Current Property Tax Developments BTI Annual Conference Half Moon Bay, California October 21, 2014 Paul Gordon, Gordon & Polland LLP Douglas Mo, Sutherland Asbill & Brennan LLP Mark Schichtel, Time Warner Cable Zack Atkins, Sutherland Asbill & Brennan LLP
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Paul Gordon, Gordon & Polland LLP Douglas Mo, Sutherland ... · Current Property Tax Developments BTI Annual Conference Half Moon Bay, California October 21, 2014 . Paul Gordon, Gordon
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Current Property Tax Developments BTI Annual Conference Half Moon Bay, California October 21, 2014
• Generally endorsed nontaxability of intangible assets
• Created distinction between “direct” and “indirect” intangibles – direct being nontaxable, indirect intangibles “merely allow[ing] the taxable property to generate income”
• Cable intangibles (e.g. franchise, license to construct, subscriber list, going concern, goodwill) were considered “direct” intangibles
Elk Hills Power LLC v. Bd. of Equalization, 57 Cal.4th 593 (2013).
• Assessor used “Rushmore” method to remove intangibles
• Deduction of management and franchise fee from income stream did not exclude assembled workforce, leasehold interest in employee parking lot, and hotel’s agreement with golf course operator
• Deduction of management and franchise fee did exclude value of goodwill
• Assessor’s method failed to attribute a portion of hotel’s income stream to enterprise activity
SHC Half Moon Bay v. Cnty. of San Mateo, 226 Cal.App.4th 471 (2014).
• Court cited with approval GTE Sprint v. County of Alameda, 26 Cal.App.4th 992 (1994)
• Taxpayer introduced evidence of income attributable to workforce and leases, but not goodwill; with respect to goodwill, taxpayer used a residual approach
• Assessor did not explain how deduction of management and franchise fee removed value of workforce and leases
• Goodwill became a question of fact – court deferred to Board’s determination that goodwill was zero (because it was deducted through management/franchise fee)
SHC Half Moon Bay v. Cnty. of San Mateo, 226 Cal.App.4th 471 (2014).
• Using residual method invokes “substantial evidence” standard for goodwill
• Vast majority of intangible value was in goodwill
The UGLY
• How do you value goodwill without a residual analysis?
• How do you reconcile the characterization by the Elk Hills court of goodwill as a “direct” intangible and the application of the Rushmore method in SHC Half Moon Bay?
• “[O]nly the property used in the business, service, or commodity is assessed (and thus taxed). The value of the business, service, or commodity itself is not subject to central assessment.”
• “Finally, it does not matter that the service preexisted the 1973 amendments, and only since then has evolved to become a data transmission service.”
• If cable television service is a “data transmission service,” does that mean that set-top boxes are computers or computer-like devices that should be depreciated as such?
Comcast Corp. v. Or. Dep’t of Revenue, TC 4909 (Or. Tax Ct. Aug. 10, 2011), SC S059764 (Or. Oct. 2, 2014).
• Dissent calls it “information superhighway robbery”
• Supreme court completely ignored trial court’s findings that Bresnan’s property met definition of “cable television system” and instead determined it was a “telecommunications company”
• Case remanded to decide remaining issue of nontaxability of customer relationships
• Charter purchased Bresnan and settled case Bresnan Communications, LLC v. Mont. Dep’t of Revenue, 315 P.3d 921 (Mont. 2013).
• Cable One operates cable, Internet access, and VoIP services in a single entity; the Department of Revenue centrally assessed all of Cable One as a “telecommunications company”
• Court notes at outset that Cable One advertises itself as providing “phone service”
• VoIP is different than circuit switched service, but it didn’t matter; court focused on “function” instead of “technology”
Cable One, Inc. v. Ariz. Dep’t of Revenue, 304 P.3d 1098 (Ariz. Ct. App. 2013).
Cable One asserted that the Department’s actions violated the uniformity clause of the state constitution because the Department does not centrally assess the property of a cable company if it has spun off the VoIP service to a subsidiary
Court finds no unconstitutionality—“Cable One’s property is not functionally equivalent to the property owned by these other cable companies because it is providing VoIP service and these other companies are not.”
Cable One, Inc. v. Ariz. Dep’t of Revenue, 304 P.3d 1098 (Ariz. Ct. App. 2013).