How Public Utility Property Is Valued and Taxed

Definitions. As used in this Sec. 5A-8.3:means gross income as defined in Hawai'i Revised Statutes Chapter 239.means Hawai'i Revised Statutes, as amended.means net income as defined in Hawai'i Revised Statutes Chapter 239.means public utility real property, which consists predominantly of production, transmission, collection, switching, and distribution facilities, and which may also consist of one or more of the following items:Units which have physical and functional characteristics that are so similar that they are accounted for by the public utility as a group or class and are generally installed on easements;Transmission cable, wire, or pipes, including support or conduit structures;Substation equipment;Measuring and regulating equipment;Generation equipment;Storage equipment; andSwitching equipment.mean public utility real property improvements described in the definition of "outside plant" in Sec. 5A-8.3(a) and also improvements that are not outside plant, such as buildings, generating stations, production plants, gas compressor stations, boilers, switching plants, dams and reservoirs, circuit equipment, radio systems, terminals, satellite facilities, storage wells, and pumping facilities.means a public utility as defined in Hawai'i Revised Statutes Sec. 269-1, except airlines, motor carriers, common carriers by water, and contract carriers subject to taxation under Hawai'i Revised Statutes Sec. 239-6.means the State of Hawai'i.shall have the meaning ascribed to it in Sec. 5A-6.2.Property of public utilities including, but not limited to, outside plant, plant, and structures, shall be subject to real property taxation according to Sec. 5A-8.3.Notwithstanding any section in Chapter 5A, K.C.C. 1987, to the contrary, the Director, in determining the fair market value of the real property of public utilities, may use the values for real property, outside plant, plant, and structures set forth in the annual financial reports of the public utilities filed with the Hawai'i Public Utilities Commission pursuant to Chapter 269, H.R.S., as the basis for the Director's assessments.For purposes of value conclusions, the financial information contained in the public utilities filings with the Hawai'i Public Utilities Commission shall be deemed prima facie correct.Assignment of public utility real property values to individual tax map key numbers shall not be required.Valuation by Assessment.The fair market value of public utility real property shall be determined as follows:Land. Public utility land values shall be determined by the market data approach to value using appropriate systematic methods suitable for mass valuation of properties for taxation purposes.Outside Plant, Plant, and Structures. The value of outside plant, plant, and structures shall be determined on the basis of reproduction cost new less depreciation, if any.The reproduction cost new shall be determined by multiplying reported inventory original cost by appropriate price indices or by multiplying physical inventories by appropriate unit prices, or both.The rate of depreciation shall be a function of the appraised property's age, estimated service life, and salvage factor.Real property of public utilities not otherwise classified under Sec. 5A-6.4 shall be classified industrial.Liens and Foreclosures. For purposes of liens and foreclosures, outside plant shall be considered a part of any system or plant of which it is a part, and to which a tax map key has been assigned.Taxation by Percentage of Gross Income. In lieu of the assessment method specified in Subsections (c) and (d) of this Section, a public utility may elect to be assessed, and shall pay, real property taxes of such percent of its gross income for the preceding year according to this Subsection. The tax imposed by this Subsection shall be a means of taxing real property owned by a public utility or leased to it under a lease pursuant to which the public utility is required to pay real property taxes upon the property.The rate of tax upon the gross income of a public utility shall be determined as follows:If the ratio of net income of the public utility to its gross income is 15% or less, the rate of the tax on gross income shall be 1.885 percent (1.885%); for all companies having net income in excess of 15% of gross income, the rate of the tax on gross income shall increase continuously in proportion to the increase in ratio of net income to gross income, at such rate that for each increase of 1% in the ratio of net income to gross income, there shall be an increase of 0.2675% in the rate of the tax.The following formula may be used to determine the rate, in which formula the term "R" is the ratio of net income to gross income, and "X" is the required rate of the tax on gross income for the utility in question:X = (26.75R-2.1275)%;provided that in no case governed by the formula shall "X" be less than 1.885 percent (1.885%) or more than 4.2 percent (4.2%); and provided further that in no case shall the application of the rate or formula described above, when added to the amount of real property tax levied by the other counties using the same formula in their respective county ordinances, result in a combined statewide real property tax liability which is greater than that portion of the tax liability in excess of 4% that would have been payable by the public utility under H.R.S. Chapter 239, as codified on August 1, 2000.In determining a public utility's gross income and net income under this Subsection, the Director shall use the gross income and net income information set forth in the reports filed by the public utility pursuant to Chapter 239, H.R.S.If a public utility has not allocated its gross income and net income on a county-by-county basis, a method of allocation shall be agreed to by the Director and the public utility.If the Director and the public utility are unable to agree on an appropriate method of allocation, the method shall be determined by the Tax Appeal Court; provided that a tele-communications company that uses access lines may elect to allocate its statewide gross in come from its public utility business based on the ratio of the number of the company's access lines in the County to the total number of the company's access lines in the State.Election or Mandatory Use of Percentage of Gross Income Methodology. A public utility may elect to subject its real property to taxation pursuant to this Subsection, instead of Subsections (c) and (d) of this Section, by filing with the Director, on a yearly basis, a notice of such election on or before September 30th preceding the tax year for which such an election is made. The form of the notice shall be prescribed by the Director.A public utility whose real property is subject to taxation under this Subsection shall, notwithstanding any section in this Chapter to the contrary, pay real property taxes due for the year in 12 equal monthly installments. The first installment shall be paid on or before July 10th, and the remaining installments shall be paid on or before the tenth (10th) day of each month thereafter. All taxes due on an installment payment date that remain unpaid after that date shall thereupon become delinquent.