April 8, 2008
TAX TREATMENT OF UTILITY PROPERTY IN CONNECTICUT AND MASSACHUSETTS
By: Kevin E. McCarthy, Principal Analyst
You asked how Connecticut and Massachusetts treat utility-owned property for property tax purposes.
With limited exceptions, assessors in Connecticut must value property at 70% of its “present true and actual” (fair market) valuation (CGS § 12-63). Assessors can choose one of three methods to determine a property's value. The method most commonly applied to utility property is its net book value, i.e., the property's original cost, less depreciation, plus any additions. Assessors can also base a property's valuation on the income it produces and comparable sales. The former is commonly used for rental property, such as apartment buildings, while the latter is commonly used for single family homes and condominiums. In some cases, these methods are used for utility property. Except as described below, all property is subject to the tax rate set by the municipality.
There are several taxation provisions that are specific to certain types of utility property. CGS § 12-80a requires the state, rather than municipalities, to assess personal property owned by telephone companies that were in the Connecticut telecommunications market before 1990. Specifically, this provision applies to companies that were subject to the telecommunications gross receipts tax before January 1, 1990 and the sales tax thereafter (AT&T for most of the state, Verizon for part of Greenwich). Each company must submit a list specifying the location of its personal property by town to the Office of Policy and Management and the Department of Revenue Services. Separate tax provisions apply to property used to provide cable TV and telecommunications services. (Some types of personal property, such as fiber optic lines, can be used to provide both services simultaneously.)
The property on the list is assessed at 70% of its net book value. The property is taxed at a statewide rate of 47 mills rather than the locally set mill rate. There are significant procedural differences between the way the state assesses this property and the way municipalities assess personal property under CGS § 12-63.
The law allows other telecommunications companies to choose to have their personal property subject to state rather than local assessment. To be eligible for this option, the company must have been subject to the sales tax on or after January 1, 1990 and not have been subject to the gross receipts tax before this date. This provision affects companies that entered the Connecticut telecommunications market after January 1, 1990. There are several hundred such firms in the state.
Another tax provision that applies specifically to utilities is CGS § 12-76. This law exempts land owned by a municipal water utility (including the Metropolitan District Commission) in a town if the town's residents have the right to use the water supplied by the utility and in fact use this water. If the town residents do not have the right to use the water, the town must tax it as though it was improved farm land (this value may be substantially below the land's fair market value if the land is suitable for development). There are also separate tax provisions regarding the land owned by the South Central Connecticut Regional Water Authority, which serves greater New Haven.
Generally speaking, corporations subject to the utility franchise tax under 63 Mass. Gen Laws § 52A, (including electric, gas, water, and telephone companies) are exempt from local property tax on their personal property other than poles and wires, underground conduits, and wires and pipes and machinery used to supply and distribute water.
Historically, Verizon (the primary telephone company in the state) paid taxes on its poles and wires located on private, but not public, property. On March 3, 2006, the state Appellate Tax Board held that Verizon is subject to property tax on its poles and wires over public ways (where most such infrastructure is located). Verizon has announced that it will appeal this ruling. The Department of Revenue has stated that the same tax treatment will apply to cable TV companies. A previous decision by the board ruled that Verizon Wireless is not a telephone company and thus not eligible for the exemptions. The company has appealed this decision.
Telephone companies are subject to provisions somewhat similar to those in Connecticut with regard to their centrally assessed taxable property. They must file returns of taxable telephone personal property with the Commissioner of Revenue. The commissioner must value the property and certify the values to the companies and the local boards of assessors where the property is situated. Local boards of assessors generally must assess the tax to the companies using the local appropriate tax rate and using the valuation certified by the commissioner. To establish a higher valuation, the town or city must appeal to Appellate Tax board for the affected fiscal year. In the appeal, the municipality has the burden of showing that the value is substantially higher than the one certified by the commissioner. Telecommunication company taxes are assessed at the same time as other municipal property taxes.
Municipal water utilities (including the Metropolitan Water Resources Authority, which serves greater Boston) are generally exempt from the property tax. But, they must make payments in lieu of taxes to the municipalities where their property equivalent to the taxes on the land that they own.
The remaining taxable utility company property is most commonly assessed based on its net book value.