OAR 150-308-0695: Removal of Certain Elected Exempt Property from Correlated System Real Market Value of Centrally Assessed Property

(1) Under ORS 308.671, a company may elect to have one of three types of property exempted from ad valorem property taxation. (a) Licenses granted by the Federal Communication Commission (FCC), (b) Franchises, or (c) Satellites that are used to provide communication services directly to retail customers, or that are being constructed for such use, and FCC licenses related to the use of the satellites to provide communication services. (2) ORS 308.555 authorizes the department to value all property of a centrally assessed company as a unit. Unit valuation means valuing an integrated group of assets functioning as an economic unit as “one thing,” without reference to the market value of any individual assets. To determine a company’s unit value, the department considers one or more of the cost, income and stock and debt approaches to value, reconciling the approaches to arrive at “unit value” also referred to as the “correlated system value.” (3) Under ORS 308.671(3), the value of exempt property listed in section (1) above is equal to the cost of the property carried in the accounting records of the company, less accrued depreciation reserve for that property. This is the exempt property net book value (“exempt NBV”). A company must provide in its Annual Statement the book cost and accrued depreciation reserve for the elected exempt property to obtain the exemption. (4) The department removes exempt property values of various types (for example motor vehicles) from a company’s correlated system value because the income, cost, or stock and debt approaches may be weighed and reconciled differently in any given tax year for any given company depending on the availability and quality of information. Because exempt NBV, for purposes of ORS 308.671, is a cost amount, the department will directly subtract that amount from the correlated system value if that value is based solely on the cost approach. Where the correlated system value is based on income and/or stock and debt approaches, as well as cost, the department must subtract the amount of exempt NBV that is actually reflected in the correlated system value. Consistent with the department’s long-standing market-to-book ratio method of subtracting exempt FCC licenses under the former OAR 150-307.126, a market-to-book ratio will be used for all of the exempt property under ORS 308.671. (5) The market-to-book ratio is derived by dividing the company’s correlated system value by the total NBV of the company’s taxable property (including the exempt NBV). The resulting ratio is multiplied by the company’s exempt NBV, and that amount is then subtracted from the company’s correlated system value.