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Last Updated: 3/5/2019

Utility Property Tax

Utility and Pipeline Property Tax is based on the market value of a company's operating property in Minnesota. The tax applies to these types of companies:

  • Electric light and power
  • Gas and water
  • Express, stage, and transportation
  • Pipeline

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?

Electric light and power, gas, water, express, stage, transportation, and pipeline companies doing business in Minnesota.  

What do I need to file?

You need to file three documents:

Details on completing and filing are found in the Instructions for Utility and Pipeline Market Value Report and Instructions for Utility and Pipeline Property Record Report.

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

*If we value your operating property using Minnesota Rules 8100.0300, subpart 6 (commonly referred to as Cost Less Depreciation or CLD), do not complete the Utility and Pipeline Market Value Report.

Deadline and extension request

Reports are due by March 31 annually. 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 operating 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

We use one of the two methods to estimate the company's market value:

  • Unit value
  • Cost less depreciation 

Unit Value

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

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

To calculate this, we take the original cost less depreciation of the system plant, plus the costs of:

    • Improvements to the system plant
    • All types of construction work in progress that are installed by the assessment date
    • Property held for future use
    • Contributions in aid of construction
  • 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 weighted average of the  net operating income for the three years prior to the assessment.
  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% and 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%.
  • Additional approaches: We will consider additional approaches to value if there is available information.

Cost less depreciation

It's the original cost of the company's operating property less a deduction for depreciation of 2.5% each year (not to exceed 75%). 

We use the cost less depreciation method for companies that are:

  • Cooperative associations, not electing unit valuation
  • Do not operate in the traditional profit-making mode
  • Not common carriers
  • Nonregulated

Step 2: Allocate a portion of the value to Minnesota 

We use an allocation formula, which is specific to the type of utility or pipeline being valued. 

  • Electric utility:
    1. Original cost of the utility property located in Minnesota divided by the total original cost of the property in all states weighted at 90%. 
    2.  Gross revenue from Minnesota operations divided by total gross revenue from all states weighted at 10%. 
  • Gas distribution utility:
    1.  Original cost of utility property located in Minnesota divided by the total original cost of property in all states weighted at 75%.
    2. Gross revenue from Minnesota operations divided by total gross revenue from all states weighted at 25%.
  • Pipeline utility:
    1. Original cost of utility property located in Minnesota divided by the total original cost of property in all states weighted at 75%.  
    2. Throughput of product from operations in Minnesota divided by the total throughput of product from operations in all states weighted at 25%.

Step 3: Remove locally assessed and exempt property

We remove locally assessed property, such s land, 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. It's based on percent of the current original cost of each parcel as a part of the total current original cost. 

Step 5: Apply equalization, if necessary

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

 

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