may
appeal determinations made by the commissioner to the Tax Court pursuant to chapter 271.new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 15.
Minnesota Statutes 2018, section 270.81, is amended by adding a subdivision to
read:
new text begin Subd. 6. new text end
new text begin Deduction for nonoperating and exempt property. new text end
new text begin
Property that was part
of the system, but is nonoperating property, or that is exempt from ad valorem taxation, is
excluded from the Minnesota allocated value under section 273.3718, subdivision 1a. Only
qualifying property located in Minnesota may be deducted from the Minnesota allocated
value. The commissioner must deduct the market value of the property to be excluded. This
must be calculated by multiplying the book value of the property by the market-to-book
ratio of the unit. The company has the burden of proof to establish that property should be
excluded from the Minnesota allocated value. The railroad company must submit schedules
of exempt or nonoperating property as the commissioner may require. The remaining amount
after this deduction is the Minnesota apportionable market value.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 16.
Minnesota Statutes 2018, section 270.82, is amended to read:
270.82 REPORTS OF RAILROAD COMPANIES.
Subdivision 1.
Annual report required.
new text begin Before March 31, new text end every railroad company
doing business in Minnesota deleted text begin shall annuallydeleted text end new text begin must new text end file with the commissioner deleted text begin on or before
March 31 adeleted text end new text begin an annual new text end report under oath setting forth the information prescribed by the
commissioner to enable the commissioner to make the valuation and equalization required
by sections deleted text begin 270.80deleted text end new text begin 273.3712 new text end to deleted text begin 270.87deleted text end new text begin 273.3719. The commissioner shall prescribe the
content, format, and manner of the report pursuant to section 270C.30. If a report is made
by electronic means, the taxpayer's signature is defined pursuant to section 270C.304, except
that a "law administered by the commissioner" includes the property tax lawsnew text end . The
commissioner shall prescribe the content, format, and manner of the report pursuant to
section 270C.30, except that a "law administered by the commissioner" includes the property
tax laws. If a report is made by electronic means, the taxpayer's signature is defined pursuant
to section 270C.304, except that a "law administered by the commissioner" includes the
property tax laws.
Subd. 2.
Extension of time.
new text begin If new text end the commissioner deleted text begin for gooddeleted text end new text begin determines that there is
reasonable new text end causenew text begin , the commissionernew text end may extend new text begin the time for filing the report required by
subdivision 1 new text end for up to 15 days deleted text begin the time for filing the report required by subdivision 1deleted text end .
new text begin Subd. 3. new text end
new text begin Amended reports. new text end
new text begin
A railroad company may file an amended report to correct
or add information to the original report. Amended reports must be filed with the
commissioner by April 30.
new text end
new text begin Subd. 4. new text end
new text begin Failure to file reports. new text end
new text begin
(a) The commissioner may make the valuation provided
for by sections 273.3712 to 237.3719, according to the commissioner's best judgment based
on available information, if any railroad company does not:
new text end
new text begin
(1) make the report required by this section;
new text end
new text begin
(2) permit an inspection and examination of its property, records, books, accounts, or
other papers when requested by the commissioner; or
new text end
new text begin
(3) appear before the commissioner or a person appointed under section 273.3715, when
required to do so.
new text end
new text begin
(b) If the commissioner makes the valuation pursuant to paragraph (a), the commissioner's
valuation is final. Notwithstanding any other law to the contrary, the commissioner's valuation
made pursuant to this subdivision is not appealable administratively.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 17.
Minnesota Statutes 2018, section 270.83, subdivision 1, is amended to read:
Subdivision 1.
Powers of commissioner.
The commissioner deleted text begin shall havedeleted text end new text begin has new text end the power
to examine or cause to be examined any books, papers, records, or memoranda relevant to
the determination of the valuation of operating property deleted text begin as herein provideddeleted text end . The
commissioner deleted text begin shall have the further power todeleted text end new text begin may new text end require the attendance of any person
having knowledge or information deleted text begin in the premisesdeleted text end new text begin concerning the valuation of the operating
propertynew text end , deleted text begin todeleted text end compel the production of books, papers, records, or memoranda by persons so
required to attend, deleted text begin todeleted text end take testimony on matters material to deleted text begin such determinationdeleted text end new text begin determine
the valuation of operating property, new text end and administer oaths or affirmations.
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 18.
Minnesota Statutes 2018, section 270.83, subdivision 2, is amended to read:
Subd. 2.
Appointment of persons; subpoenas.
deleted text begin For the purpose of making such
examinations,deleted text end The commissioner may appoint such persons as the commissioner deleted text begin may deemdeleted text end
new text begin deems new text end necessarynew text begin to make the examinations described in subdivision 1new text end . deleted text begin Such persons shall
have the rights and powers of the examining ofdeleted text end new text begin Persons appointed may examinenew text end books,
papers, records or memoranda, deleted text begin and of subpoenaingdeleted text end new text begin subpoena new text end witnesses, deleted text begin administeringdeleted text end
new text begin administer new text end oaths and affirmations, and deleted text begin taking ofdeleted text end new text begin take new text end testimonydeleted text begin , which are conferred upon
the commissioner herebydeleted text end . The court administrator of any court of record, upon demand of
any deleted text begin suchdeleted text end personnew text begin appointednew text end , shall issue a subpoena for the attendance of any witness or the
production of any books, papers, records, or memoranda before such person. The
commissioner may also issue subpoenas for the appearance of witnesses deleted text begin before the
commissioner or before such persons. Disobedience of subpoenas so issued shall be punished
by the district court of the district in which the subpoena is issued for a contempt of the
district courtdeleted text end new text begin . Failure to comply with a subpoena shall be punished in the same manner as
contempt of the district courtnew text end .
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 19.
Minnesota Statutes 2018, section 270.84, is amended to read:
270.84 ANNUAL VALUATION OF OPERATING PROPERTY.
Subdivision 1.
Annual valuation; rules.
new text begin (a) Before July 1, new text end the commissioner deleted text begin shall
annually between March 31 and May 31 make a determination ofdeleted text end new text begin must determine new text end the deleted text begin fairdeleted text end
market value of the operating property of every railroad company doing business in this
state as of January 2 of the year in which the valuation is made. deleted text begin In making this determination,deleted text end
The commissioner deleted text begin shalldeleted text end new text begin must new text end employ generally accepted appraisal principles and practices
which may include the unit method of determining valuenew text begin , and approaches approved by the
Western States Association of Tax Administrators, National Conference of Unit Valuation
States, and the International Association of Assessing Officersnew text end .
new text begin
(b) The unit value of railroad property is the reconciled value considering the cost,
income, and market approaches under subdivisions 1a, 1b, and 1c. Each approach must be
weighted in accordance with the reliability of the information and the commissioner's
judgment.
new text end
new text begin Subd. 1a. new text end
new text begin Cost approach. new text end
new text begin
(a) The commissioner may use the cost approach, including
but not limited to original cost less book depreciation and replacement cost less depreciation.
new text end
new text begin
(b) Book depreciation is allowed as a deduction from an original cost model. Book
depreciation is assumed to include all forms of appraisal depreciation.
new text end
new text begin
(c) Explicitly calculated appraisal depreciation, including physical, functional, and
external obsolescence, is allowed as a deduction from the replacement cost model.
new text end
new text begin Subd. 1b. new text end
new text begin Income approach. new text end
new text begin
(a) The commissioner may use the income approach,
including but not limited to direct capitalization models and yield capitalization models.
new text end
new text begin
(b) The yield rate is calculated using market data on selected comparable companies in
the band of investment method.
new text end
new text begin
(1) Discounted cash flows is a yield capitalization model that calculates the present value
of explicit cash flow forecasts capitalized using the yield rate, plus reversion to stable growth
yield capitalization after the period of explicit forecasts.
new text end
new text begin
(2) Stable growth yield capitalization is a yield capitalization model that calculates the
present value of anticipated future cash flows, capitalized using the yield rate and considering
growth.
new text end
new text begin
(c) Direct capitalization is the expected net operating income for the following year,
divided by the direct capitalization rate. The direct capitalization rate is calculated by using
direct market observations from comparable sales or using market earning-to-price
information in the band of investment method.
new text end
new text begin Subd. 1c. new text end
new text begin Market approach. new text end
new text begin
The commissioner may use the market approach, including
but not limited to a sales comparison model, a stock and debt model, or other market models
that are available and reliable.
new text end
Subd. 2.
Notice.
The commissioner, after determining the deleted text begin fairdeleted text end market value of the
operating property of each railroad company, deleted text begin shall give notice todeleted text end new text begin must notify new text end the railroad
company of the valuation deleted text begin by first class mail, overnight delivery, or messenger servicedeleted text end .
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 20.
Minnesota Statutes 2018, section 270.86, is amended to read:
270.86 APPORTIONMENT AND EQUALIZATION OF VALUATION.
Subdivision 1.
Apportionment of value.
deleted text begin Upon determiningdeleted text end new text begin After allocating to Minnesota
new text end the deleted text begin fairdeleted text end market value of the operating property of each railroad company, the commissioner
deleted text begin shalldeleted text end new text begin must new text end apportion deleted text begin suchdeleted text end new text begin the new text end value to the deleted text begin respective counties and to the taxing districts
therein in conformity with fair and reasonable rules and standards to be established by the
commissioner pursuant to notice and hearing, except as provided in section 270.81. In
establishing such rules and standards the commissioner may consider (a) the physical situs
of all station houses, depots, docks, wharves, and other buildings and structures with an
original cost in excess of $10,000; (b) the proportion that the length and type of all the tracks
used by the railroad in such county and taxing district bears to the length and type of all the
track used in the state; and (c) other facts as will result in a fair and equitable apportionment
of valuedeleted text end new text begin operating parcels in Minnesotanew text end .
new text begin
The apportioned market value of each company's operating parcel in Minnesota is the
current original cost of each parcel as of the last assessment date plus original cost of new
construction minus the original cost of property retired since the last assessment date. The
total Minnesota apportionable market value of the railroad is divided by the total current
original cost of the railroad in Minnesota to determine a percentage. The resulting percentage
is multiplied by the current original cost of each parcel to determine the apportioned market
value of each parcel.
new text end
new text begin Subd. 1a. new text end
new text begin Allocation of value. new text end
new text begin
(a) After the market value of operating property has been
estimated, the portion of value that is attributable to Minnesota must be determined by
calculating an allocation percentage using factors relevant to the industry segment of the
railroad company. The allocation percentage must be multiplied by the value of the operating
property to determine the Minnesota allocated value.
new text end
new text begin
(b) The Minnesota allocated value is determined by averaging the following factors:
new text end
new text begin
(1) miles of railroad track operated in Minnesota divided by miles of railroad track
operated in all states;
new text end
new text begin
(2) ton miles of revenue freight transported in Minnesota divided by ton miles of revenue
freight transported in all states;
new text end
new text begin
(3) gross revenues from transportation operations within Minnesota divided by gross
revenues from transportation operations in all states; and
new text end
new text begin
(4) cost of railroad property in Minnesota divided by cost of railroad property in all
states.
new text end
new text begin
(c) Each of the available factors must be weighted equally.
new text end
Subd. 2.
Equalized valuation.
After making the apportionment provided in subdivision
1, the commissioner deleted text begin shalldeleted text end new text begin must new text end determine the equalized valuation of the operating property
in each county by applying to the apportioned value an estimated current year median sales
ratio for all commercial and industrial property in that county. If the commissioner deleted text begin decidesdeleted text end
new text begin determines that new text end there are insufficient sales to determine a median commercial-industrial
sales ratio, an estimated current year countywide median sales ratio for all property deleted text begin shalldeleted text end
new text begin must new text end be applied to the apportioned value. deleted text begin No equalization shalldeleted text end new text begin Equalization must not new text end be
made to the market value of the operating property if the median sales ratio determined
pursuant to this subdivision is deleted text begin within fivedeleted text end new text begin at least 90 but less than 105 new text end percent of the
assessment ratio of the railroad operating property.
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 21.
Minnesota Statutes 2018, section 270.87, is amended to read:
270.87 CERTIFICATION TO COUNTY ASSESSORS.
deleted text begin After making an annual determination of the equalized fair market value of the operating
property of each company in each of the respective counties, and in the taxing districts
therein,deleted text end The commissioner deleted text begin shalldeleted text end new text begin must new text end certify the equalized deleted text begin fairdeleted text end market value new text begin of the operating
property new text end to the county assessor deleted text begin on ordeleted text end before deleted text begin June 30deleted text end new text begin August 1new text end . The equalized fair market
value of the operating property of the railroad company in the county and the taxing districts
therein is the value on which taxes must be levied and collected in the same manner as on
the commercial and industrial property deleted text begin of such county and the taxing districts thereindeleted text end new text begin in the
counties and taxing districtsnew text end . If the commissioner determines that the equalized deleted text begin fairdeleted text end market
value certified deleted text begin on ordeleted text end before deleted text begin June 30deleted text end new text begin August 1 new text end is in error, the commissioner may issue a
corrected certification deleted text begin on ordeleted text end before deleted text begin August 31deleted text end new text begin October 1new text end . The commissioner may correct
errors that are merely clerical in nature until December 31.
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 22.
Minnesota Statutes 2018, section 272.02, subdivision 9, is amended to read:
Subd. 9.
Personal property; exceptions.
Except for the taxable personal property
enumerated below, all personal property and the property described in section 272.03,
subdivision 1, paragraphs (c) and (d), shall be exempt.
The following personal property shall be taxable:
(a) personal property which is part of (1) an electric generating, transmission, or
distribution system; (2) a pipeline system transporting or distributing products; or (3) mains
and pipes used in the distribution of steam or hot or chilled water for heating or cooling
buildings and structures;
(b) deleted text begin railroad docks and wharves which are part of thedeleted text end new text begin personal property that is part of the
new text end operating property of a railroad company as defined in section deleted text begin 270.80deleted text end new text begin 273.3712new text end ;
(c) personal property defined in section 272.03, subdivision 2, clause (3);
(d) leasehold or other personal property interests which are taxed pursuant to section
272.01, subdivision 2; 273.124, subdivision 7; or 273.19, subdivision 1; or any other law
providing the property is taxable as if the lessee or user were the fee owner;
(e) manufactured homes and sectional structures, including storage sheds, decks, and
similar removable improvements constructed on the site of a manufactured home, sectional
structure, park trailer or travel trailer as provided in section 273.125, subdivision 8, paragraph
(f); and
(f) flight property as defined in section 270.071.
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 23. new text begin SEVERABILITY.
new text end
new text begin
If any part of this article is found to be invalid because it is in conflict with a provision
of the Minnesota Constitution or for any other reason, all other provisions of this act shall
remain valid and any rights, remedies, and privileges that have been otherwise accrued by
this act, shall remain in effect and may be proceeded with and concluded under the provisions
of this act.
new text end
Sec. 24. new text begin REVISOR'S INSTRUCTION.
new text end
new text begin
The revisor of statutes shall renumber the provisions of Minnesota Statutes listed in
column A to the references listed in column B. The revisor shall also make necessary
cross-reference changes in Minnesota Statutes and Minnesota Rules consistent with
renumbering.
new text end
|
new text begin
Column A new text end |
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Column B new text end |
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new text begin
270.80 new text end |
new text begin
273.3712 new text end |
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new text begin
270.81 new text end |
new text begin
273.3713 new text end |
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new text begin
270.82 new text end |
new text begin
273.3714 new text end |
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new text begin
270.83 new text end |
new text begin
273.3715 new text end |
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new text begin
270.84 new text end |
new text begin
273.3716 new text end |
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new text begin
270.85 new text end |
new text begin
273.3717 new text end |
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new text begin
270.86 new text end |
new text begin
273.3718 new text end |
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new text begin
270.87 new text end |
new text begin
273.3719 new text end |
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
Sec. 25. new text begin REPEALER.
new text end
new text begin
(a)
new text end
new text begin
Minnesota Statutes 2018, sections 270.81, subdivision 4; and 270.83, subdivision 3,
new text end
new text begin
are repealed.
new text end
new text begin
(b)
new text end
new text begin
Minnesota Rules, parts 8106.0100, subparts 1, 2, 3, 4, 5, 6, 7, 8, 10, 12, 13, 14, 17,
17a, 18, 19, 20, and 21; 8106.0300, subparts 1 and 3; 8106.0400; 8106.0500; 8106.0600;
8106.0700; 8106.0800; and 8106.9900,
new text end
new text begin
are repealed.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective for assessment year 2021 and thereafter.
new text end
APPENDIX
Repealed Minnesota Statutes: 20-9081
270.81 TAXATION AND ASSESSMENT OF RAILROAD COMPANY PROPERTY.
Subd. 4.
Nontaxable property.
In no event shall property owned or used by a railroad, whether operating property or nonoperating property, be subject to tax hereunder unless such property is of a character which would otherwise be subject to tax under the provisions of chapter 272.
270.83 EXAMINATIONS AND INVESTIGATIONS.
Subd. 3.
Failure to file report.
If any railroad company shall refuse or neglect to make the report required by this section to the commissioner, or shall refuse or neglect to permit an inspection and examination of its property, records, books, accounts or other papers when requested by the commissioner, or shall refuse or neglect to appear before the commissioner or a person appointed under subdivision 2 when required so to do, the commissioner shall make the valuation provided for by sections 270.80 to 270.87 against the railroad company according to the commissioner's best judgment on available information.
Repealed Minnesota Rule: 20-9081
8106.0100 DEFINITIONS.
Subpart 1.
Scope.
As used in this chapter, the following words, terms, and phrases have the meanings given to them by this part. Some of the words, terms, and phrases are defined by statute but are included here for completeness.
Subp. 2.
Allocation.
"Allocation" means the process by which a fair and reasonable portion of each railroad's total unit value is assigned to Minnesota for purposes of taxation.
Subp. 3.
Apportionment.
"Apportionment" means the process of distributing that portion of the railroad's unit value which has been allocated to Minnesota after deducting exempt and nonoperating property to the various counties and taxing districts in which the railroad company operates.
Subp. 4.
Assessment/sales ratio.
"Assessment/sales ratio" means the ratio derived by dividing the estimated market value of a property by its adjusted selling price and used as a measure of the level of estimated market value to real or true market value.
Subp. 5.
Book depreciation.
"Book depreciation" means the depreciation shown by a railroad company on its corporate books and allowed the company by the Surface Transportation Board.
Subp. 6.
Capitalization rate.
"Capitalization rate" means an anticipated rate of return from an investment, a rate at which income is processed (capitalized) to indicate the probable capital value. This rate is usually expressed as a percentage.
Subp. 7.
Equalization.
"Equalization" means the adjustment of the estimated market value of railroad operating property to the apparent assessment/sales ratio of commercial and industrial property.
Subp. 8.
Exempt property.
"Exempt property" means property which is nontaxable for ad valorem tax purposes by statutes. An example of such property is personal property exempt from taxation under Minnesota Statutes, chapter 272.
Subp. 10.
Mainline track.
"Mainline track" means all track reported to the STB by the respondent railroad as main line.
Subp. 12.
Obsolescence allowance.
"Obsolescence allowance" means the adjustment to be made to the gross cost indicator of value to reflect the loss of economic usefulness or value because of causes other than physical deterioration.
Subp. 13.
Operating property.
"Operating property" means all property owned or used on a regular and continual basis by a railroad company in the performance of railroad transportation services, including without limitation, franchises, rights-of-way, bridges, trestles, shops, docks, wharves, buildings, and structures.
Subp. 14.
Original cost.
"Original cost" means the amount paid for an asset as recorded on the railroad's books in accordance with STB accounting rules and regulations.
Subp. 17.
Restated cost.
"Restated cost" means the cost of an asset recorded on a railroad's books after adjusting the amount from a retirement-replacement-betterment accounting basis to a depreciation accounting basis, in accordance with Code of Federal Regulations, title 49, part 1201 (effective January 1, 1983).
Subp. 18.
Structure.
"Structure" means all coal and ore wharves or docks, station houses, depots, shops, office buildings, and all other buildings with a restated cost of over $10,000.
Subp. 19.
System.
"System" means the total tangible property, real and personal, of a company which is used in its railroad operations in all states in which it operates.
Subp. 20.
Unit value.
"Unit value" means the value of the system of a railroad company taken as a whole without any regard to the value of its component parts.
Subp. 21.
Weighting.
"Weighting" means the confidence or reliability given to a factor or indicator. It is usually expressed as a portion of 100 percent.
8106.0300 REPORTS REQUIRED.
Subpart 1.
Reports to be filed.
The data used in the valuation, allocation, and apportionment processes will be drawn from reports submitted to the Department of Revenue by the railroad companies. These reports shall include:
D.
other commonly accepted sources of railroad income, expense, capitalization, and debt and stock values such as IBBOTSON Associates Inc., and Statistics of Class I Freight Railroads compiled by the STB.
Subp. 3.
Failure to file.
In the event any railroad company fails to file the required reports, the commissioner shall make a valuation according to the commissioner's best judgment based on available information.
Other sources of pertinent information may be consulted only when necessary to make the valuation, allocation, and apportionment required by parts 8106.0100 to 8106.0700. Said sources will, when applicable, be used uniformly and will be commonly accepted sources of data for which they are consulted. Questions unique to the valuation of a particular railroad may be resolved by consulting the books and records of the particular railroad involved.
8106.0400 VALUATION.
Subpart 1.
In general.
The approaches to value that will be used in determining the estimated unit value of railroad operating property are cost, capitalized income, and stock and debt except as provided in subparts 4 and 6.
Subp. 2.
Cost approach to valuation.
The cost factor that will be considered in the railroad valuation method is the restated cost of the railroad system, plus the restated cost of construction work in progress on the assessment date. The railroad system shall be considered to be made up of the following STB accounts: all road and equipment accounts, including leased equipment accounts; all general expenditures; and other elements of investment and railroad property owned and leased to others as well as railroad property leased from others. Book depreciation and obsolescence shall be allowed as a deduction from the restated cost of the railroad's assets enumerated above. The original cost if known, and the annual lease payments of any leased operating property used by the railroad must be reported to the commissioner in conjunction with the annual railroad report. The commissioner shall incorporate the value of the leased property into the railroad's unit value utilizing this information.
Obsolescence will be calculated through the use of the "Blue Chip Method." This method compares the railroad being appraised with the best railroads in the country, the so-called blue chip railroads. Three indicators of obsolescence will be used. First, a five-year average rate of return will be calculated for the railroad under appraisal. This rate of return is computed by dividing the subject's annual net railroad operating income for each of the most recent five years preceding the assessment, by the railroad's total owned transportation property less recorded depreciation and amortization (net investment in railroad property) for each corresponding year. The resulting five rates of return are then averaged using a simple arithmetic average to arrive at a five-year average rate of return. An example of this computation is as follows:
XYZ Railroad
| Year | Net Railroad Operating Income | Net Investment | Indicated Rate of Return |
| .... | $2,700,000 | $31,500,000 | 8.57% |
| .... | $2,900,000 | $32,000,000 | 9.06% |
| .... | $3,100,000 | $33,500,000 | 9.25% |
| .... | $3,300,000 | $34,000,000 | 9.70% |
| .... | $3,530,700 | $35,000,000 | 10.08% |
| Total 46.66% | |||
| Five-year Average Rate of Return | 9.33% | ||
A study will then be made of the Class I railroads operating within the United States for the same five-year period using such informational sources as information compiled annually by the Wisconsin Department of Revenue known as the "Blue Chip" Obsolescence Study for STB Class I Railroads. Each year the railroad with the highest rate of return will be selected as the blue chip railroad. The resulting five rates of return will then be averaged to find the five-year average blue chip rate of return. An example of this process is as follows:
| Year | Railroad | Rate of Return |
| .... | ABC | 11.50% |
| .... | FGH | 11.27% |
| .... | JKL | 10.57% |
| .... | MNO | 11.02% |
| .... | XYZ | 10.08% |
| Total 54.44% | ||
| Five-year Average Blue Chip Rate of Return | 10.89% | |
The five-year average rate of return for the railroad under appraisal will be compared to the five-year average blue chip rate of return. The deviation of the subject railroad's rate of return from the blue chip railroads' rate of return is the amount of indicated obsolescence. The following example illustrates the computation.
| XYZ Railroad Five-Year Average Rate of Return | 9.33% |
| Blue Chip Five-Year Average Rate of Return | 10.89% |
| Indicated Obsolescence 1 - (9.33% ÷ 10.89%) | 14.30% |
Second, a five-year average freight traffic density indicator will be calculated. This indicator is calculated by dividing the subject railroad's ton miles of revenue freight for the most recent five years preceding the assessment by the average miles of road operated for each corresponding year. The resulting five indicators of freight traffic density are then averaged using a simple arithmetic average to arrive at a five-year average of freight traffic density. An example of this computation is as follows:
XYZ Railroad
| Year | Ton Miles of Revenue Freight | Average Miles of Road Operated | Indicated Freight Traffic Density |
| .... | 1,300,000,000 | 575 | 2,260,000 |
| .... | 1,402,500,000 | 550 | 2,550,000 |
| .... | 1,200,000,000 | 550 | 2,180,000 |
| .... | 1,100,000,000 | 500 | 2,200,000 |
| .... | 1,000,000,000 | 500 | 2,000,000 |
| Total 11,190,000 | |||
| Five-Year Average Freight Traffic Density | 2,238,000 | ||
A five-year study is then made of the Class I railroads operating within the United States in the same manner and using the same sources as the rate of return study with the exception that this study concentrates on the freight traffic density achieved by the various Class I railroads. Each year the railroad with the highest freight traffic density will be selected as the blue chip railroad. The resulting five freight traffic density amounts will then be averaged to find the five-year average blue chip freight traffic density amount. An example of this process is as follows:
| Year | Railroad | Freight Traffic Density |
| .... | JKL | 2,280,000 |
| .... | FGH | 2,600,000 |
| .... | FGH | 2,200,000 |
| .... | MNO | 2,900,000 |
| .... | ABC | 2,280,000 |
| Total 12,260,000 | ||
| Five-year Average Blue Chip Freight Traffic Density | 2,452,000 | |
The five-year average freight traffic density indicator of the railroad under appraisal will be compared to the five-year average blue chip freight traffic density indicator. The deviation of the subject railroad's freight traffic density from the blue chip railroad's freight traffic density is the amount of indicated obsolescence. The following example illustrates this computation:
| XYZ Railroad Five-Year Average Freight Traffic Density | 2,238,000 |
| Blue Chip Five-Year Average Freight Traffic Density | 2,452,000 |
| Indicated Obsolescence 1 - (2,238,000 ÷ 2,452,000) | 8.70% |
Third, a five-year average gross profit margin indicator will be calculated. This indicator measures a railroad's ability to convert gross revenue to net profit. This indicator is calculated by dividing net railway operating income, before federal and deferred taxes, by gross revenues. This calculation is performed using the subject railroad income figures for the most recent five years preceding the assessment. The resulting five indicators of gross profit margin are then averaged using a simple arithmetic average to arrive at a five-year average of gross profit margin. An example of this computation is as follows:
XYZ Railroad
| Year | Net Railroad Operating Income Before Taxes | Gross Revenue | Indicated Gross Profit Margin |
| .... | 4,050,000 | 15,000,000 | 27.0% |
| .... | 4,350,000 | 15,800,000 | 27.5% |
| .... | 4,650,000 | 16,500,000 | 28.2% |
| .... | 4,950,000 | 17,300,000 | 28.6% |
| .... | 5,295,000 | 19,000,000 | 27.9% |
| Total 139.2% | |||
| Five-Year Average Gross Profit Margin | 27.8% | ||
A study will then be made of the Class I railroads operating within the United States for the same five-year period in the same manner and using the same sources in the two previous five-year studies mentioned above. This study will look at the gross profit margin achieved by the various Class I railroads. Each year the railroad with the highest gross profit margin will be selected as the blue chip railroad. The resulting five gross profit margin percents will then be averaged to find a five-year average blue chip gross profit margin percentage. An example of this process is as follows:
| Year | Railroad | Gross Profit Margin |
| .... | ABC | 30.0% |
| .... | ABC | 31.2% |
| .... | JKL | 29.9% |
| .... | FGH | 32.6% |
| .... | JKL | 33.3% |
| Total 157.0% | ||
| Five-Year Average Blue Chip Gross Profit Margin | 31.4% | |
The five-year average gross profit margin percent for the railroad under appraisal will be compared to the five-year average blue chip gross profit margin percent. The deviation of the subject railroad's gross profit margin from the blue chip railroad's gross profit margin is the amount of indicated obsolescence. The following example illustrates this computation:
| XYZ Railroad Five-Year Average Gross Profit Margin | 27.8% |
| Blue Chip Five-Year Average Gross Profit Margin | 31.4% |
| Indicated Obsolescence 1 - (27.8% ÷ 31.4%) | 11.5% |
The obsolescence percentage indicated by this comparison of gross profit margins will be added to the obsolescence indicated by a comparison of rates of return and freight traffic density. The total of these three amounts will be averaged and this result will be the overall obsolescence percentage for the subject railroad. The following is an example of this computation:
XYZ Railroad
| Obsolescence Indicated by Rate of Return Comparison | 14.30% |
| Obsolescence Indicated by Freight Traffic Density Comparison | 8.70% |
| Obsolescence Indicated by Gross Profit Margin Comparison | 11.50% |
| Total 34.50% | |
| Average Obsolescence Percentage | 11.50% |
The obsolescence percentage will then be applied to the road accounts of the subject railroad, excluding land and personal property, after the allowance for depreciation has been deducted. In no instance shall the allowance for obsolescence exceed 50 percent. The following example illustrates how the cost indicator of value is computed and how the allowance for obsolescence is applied.
XYZ Railroad
| Account | Amount | |
| Road | $24,000,000 | |
| Equipment -- Owned and Leased | 9,000,000 | |
| Construction Work in Progress | 4,500,000 | |
| General Expenditures | 1,823,000 | |
| Gross Cost Indicator | 39,323,000 | |
| Less Depreciation | 10,000,000 | |
| Net Cost Indicator | $29,323,000 | |
| Road | $24,000,000 | |
| Less Land and Personal Property | 1,000,000 | |
| Adjusted Road | 23,000,000 | |
| Adjusted Road | $23,000,000 | |
| Depreciation on Adjusted Road | 7,000,000 | |
| Net Road | 16,000,000 | |
| Obsolescence Percent | 11.5% | |
| Obsolescence Amount | 1,840,000 | |
| Adjusted Cost Indicator of Value | $27,483,000 | |
This cost indicator of value computed in accordance with this part will bear a weighting of 15 percent of the total unit value estimate of the railroad's property, except in the case of bankrupt railroads, or railroads with no income to be capitalized, as provided for in subpart 6, or railroads not meeting the criteria for use of the stock and debt approach to value as specified in subpart 4. These railroads will be valued using a 40 percent weighting for the cost indicator of value.
Subp. 3.
Income approach to valuation.
The income indicator of value will be calculated by averaging the net railway operating income, as defined by the STB, of the railroad for the most recent five years preceding the assessment. This average income shall be capitalized by applying to it a capitalization rate which will be computed by using the band of investment method. This method will consider:
D.
the yield on common stock of railroads.
This rate will be calculated each year using the method described in this subpart.
An example of a computation of the capitalized income approach to value is as follows:
XYZ Railroad
| Year | Net Railway Operating Income |
| .... | $ 2,600,000 |
| .... | 2,700,000 |
| .... | 3,000,000 |
| .... | 3,100,000 |
| .... | 3,492,500 |
| Total | $14,892,500 |
| Average | $ 2,978,500 |
Five-year average Net Railway Operating Income Capitalized at 14.0 percent (2,978,500 ÷ 14.0 percent) equals $21,275,000.
The income indicator of value computed in accordance with this part shall be weighted 60 percent of the total estimated unit value of the railroad's property except in the case of bankrupt railroads or railroads having no net operating income as provided for in subpart 6.
Subp. 4.
Stock and debt approach to valuation.
The stock and debt approach to value is the third method which will be used to estimate the unit value of the railroad operating property. This approach to value is based on the accounting principle: assets = liabilities + equity. Therefore, when the value of a company's liabilities (debt) is found and this added to the worth of its stock, a value can be established for its assets (property).
The use of this approach to value will be limited to only those railroads meeting qualifications in items A to C:
B.
The bonds of the railroad must be traded or have a rating by either Standard and Poor's or Moody's rating services.
C.
If the railroad is part of a diversified company, the value of the railroad portion of the total stock price must be able to be separated on an earnings basis using the following method:
XYZ Railroad
| XYZ railroad is wholly owned by ABC Industries Inc. | |
| Net Earnings of ABC Industries | $5,200,500 |
| Net Earnings of XYZ Railroad | $2,600,250 |
| Percent of XYZ net earnings to total conglomerate earnings | 50% |
| Value of share of ABC Industries stock | $100 |
| XYZ Railroad portion of stock value | $50 |
If a railroad has no net earnings, and is part of a conglomerate, then the stock and debt indicator of value will not be used.
The value of the stock used in the stock and debt method shall be an average of the month-ending stock prices for the 12 months immediately preceding the assessment date of January 2. The value of the bonds, equipment obligations, and conditional sales contracts, and other long-term debts shall also be an average of the cost of money quotes for the 12 months immediately preceding the assessment date of January 2. The source for these stock and bond prices shall be Standard and Poor's Stock Guide or other applicable financial service.
An illustration of a computation of the stock and debt approach to value is as follows:
XYZ Railroad Company
| Shares of Common Stock issued x | |
| Average price for preceding year | |
| 1,000,000 x $12 = $12,000,000 | |
| Shares of Preferred Stock x | |
| Average price for preceding year | |
| 100,000 x $15 = $ 1,500,000 | |
| Rate and face value of bonds x | |
| Average price for class of bonds for preceding year | |
| A rated 8% bonds $10,000,000 x 99% of par = $ 9,900,000 | |
| Stock and Debt Indicator of Value | $23,400,000 |
After the gross stock and debt indicator of value has been computed, an allowance will be made for the effect, if any, of revenue from other than railway operations included in this indicator of value. This allowance shall be based on the ratio of a five-year average of net revenue from railway operations, as determined by the STB, to a similar five-year average of income available for fixed charges as determined by the STB. The five-year average will be the most recent five years preceding the assessment date. An example of this computation is as follows:
XYZ Railroad Company
| Year | Net Revenue fromRailway Operations | Income Availablefor Fixed Charges |
| .... | $ 3,000,000 | $ 3,500,000 |
| .... | 4,000,000 | 4,300,000 |
| .... | 5,200,000 | 5,700,000 |
| .... | 6,000,000 | 6,800,000 |
| .... | 5,200,000 | 5,400,000 |
| $23,400,000 | $25,700,000 | |
| Average | $ 4,680,000 | $ 5,140,000 |
| Ratio $4,680,000 ÷ $5,140,000 = 91% | ||
| Gross Stock and Debt Indicator of Value | $23,400,000 | |
| Ratio of Operating to Noncarrier Earnings | 91% | |
| Net Stock and Debt Indicator of Value | $21,300,000 | |
The stock and debt indicator of value computed in accordance with this part will bear a weighting of 25 percent of the total unit value of the railroad's property, except in the case of bankrupt railroads, railroads in bankruptcy proceedings, or railroads with no income to be capitalized, as provided for in subpart 6. If no stock and debt indicator of value is computed, the weighting of 25 percent which would have been applied to this indicator of value will be placed on the cost indicator of value.
Subp. 5.
Unit value computation.
The estimated unit value of the railroad property will be the total of the three weighted indicators of value. The following is an example of the computation of the unit value.
XYZ Railroad
| Valuation Approach | Value | Weighting | |
| Cost indicator of value | $27,483,000 | 15% | $ 4,122,500 |
| Income indicator of value | 21,275,000 | 60% | 12,765,000 |
| Stock and debt indicator of value | 21,300,000 | 25% | 5,325,000 |
| Unit Value $22,212,500 | |||
The weighting shown above may vary from railroad to railroad as provided for in subparts 2 to 4.
Subp. 6.
Railroads operating at a loss, bankrupt railroads involved in federal bankruptcy proceedings, and railroads adjudged bankrupt by a federal court.
Railroads which are involved in federal bankruptcy proceedings, adjudged bankrupt, or railroads having no net railway operating income will be valued using the cost and stock and debt approaches to value. If the stocks or bonds of such railroads are not traded, or do not meet the other requirements for use of the stock and debt indicator of value, then these railroads will be valued using the cost approach to value only.
8106.0500 ALLOCATION.
Subpart 1.
In general.
After the estimated unit value of the railroad property has been determined, the portion of value which is attributable to Minnesota must be established. This is accomplished through the use of certain allocation factors. Each of the factors in the allocation method shows a relationship between the railroad system operations in all states and its Minnesota operations. These relationships are expressed in percentage figures. These percentages are then added and an average is computed. The resulting average of the factors, multiplied by the unit value, yields the Minnesota portion of the railroad property which will, after the adjustments described in parts 8106.0600 and 8106.0800, be subject to ad valorem tax in Minnesota.
Subp. 2.
Allocation factors.
The factors to be considered in making allocations of unit values to Minnesota for railroad companies are:
A.
miles of railroad track operated in Minnesota divided by miles of railroad track operated in all states;
B.
ton miles of revenue freight transported in Minnesota divided by ton miles of revenue freight transported in all states;
C.
gross revenues from transportation operations within Minnesota divided by gross revenues from transportation operations in all states; and
D.
cost of road property in Minnesota divided by the cost of road property in all states.
The following example illustrates the allocation method to be applied to the unit value of railroad property.
| XYZ Railroad | ||||
| Minnesota miles of track | 100 | |||
| Total miles of track | . _ 500 | = | 20% | |
| Minnesota ton miles of revenue freight | 2,200,000 | |||
| Total ton miles of revenue freight | _ 9,000,000 | = | 24% | |
| Minnesota gross transportation revenue | $10,000,000 | |||
| Total gross transportation revenue | _ $40,000,000 | = | 25% | |
| Minnesota cost of road property | 2,990,000 | |||
| Total cost of road property | _ 13,000,000 | = | 23% | |
| Total | 92% | |||
| Minnesota Percent of Unit Value | 23% | |||
| Total Unit Value ($22,212,500 x 23%) = | ||||
| Minnesota Portion of Unit Value | $5,108,875 | |||
8106.0600 ADJUSTMENTS FOR NONFORMULA ASSESSED PROPERTY OR EXEMPT PROPERTY.
After the Minnesota portion of the unit value of the railroad company is determined, property which is either exempt from taxation, such as personal property, or classified as nonoperating will be deducted from the Minnesota portion of the unit value to the extent that it has been included in the computation of this value.
Property which has been included in the computation of the unit value but has been defined as nonoperating property will be valued by the local assessor. The Minnesota portion of the unit value will be reduced by the restated cost of this property. Only nonoperating property located within Minnesota will be eligible for this exclusion.
The railroad company shall have the responsibility to submit to the commissioner of revenue, in the form required by the commissioner, such schedules of nonoperating property as the commissioner may require.
In addition to nonoperating property which will be valued and assessed locally, a deduction from the Minnesota portion of the unit value will be made for personal property.
A percentage of the Minnesota portion of the unit value before deducting nonoperating property will be excluded as personal property. This percentage will be computed in the following way:
A.
The following STB accounts for property within Minnesota will be totaled:
(8)
equipment, allocated to Minnesota on the basis of car and locomotive miles in Minnesota compared to total system car and locomotive miles.
B.
The total of these accounts will then be divided by the total of the Minnesota road, equipment, leased property, general expenditures, construction work in progress, and other elements of investment accounts. The resulting percentage will be used to determine the personal property amount of the Minnesota portion of the unit value. This amount will not be taxable for ad valorem purposes.
C.
The following is an illustration of the computation for the personal property exclusion.
XYZ Railway
| Personal Property Account | Amount in Minnesota | |
| Computer and Word Processing Equipment | $ 89,200 | |
| Coal and Ore Wharves | 100,000 | |
| Communication Equipment | 100,000 | |
| Signals and Interlockers | 200,000 | |
| Roadway Machines | 200,000 | |
| Shop Machinery | 100,000 | |
| Power Plant Machinery | 100,000 | |
| * Equipment -- Owned and Leased | 2,250,000 | |
| 3,139,200 | ||
| * Total Equipment Account | $9,000,000 | |
| Car and Locomotive Miles in Minnesota | 1,000,000 | |
| Total Car and Locomotive Miles | 4,000,000 | |
| Ratio of Minnesota to Total | 25% | |
| Minnesota Allocated Equipment Account | $2,250,000 | |
| Restated Cost Account | Amount in Minnesota | |
| Road | $2,990,000 | |
| Equipment -- Owned and Leased | 2,250,000 | |
| Construction Work in Progress | 800,000 | |
| General expenditures | 500,000 | |
| $6,540,000 | ||
| Minnesota Personal Property Accounts | $3,139,200 | |
| Minnesota Restated Cost | $6,540,000 | |
| Ratio of Personal Property to Cost | 48% | |
| Minnesota portion of unit value | 5,108,875 | |
| Personal Property exclusion at 48% | 2,452,260 | |
| Taxable Minnesota Portion of Unit Value | $2,656,615 |
8106.0700 APPORTIONMENT.
Subpart 1.
In general.
After the taxable Minnesota portion of the railroad's unit value has been determined, this value must be distributed to the various counties and taxing districts in which the railroad operates. This distribution will be accomplished by the commissioner of revenue through the use of certain apportionment components. Each of the components in the apportionment method is a reflection of the property owned or used by the railroad within a particular taxing district. The figures making up these components will be developed on information submitted by the railroad companies in annual reports filed with the commissioner, and information supplied to the commissioner by the various county auditors and assessors.
Subp. 2.
Apportionment components.
There are three components which will be used in the distribution of the value of railroad property to the various taxing districts. They are railroad operating land, miles of track, and railroad operating structures with a restated cost of $10,000 or more.
Subp. 3.
Railroad operating land.
The information for the computation of this apportionment component will be based on information submitted by both the railroads and the various county auditors and assessors. The railroad companies shall file with the commissioner of revenue each year, in conjunction with their annual reports required by part 8106.0300, subpart 1, the number of acres of railroad operating land owned or used by them in each taxing district in which they operate. The county auditor shall also be required to submit to the commissioner of revenue a report showing the number of acres of railroad operating land, detailed by owning railroad, in each taxing district within the county. If either the railroads or the auditors find that it is administratively impracticable to submit this information, the commissioner shall make an estimate of the number of acres of railroad operating land within each taxing district based on the best information available. Such information would usually consist of the miles of railroad track within the taxing district and the normal width of the right-of-way used by the railroad. In addition, information relative to the current estimated market value of all land within the respective taxing districts will be obtained from the county or city assessors by a review of the information reported to the commissioner of revenue in compliance with Minnesota Statutes, section 270C.85, subdivision 2, clause (4).
The computation for the railroad operating land apportionment component will be accomplished annually in the following manner:
A.
The average estimated market value per taxable acre within a specific taxing district will be calculated by dividing the estimated market value of all taxable land within the taxing district as indicated by the most recent assessment information reported to the commissioner under Minnesota Statutes, section 270C.85, subdivision 2, clause (4). The number of acres within a taxing district will be obtained from the most recent statistics available from the Minnesota Geospatial Information Office, Department of Administration. The total number of acres will be adjusted to allow for nontaxable or exempt acres by subtracting these nontaxable or exempt acres from the total acres. The number of nontaxable or exempt acres will be obtained from the most recent exempt real property information reported to the commissioner under Minnesota Statutes, section 270C.85, subdivision 2, clause (4). The following example illustrates this calculation.
| Estimated Market Value of All Taxable Land Within Taxing District | $200,000 | |
| Total Area of Taxing District | 210 Acres | |
| Nontaxable or Exempt Acres | 10 Acres | |
| Taxable Acres Within Taxing District | 200 | |
| _ | ||
| Average Estimated Market Value per Acre | $1,000 |
B.
This average estimated market value per taxable acre is then applied to the number of acres of railroad operating land within the taxing district to compute a gross railroad operating land component within the taxing district. The following example illustrates this computation:
| Average Estimated Market Value Per Acre | $1,000 | |
| Acres of Railroad Operating Land | x 5 | |
| _ | ||
| Gross Railroad Operating Land Component | $5,000 |
C.
This railroad operating land component will then be adjusted. This adjustment is achieved by striking a ratio between the system unit value for all Minnesota railroads, as described in part 8106.0400, subpart 5, to the total of net investment in railway property used in transportation service as defined by the STB for all railroads operating in Minnesota. This relationship will be computed annually and will then be applied to the gross railroad operating land component to arrive at the adjusted railroad operating land component. This adjusted land value will then be used as one element of the apportionment computation.
The following is an example of how the adjusted railroad operating land component is to be computed:
| Railroad | System Unit Value | Net Investment in Railway Property Used in Transportation Services | |||
| ABC Railway | $ 20,000,000 | $ 40,000,000 | |||
| FGH Railway | 5,256,000 | 8,000,000 | |||
| JKL Railroad | 2,000,000 | 4,780,830 | |||
| MNO Railroad | 50,000,000 | 90,000,000 | |||
| XYZ Railroad | 22,212,500 | 25,000,000 | |||
| _ | _ | ||||
| $ 99,468,500 | $ 165,780,830 | ||||
Total System Unit Value ($99,468,500) ÷ Total Net Investment in Railway Property Used in Transportation Services ($165,780,830) = 60%
| Gross Railroad Operating Land Component Within the Taxing District | $5,000 | |
| Adjustment Factor | 60% | |
| _ | ||
| Adjusted Railroad Operating Land Component | $3,000 |
Subp. 4.
Miles of track.
The information for the computation of this apportionment component will be based on information submitted by the railroads to the commissioner of revenue in conjunction with the annual report required by part 8106.0300, subpart 1. Each railroad will be required to list the miles of track they own in each taxing district within Minnesota. The track must be separated into two classes, main line track and all other track.
In order to make the miles of track in each taxing district compatible with the other apportionment components, the miles must be converted to dollars. This conversion will be computed annually. The conversion will be accomplished by adding together the following STB accounts for each railroad's net investment in Minnesota: account 3, grading; account 8, ties; account 9, rails; account 11, ballast. The total of these accounts will then be divided by the number of miles of track operated by the respective railroads within Minnesota to obtain a cost per mile figure. This will be used as the average cost per mile for track within Minnesota.
The following is an example of how the average cost per mile of track in Minnesota will be computed:
| Railroad | Total of Accounts #3,8, 9, 11 | Mileage Operated in Minnesota | |||
| ABC Railway | $ 4,000,000 | 154 | |||
| FGH Railway | 800,000 | 42 | |||
| JKL Railroad | 500,000 | 20 | |||
| MNO Railroad | 7,450,000 | 290 | |||
| XYZ Railroad | 2,500,000 | 104 | |||
| _ | _ | ||||
| $ 15,250,000 | 610 | ||||
Total cost of track ($15,250,000) ÷ Total miles operated (610) = Average Cost per Mile of Track $25,000.
Main line track shall be weighted at 1.5 times the cost of all other track; thus, if the average cost per mile of track is $25,000, main line track would be worth more than $25,000 per mile, while all other track would be worth less. The calculation for the average cost of both main line and all other track shall be made annually on an industry basis.
The calculation to determine the average cost per mile of main line track and the average cost per mile of all other track will be computed in the following manner:
A.
Total mileage operated will be multiplied by the average cost per mile to arrive at a total track cost.
B.
Total mileage operated will be separated into the two types of track, main line and all other track.
D.
Adjusted main line miles will be added to all other track miles to arrive at adjusted total track miles.
E.
Total track cost will be divided by adjusted total track miles to arrive at the cost per mile of all other track.
F.
The cost per mile of main line track will be computed by multiplying the cost per mile of all other track by 1.5.
An illustration of this computation is as follows:
| Railroad | Mileage Operated | Main Line Miles | All other Track Miles | |||
| ABC Railway | 154 | 96 | 58 | |||
| FGH Railway | 42 | 10 | 32 | |||
| JKL Railroad | 20 | 15 | 5 | |||
| MNO Railroad | 290 | 132 | 158 | |||
| XYZ Railroad | 104 | 52 | 52 | |||
| _ | _ | _ | ||||
| 610 | 305 | 305 | ||||
| Total Mileage Operated | 610 | |||
| Average Cost Per Mile of Track | $ 25,000 | |||
| Total Track Cost | $ 15,250,000 | |||
| Main Line Miles | 305 | |||
| Weighting Factor | 1.5 | |||
| Adjusted Main Line Miles | 457.5 | |||
| Other Track Miles | 305.0 | |||
| Adjusted Total Track Miles | 762.5 | |||
| Total Track Cost | $ 15,250,000 | |||
| Adjusted Total Track Miles | 762.5 | |||
| Average Cost Per Mile of Other Track | $ 20,000 | |||
| Average Cost Per Mile of Other Track | $ 20,000 | |||
| Weighting Factor | 1.5 | |||
| Average Cost Per Mile of Main Line Track | $ 30,000 | |||
After the per mile cost figures for main line and all other track are obtained, these per mile cost figures would be multiplied by the length of each type of track in a particular taxing district to obtain the value of the trackage in that district. The same cost figures will be used for all railroads operating in Minnesota.
Subp. 5.
Structures.
The information for the computation of this apportionment component will be based on statements submitted by the railroads. These schedules shall be submitted annually to the commissioner of revenue in conjunction with the annual report required by part 8106.0300, subpart 1. The schedules shall show the location, by taxing district, of all operating structures owned by the reporting railroad within Minnesota with a restated cost of $10,000 or more. The schedules shall list a description of the structure and the railroad's current restated cost investment in the structure as it appears in the appropriate STB account.
An example of this listing is as follows:
XYZ Railroad
| Taxing District | Description | Restated Cost |
| St. Paul, S.D. #625 | Office Building | $ 400,000 |
| Minneapolis, S.D. #1 | Depot | 20,000 |
| Fridley, S.D. #16 | Yard Tower | 200,000 |
| Anoka, S.D. #11 | Engine and Car Shop | 250,000 |
| _ | ||
| Total | $ 870,000 |
Subp. 6.
Apportionment computation.
The apportionment of a railroad's taxable Minnesota value is accomplished by totaling the amount of the land, track, and structure components as developed in subparts 3 to 5 for each taxing district, then finding the sum of these totals for all the taxing districts in which the subject railroad operates. The taxable Minnesota portion of the railroad's unit value is divided by the total of the three apportionment components for all taxing districts in which the railroad operates in order to arrive at a percentage. This resulting percentage is then applied to the total amount of the three apportionment components for each specific taxing district. The figure produced by this multiplication process is the taxing district's share of the railroad's taxable Minnesota portion of the unit value. No more value can be distributed to the various taxing districts than that produced by the valuation process described in parts 8106.0100 to 8106.0600.
The example in part 8106.9900 illustrates the apportionment process.
8106.0800 EQUALIZATION.
Subpart 1.
In general.
After the apportionment of value referred to in part 8106.0700 has been made, the railroad property values must be equalized to coincide with the assessment levels of commercial and industrial property within each respective county receiving a share of the apportioned railroad value. This equalization will be accomplished through the use of an assessment/sales ratio.
Subp. 2.
Assessment/sales ratio computation.
A comprehensive assessment/sales ratio study compiled annually by the sales ratio section of the Property Tax Division of the Department of Revenue commonly known as the State Board of Equalization Sales/Ratio Study will be used in this computation. The portions of this study which will be used for purposes of this section are known as the "County Commercial and Industrial Sales Ratio."
This commercial and industrial (C & I) sales ratio is computed through an analysis of the certificates of real estate value filed by the buyers or sellers of commercial or industrial property within each county. The information contained on these certificates of real estate value is compiled pursuant to requests, standards, and methods set forth by the Minnesota Department of Revenue acting upon recommendations of the Minnesota legislature. The most recent C & I study available will be used for purposes of this section.
The median C & I sales ratio from the County Commercial and Industrial Sales Ratio study will be used as a basis to estimate the current year C & I median ratio for each county.
The process used to estimate this current year median ratio will be as follows.
The current estimated market value of commercial and industrial property within each county will be taken from the information reported to the commissioner under Minnesota Statutes, section 270C.85, subdivision 2, clause (4). The amount of the value of new commercial and industrial construction, ("new" meaning since the last assessment period) as well as the value of commercial and industrial property which has changed classification (i.e. commercial to tax exempt property) will also be taken from the information reported to the commissioner under Minnesota Statutes, section 270C.85, subdivision 2, clause (4). The value of new construction will then be deducted from the estimated market value, resulting in a net estimated current year market value for commercial and industrial property within the county. The value of commercial and industrial property which has changed classification will be deducted from the previous years estimated market value to arrive at a net estimated previous year market value for commercial and industrial property within the county. The net current year value will be compared to the net previous year's estimated market value for commercial and industrial property within the county and the difference between the two values noted. This difference will be divided by the previous year's net estimated market value for commercial and industrial property to find the percentage of increase, or decrease, in assessment level for each year. This percent of change will be applied to the most recent C & I median ratio to estimate the current year's C & I median ratio. An example of this calculation for a typical county is shown below.
| Current Year Estimated Market Value for Commercial and Industrial Property | $12,000,000 | |
| Less: New Construction | 1,500,000 | |
| _ | ||
| Current Year Net Estimated Market Value for Commercial and Industrial Property | 10,500,000 | |
| Previous Year Estimated Market Value for Commercial and Industrial Property | 10,250,000 | |
| Less: Classification Changes | 250,000 | |
| _ | ||
| Previous Year Net Estimated Market Value for Commercial and Industrial Property | 10,000,000 | |
| _ | ||
| Difference Previous Year vs. Current Year Estimated Market Value | 500,000 | |
| Percent of Change (500,000 ÷ 10,000,000) | 5% | |
| Previous Year Median Commercial and Industrial Ratio | 88% | |
| Current Year Estimated Median Commercial and Industrial Ratio (88% x 105%) | 92.4% |
This same calculation is performed for each Minnesota county which contains operating railroad property. If there are five or fewer valid sales of commercial and industrial property within a county during the study period, these few sales are insufficient to form the basis for a meaningful C & I ratio. Therefore, the median assessment/sales ratio to be used for purposes of the above computation will not be the median C & I ratio but will be the weighted median ratio of all property classes within the county for which a sales ratio is available. This weighted median ratio is computed in the same manner using the same procedures and standards as the C & I ratio. In addition, the computation described above will not be performed using the commercial and industrial estimated market value but will use the estimated market value for all property within the county. All other aspects of the calculations are identical except for this substitution.
The weighted median ratio is developed by multiplying the median ratio for each class of property (agricultural, residential, recreational, commercial) by the percentage of value that class of property comprises of the total county value. An example of this calculation is as follows:
| Class of Property | Amount of Value | Percent of Value | Median Ratio | Weighted Median Ratio |
| Residential | $ 20,000,000 | 20% | 85% | 17.00% |
| Agricultural | 55,000,000 | 55% | 95% | 52.25% |
| Seasonal - Recreational | 5,000,000 | 5% | 90% | 4.50% |
| Commercial - Industrial | 20,000,000 | 20% | 85% | 17.00% |
| Total | $100,000,000 | 100% | 90.75% |
Subp. 3.
Application of the estimated current year median assessment/sales ratio.
After the estimated current year median ratio has been calculated pursuant to subpart 2, it is used to adjust the apportioned estimated market value of operating railroad property to the apparent assessment level of commercial and industrial property in each county. This is done by multiplying the estimated market value of the railroad property by the estimated sales ratio to arrive at the equalized market value of operating railroad property. In no instance will any adjustment be made if, after comparing the estimated current year sales ratio to the assessment level of operating railroad property, the difference between the two is five percent or less. An example of this adjustment is as follows:
| Estimated Market Value of Railroad Operating Property* | Estimated Current Year Median Sales Ratio | Equalized Estimated Market Value of Railroad Operating Property | |
| County A | $ 100,000 | 85% | $ 85,000 |
| County B | 250,000 | 88% | 220,000 |
| County C | 300,000 | 90% | 270,000 |
| County D | 150,000 | 92% | 138,000 |
| County E | 100,000 | 95% | 100,000** |
* For purposes of this example, assume that railroad property is assessed at 100 percent of market value.
** No adjustment made because estimated current year median sales ratio is within five percent of assessment level on operating railroad property.
All railroads operating within a particular county will be equalized at the same percentage.
These equalized estimated market values of operating railroad property will be certified to the county assessor denoting specific railroads and taxing districts pursuant to Minnesota Statutes, section 270.87.
8106.9900 EXAMPLE OF APPORTIONMENT PROCESS.
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