New Mexico Administrative Code
Title 3 - TAXATION
Chapter 6 - PROPERTY TAXES
Part 5 - CLASSIFICATION OF PROPERTY
Section 3.6.5.38 - SPECIAL METHOD OF VALUATION - OPERATING RAILROAD PROPERTY
Universal Citation: 3 NM Admin Code 3.6.5.38
Current through Register Vol. 35, No. 6, March 26, 2024
A. RAILROADS - PROPERTY TO BE VALUED AS PROPERTY USED BY A RAILROAD COMPANY IN THE OPERATION OF A RAILROAD:
(1) All property owned
or leased and used by a railroad in its operation, which is subject to
valuation for property tax purposes, is required to be valued except for
railway cars with respect to which the railroad is remitting payments to New
Mexico under the Railroad Car Company Tax Act. "Property" means tangible
property, real or personal.
(2) The
following types of property used by a railroad company in the operation of a
railroad are to be valued:
(a) "Road
property" means all property owned or leased and used by a railroad company in
the operation of a railroad and which may be partially or totally carried in
accounts for this type of property, as prescribed by the interstate commerce
commission of the United States;
(b) "Equipment" means locomotives, cars and
other equipment owned or leased and used by a railroad company in the operation
of a railroad which may be partially or totally carried in accounts for this
type of property, as prescribed by the interstate commerce commission of the
United States;
(c) "Material and
supplies" means all material and supplies owned or leased and used by a
railroad company in the operation of a railroad, the costs of which may be
partially or totally carried in accounts or an account of this type of
property, as prescribed by the interstate commerce commission of the United
States;
(d) "Property in the
process of construction" means all property owned or leased and used by a
railroad company in the operation of a railroad which is in the process of
construction on January l of the tax year; and
(e) "Other property" which means any other
property not otherwise defined including, but not limited to, real property and
tangible personal property used in the conduct of the railroad
business.
B. RAILROADS - VALUATION METHOD:
(1) Property defined in Subsection A of
Section
7-36-31
NMSA 1978 and Section 3.6.5.38 NMAC is valued by applying the unit value of
appraisal to the valuation methods stated in Subsection B of Section
7-36-31
NMSA 1978. The unit rule of appraisal is, generally, an appraisal of an
integrated property as a whole without reference to the value of its component
parts.
(2) A "railroad business" as
that term is used in regulations under Section
7-36-31
NMSA 1978 includes any entity owning a railroad or a railroad company
including, but not limited to, holding companies, trustees or
receivers.
(3) Capitalized earnings
are computed as follows: the net operating income derived from the operations
of the railroad business in all states is divided by a capitalization rate
determined for the particular railroad being valued. The capitalization rate is
determined by the division using the band of investment method. The quotient
resulting from this division is the capitalized earnings of the railroad
company.
(4) "Net operating income"
as that phrase is used in Paragraph (3) of this subsection means the expected
future gross income of the railroad business from the operation of a railroad
after deduction of the operating cost of the railroad, including taxes and
depreciation directly relating to the railroad. Net operating income is
determined after an analysis of the preceding five years' net operating income
and that operating income is intended to reflect the future earning ability of
the railroad business from the operation of the railroad. In determining that
operating income, reference is made to reports which the railroad business is
required to make to federal and state regulatory agencies and taxing agencies.
The division is not bound, however, by the income information shown on these
reports in determining net operating income and may use information acquired
from other sources.
(5) Market
value of stock and debt is computed as follows:
(a) The market value of all of the stock of
the railroad business is computed on the basis of the average of the monthly
high and low market prices quoted in financial publications for the preceding
tax year. If stock of the railroad business is not traded or is not traded in
sufficient volume to indicate value, the division may rely on a price earnings
ratio or other acceptable appraisal technique to determine the market value of
the stock.
(b) The market value of
the railroad business' debt and other obligations is determined on the basis of
the published quotations for each of the various types of obligations and
current liabilities as reflected on the books and records of the railroad
business.
(c) The total of the
market value of stock as computed under Subparagraph (a) of this paragraph plus
the market value of debt and other obligations as computed under Subparagraph
(b) of this paragraph produces the total system value of all of the railroad
business' property, both tangible and intangible. From this total system value,
there is subtracted the system value of property not used by the railroad
business in the operation of a railroad and the system value of intangible
property used by the railroad business in the operation of a
railroad.
(6) Original
cost less depreciation is computed as follows:
(a) Original cost of all road property in all
states less depreciation and amortization as reported to the interstate
commerce commission of the United States, as of January 1 of the tax year,
plus
(b) The original cost of all
equipment in all states less depreciation and amortization, as reported to the
interstate commerce commission of the United States, as of January 1 of the tax
year; plus
(c) The original cost of
other property including all leased property in all states, less depreciation
and amortization as of January 1 of the tax year; plus
(d) The original cost of any property in the
process of construction, in all states, on January 1 of the tax year; the
original cost being 50% of the cost or amount expended for such construction
work which is partially complete on January 1 of the tax year as shown on the
books and records of the business. Advance payments for work not partially
completed or not commenced on January 1 of the tax year, however, may be
excluded from the original cost of property in the process of construction upon
a proper showing by the taxpayer; plus
(e) The original costs of all materials and
supplies in all states as of January 1 of the tax year; minus
(f) A deduction for economic obsolescence,
functional obsolescence, or both, upon a showing by taxpayer of substantial
evidence supporting the deduction from the total of the costs computed under
Subparagraphs (a) through (c) of this paragraph. The division may consider the
following factors to determine obsolescence:
(i) The actual rate of return on depreciated
investment of the subject railroad property as compared to the average rate of
return on the depreciated investment of other comparable railroad
companies;
(ii) The difference
between the system depreciated cost of a railroad business' property and the
system capitalized income value of that business;
(iii) The difference between the system
depreciated cost of a railroad business' property and the system stock and debt
value of that business;
(iv) The
"blue chip method", using a "best of the best", "blue chip", or "super blue
chip" approach of comparison; or
(v) Any other recognized method which is a
generally accepted appraisal technique.
(7) The division considers the values
computed under the three evidences of value referred to in Paragraphs (3)
through (6) of this subsection and either:
(a) assigns weights, in terms of percentage
to each evidence of value with a total of 100%, on the basis of the evidences
which appear to be most indicative of market value, multiplies the values
determined under the three evidences of value by the respective weights and
adds the three totals to give the total system value of all property used in
the conduct of the railroad business; or
(b) correlates the values computed under the
three evidences of value to determine the total system value of all property
used in the conduct of the railroad business.
(8) The total system value of all property
used in the conduct of the railroad business in all states is allocated to New
Mexico by multiplying this total value by fractions, the numerators of which
are the total gross investment, gross operating revenue, gross operating
expenses, track miles, tonnage originated or terminated and ton miles of the
railroad company in New Mexico and the respective denominators of which are the
total gross investment, gross operating revenue, gross operating expense, track
miles, tonnage originated or terminated and ton miles of the railroad company
in all states. The products of the multiplication by each of these fractions
are considered by the division in determining the proper allocation of the
total system unit value to New Mexico. Use of other fractions or factors to
compute allocation of the total system unit value to New Mexico, or elimination
of one or more of the required fractions from consideration, may be permitted
by order of the director upon good cause shown. The correlated product of the
multiplication of the total system unit value in all states by the fractions is
New Mexico's allocated portion of property used in the conduct of the railroad
business and is the value for property taxation purposes of the railroad's
property used in the conduct of the railroad business in New Mexico. Exemptions
authorized by the Property Tax Code are not to be applied until a determination
of net taxable value is made.
C. RAILROADS - ALLOCATION OF VALUE WITHIN NEW MEXICO:
(1) Distribution of
the value of all property allocated to New Mexico for property taxation
purposes used in the railroad business which is valued by the division pursuant
to Subsection B of Section 3.6.5.38 NMAC is accomplished in the following
manner:
(a) An equitable portion of the total
unit value allocated to New Mexico as determined under Subsection B of Section
3.6.5.38 NMAC is computed and distributed to the specific governmental unit or
units wherein are located sizeable terminal facilities, such as yards, shops
and other special facilities not normally spread along the lines of
railroad.
(b) The value computed
under Subparagraph (a) of this paragraph is deducted from the total value as
determined under Section 3.6.5.38 NMAC, and the remainder is distributed to the
governmental unit or units in which the railroad is located on the basis of the
proportion of main, branch and spur track miles in the governmental unit or
units compared to the total of main, branch and spur track miles of the
railroad in New Mexico. In making such allocations, consideration is given to
the physical characteristics and traffic density patterns of such track
miles.
(c) The division may vary
the distribution methods described in Subparagraphs (a) and (b) of this
paragraph to account for unusual or substantial changes in the operations or
gross investment of the railroad company within the governmental
units.
(2) "Gross
investment" as that phrase is used in Section 3.6.5.38 NMAC means the original
cost, without depreciation or deduction, of any kind of property used in the
conduct of a railroad. Reference is made to reports made to federal or state
regulatory agencies in determining gross investment.
D. RAILROADS - DETERMINATION OF OPERATING AND NONOPERATING PROPERTY:
(1) To determine if a property is operating
property, the division considers the use to which the property is put and
whether it is subject to scrutiny by the interstate commerce commission.
"Operating property" for purposes of Section
7-36-31
NMSA 1978 means all property, owned, leased, or used, which is reasonably
necessary to the maintenance and operation of a railroad company's
business.
(2) "Non-operating
property" is all property owned or leased from others which is not necessary
for the conduct of a railroad company's business.
(3) Non-operating property is valued by the
county assessor of the county in which the property is located pursuant to the
valuation method stated in Section
7-36-15
NMSA 1978, and regulations thereunder.
E. RAILROADS - DEFINITIONS:
(1) "Best of the best" means a comparison
approach in which the appraiser compares eight quality and efficiency factors.
The appraiser selects the highest figure for each of the quality and efficiency
factors without regard to the make up or operations of any of the
railroads.
(2) "Super blue chip"
means a comparison approach in which the appraiser compares eight quality and
efficiency factors. The appraiser selects the three (3) highest figures for
each of the quality and efficiency factors without regard to the make up or
operations of any of the railroads.
(3) "Blue chip" means a comparison approach
in which the appraiser compares eight quality and efficiency factors. The
appraiser selects a complete railroad by analyzing the make up and operations
of all railroads and uses this as a standard for comparison. The eight quality
and efficiency factors to be used in all three methods are: rate of return,
freight traffic density, load factor, transportation performance, operating
ratio, gross profit margin, revenue per mile, and transportation
ratio.
Disclaimer: These regulations may not be the most recent version. New Mexico may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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