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Last Updated: 1/28/2019

Railroad Property Tax

Railroad Property Tax is based on the market value of a railroad company's operating property in Minnesota.

The Minnesota Department of Revenue estimates and certifies the market value. The counties use the market value to calculate, bill, and collect the taxes from companies.

 

Who needs to file?

Railroad companies doing business in Minnesota need to file. 

 

What do I need to file?

You need to file three documents:

Details on completing and filing are found in the Instructions for the Annual Report of Railroad Companies and Instructions for the Railroad Property Record Report.

 

Email completed reports and supporting documentation to sa.property@state.mn.us.

 

Deadline and extension request

The Railroad Property Record Report is due annually by December 1. The Annual Report of Railroad 
Companies is due annually by March 31. See more important dates and deadlines.

 

We may grant a 15 - day filing extension. For information about extensions, including how to request one, see extension request instructions.

 

How we estimate the market value of your property

Here are the steps we follow:

  1. Estimate the market value of the company
  2. Allocate a portion of the value to Minnesota
  3. Remove locally-assessed and non-operating property
  4. Apportion the remaining value to all parcels in Minnesota with operating property
  5. Apply equalization, if necessary    
 

Step 1: Estimate the market value of the company

The market value is the value of the entire company's property, functioning as a single unit. We consider 
all approaches to value to determine their validity relating to the specific property being valued. 

 
  • Cost approach: based on the principal of substitution, a buyer will not pay more for a property 
    than the cost of a satisfactory replacement.  

    To calculate this, we take the restated cost and subtract depreciation of the railroad system. We then add the restated cost of current construction work and a deduction for obsolescence.
  • Income approach: converts future anticipated income into present value, based on the assumption that investors will buy and sell property for its future expected income potential. This conversion process is called capitalization.

    To calculate this, we:
  1. Take the average of the net railway operating income for five years prior to the assessment. This is given to us by the Surface Transportation Board.
  2. Apply the capitalization rate, computed using the Band of Investment method. This method considers equity and debt financing aspects and is a combination of the weighted rates for each aspect.

    This table shows an example:
  • This company used debt for 50% an equity for 50% of its financing.
  • The company's cost of debt financing is 10% and the company's cost of equity financing is 12%.
  • Adding the weighted rates of those costs gives the company's capitalization rate of 11%. 
 

​Band of Investment Method ​ ​ ​ ​ ​

​Financing ​X ​Cost of Financing ​= ​Weighted Rate
​Debt ​50% ​X ​10% ​= ​5%
​Equity ​50% ​X ​12% ​= ​6%
​Capitalization Rate ​= ​11%
 
  • Stock and debt approach: Adds a company's debt to the worth of its stock to establish its property value. We use the stock and debt approach for railroads that are publically traded. Conceptually, the total value of a company's assets is equal to the total value of its liabilities and stockholder's equity.

Step 2: Allocate a portion of the value to Minnesota

We allocate a railroad's unit value to Minnesota based equally on the following information:

  • Miles of railroad track operated in Minnesota divided by miles of railroad track operated in all the states
  • Ton miles of revenue freight transported in Minnesota divided by ton miles of revenue freight transported in all the states
  • Gross revenues from transportation operations within Minnesota divided by gross revenues from transportation operations in all the states
  • Cost of road property in Minnesota divided by the total cost of road property in all the states

Step 3: Remove locally-assessed and exempt property

We remove locally-assessed property, such as buildings used for general office functions, and exempt property, such as office equipment.  

Step 4: Apportion remaining value to all parcels in Minnesota with operating property

After we determine the taxable Minnesota portion of the unit value, we distribute it among the various 
counties and taxing districts where the company operates. 

We use land, miles of track, and railroad operating structures to apportion the taxable portion of the unit value to each of these counties and taxing districts.  

Step 5: Apply equalization, if necessary

We apply equalization, if necessary. If a county's commercial/industrial sales ratio is out of compliance, we apply an equalization factor to the apportioned values within that county.


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