TAX COMMISSION, TAXES, PROPERTY, INTER-COUNTY [[INTERCOUNTY]]UTILITIES.
The tax commission has authority to assess for property tax purposes, all the production and distribution facilities of a public utility located in separate counties where all the facilities are owned and operated by the same company regardless of the fact there is no physical connection between the facilities located in the respective counties.
- - - - - - - - - - - - -
February 20, 1956
Honorable H. Dan Bracken, Jr.
State Tax Commission
Olympia, Washington Cite as: AGO 55-57 No. 208
You have requested an opinion from this office as to whether the Tax Commission has the authority to assess for tax purposes the properties of a public utility under the following factual situation:
The public utility involved is a gas distributing company, and presently operates one production plant and distribution facilities wholly within a single county. It operates a second production plant located entirely within another county and distributes gas only to customers residing therein. A third production plant and distribution system is situated in another county, serving only subscribers residing therein. Lastly, the company operates production facilities and distributes gas to consumers located within three contiguous counties.
The production and distribution facilities of this public utility are all owned and operated by the same company. The entire distribution facilities of the company are not presently physically interconnected, except as mentioned above in respect to the facilities serving the three counties. However, it is planned in [[Orig. Op. Page 2]] the future that this utility will distribute natural gas purchased and received from the same pipeline supplier and thus be connected with the pipeline at various points throughout the several counties in which the company distributes gas. The pipeline company is a separate and independently owned corporation.
We conclude that the Tax Commission has the authority to fix the assessed valuation of the properties of such a utility.
Chapter 84.12 RCW sets forth the statutory method of assessing public utilities. Under this chapter, the Tax Commission is given authority to assess "all operating property" of public utility companies, leaving the assessment of "non-operating [[nonoperating]]properties" to be made by the assessors of the various counties wherein the properties are located.
Our supreme court has interpreted these statutes as giving to the Tax Commission only the power to assess the inter-county [[intercounty]]operating property of a public utility, with no power to assess strictly intra-county [[intracounty]]property. Northwestern Improvement Co. v. Henneford, 184 Wash. 520. The reasoning behind authorizing the valuation by the Tax Commission of inter-county [[intercounty]]utility operations as a unit is that the value of the entire operation must be determined and considered in arriving at the proper assessed valuation of each part. Our court has also held in State ex rel. King County v. State Tax Commission, 174 Wash. 336 that to have such property assessed by each county would be impractical.
RCW 84.12.010 defines "gas company" as follows:
"'Gas company' means any person owning, controlling, operating, or managing property used or to be used in or in connection with the manufacture, transportation, or distribution of natural or manufactured gas in this state and engaged in such business for hire."
RCW 84.12.020 defines operating and nonoperating property as follows:
[[Orig. Op. Page 3]]
"'Operating property' means all property owned by any company, or held by it as occupant, lessee, or otherwise, situate within the state, and used by the company in the conduct of its operations. * * *
"'Nonoperating property' means all physical property owned by any company, other than that used during the preceding calendar year in the conduct of its operations. * * *"
It can thus be seen that the properties of the public utility under consideration herein would be "operating property" and thus assessed by the Tax Commission under the unit method if the operation of such properties can be said to be inter-county [[intercounty]]property.
As noted above under the factual situation herein, one production plant, and the distribution facilities thereof, serves three counties, and is thus clearly an inter-county [[intercounty]]operation. The other production and distribution facilities of the utility are located wholly within the county in which they are situated and are not physically interconnected with each other or with the aforementioned inter-county [[intercounty]]facilities. Physical connection between all of the properties of a utility is not the statutory test of an inter-county [[intercounty]]operation, nor in our view utility is not the statutory test of an inter-county operation, nor in our view has our supreme court so held. We recognize that the result reached by our court inPuget Sound Light & Power Co. v. King County, 10 Wn. (2d) 424, 116 P. (2d) 807, may be cited as authority for a conclusion contrary to that reached herein. However, in our opinion, this case is clearly distinguishable from the instant matter and further, sets down the test of what constitutes an inter-county [[intercounty]]operation upon a much broader ground than mere physical connection.
The above case involved an electric light and power company operating an electrical distribution system throughout several counties in Western Washington. Among its properties was a small steam heating facility located within King County, which furnished steam for heating certain buildings in the city of Seattle. The only relationship between the steam plant and the electric power facilities of the company was that a small amount of steam was produced in boilers heated by surplus electricity. The court held that the Tax Commission lacked authority to make an original assessment of the steam plant located within King County. In so concluding, the court found that the [[Orig. Op. Page 4]] steam plant constituted no part of the inter-county [[intercounty]]power system, nor had it any special value as a part of that system which operated outside of King County. In this respect, the court stated on pages 430 and 431, in part, as follows:
"* * * The steam plant constitutes no part of appellant's intercounty system, nor has it any special value as a part of that system which operates outside of King county. It constitutes no part of appellant's electric light and power system, and could be separated therefrom without impairing the value of the system, and with little effect upon the operation of the steam plant. * * * Specific property should not be valued as a part of an entire utility operation under the unit method of valuation, unless it be actually an operating part of the larger unit." (Emphasis supplied.)
In respect to the public utility under consideration herein, the several production and distribution facilities are all integral operating parts of the same company, and certainly could not be separated therefrom without impairing the value of the entire system. The production and distribution facilities of the entire company deal in the same product, offer the same service to its subscribers throughout its system, and are each under the same operating management. To conclude that the production and distribution facilities in King County, for example, have no special value as a part of the company's system operating outside King County is unrealistic. In our view, it must therefore follow that the various production and distribution facilities of the utility company are an operating part of the larger unit and constitute an inter-county [[intercounty]]system. Accordingly, to arrive at the assessed valuation thereof, it would be necessary to determine the value of the entire system by considering all the facilities as one unit.
As pointed out before the facilities of the company will shortly be connected with the pipeline for the purpose of taking natural gas. When that event occurs, in addition to the other elements mentioned herein, there will be a physical connection between the various distributing facilities of the utility by virtue of the transmission line of the pipeline company.
[[Orig. Op. Page 5]]
In conclusion, it is our view that the various production and distribution facilities of the utility described herein are each an integral part of the entire utility operation and are thus each an operating part of the larger unit. Accordingly, the properties thereof should be assessed by the Tax Commission under the unit method of valuation.
Very truly yours,
ROBERT L. SIMPSON
Assistant Attorney General