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Two railroads, one small water company want tax assessments lowered

CHARLESTON, W.Va. -- Representatives of two railroad giants and one small water company pleaded their cases Thursday to have their state property tax assessments reduced.

Scott Burgess, a consultant for Jefferson Utilities, told the state Board of Public Works his company just wants to be treated like the two others appealing their assessments, CSX and Norfolk Southern railroads.

"The rules suggest you're doing it right for CSX and Norfolk Southern and wrong for Jefferson Utilities," he said.

He said the railroads' proposed property valuations were based entirely on income earned in the state, while the assessment for the small, 2,400-customer water company in Jefferson County was based 85 percent on company assets and only 15 percent on income, he said.

As a result, he said, the proposed property taxes for CSX, whose West Virginia operations earned $150 million last year, and Norfolk Southern, with in-state profits of $120 million, will pay between $10.6 million and $10.8 million in property taxes.

Meanwhile, Jefferson Utilities, with income last year of just $107,222, will owe property taxes of $56,000, using the different calculation, he said.

"You can't pay half your income in taxes, and that's exactly what's happened," he told the board, made up of the six statewide elected officers and the superintendent of schools.

He said property tax valuations for utilities in the state are all over the board, ranging from a 100 percent income-based formula for the two railroads to the predominately asset-based calculation for Jefferson Utilities, with a wide variety of combinations of the two for other utilities in the state.

"Did they vote right? Did they pass the litmus test?" Burgess said of companies with lower assessments. "We can't see any rhyme or reason to the process."

By comparison, residential and commercial properties are assessed primarily based on their market value - but that method is not feasible for utilities, since water, electric and natural gas companies rarely come up for sale.

Meanwhile, officials for the two railroads also argued that their assessed property taxes are too high.

Michael Quinn, with Norfolk Southern, and Kerry Carnahan, with CSX Corp., each argued that the assessments fail to take into account comparatively high capital expenditures for the railroad industry, or that coal shipments are declining.

Carnahan said coal accounts for more than one fourth of all rail shipments on CSX, and said coal shipments are down 13 percent this year, and are expected to fall 17 percent next year.

"We are struggling with the coal industry right now, because of natural gas prices," he said, noting that many coal-fired power plants have converted to lower-cost natural gas.

"We don't foresee those natural gas prices rebounding to the point where plants would go back to burning coal," he said.

Quinn stressed that, compared to other industries, railroads have extremely high capital expenditures, and are constantly repairing or replacing tracks, ties, ballast, signals and rolling stock.

Norfolk Southern had net operating income of just over $2 billion last year, but spent $2.2 billion upgrading track and equipment, he said.

"We are one of the most capital-intensive industries in the country," he said.

Both men said West Virginia's property tax assessments are at the "high end of the reasonable range," and higher than other states the railroads serve.

State Property Tax Division Director Jeff Amburgy said the Tax Division would prepare a memorandum for the board responding to the three appeals.

The Board of Public Works will vote to approve 2013-14 property valuations for all utilities operating in the state on Dec. 3.

Barring adjustments based on the appeals, that amount will total nearly $9 billion, up $515 million from last year.

Under state law, the board -- made up of the governor, secretary of state, auditor, treasurer, attorney general, agriculture commissioner and state superintendent of schools -- must approve annual property valuations for all utilities operating in the state, including water, natural gas, electric and telephone companies, as well as railroads.

Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.


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