26-26-1607. Method of valuing property — Definition.

26-26-1607. Method of valuing property — Definition. (a) The valuation of the taxable property, both real and personal, of all persons, firms, companies, copartnerships, cooperatives, associations, and corporations required by law to be assessed by the Tax Division of the Arkansas Public Service Commission shall be made upon the consideration of what a clear fee simple title thereto would sell for under conditions which usually govern the sale of property of that character. (b) The division in determining fair market value, insofar as other evidence and information in its possession does not make it appear improper or unjust for it to do so, shall ascertain and determine as nearly as it can and consider: (1) Original cost less depreciation, replacement cost less depreciation, or reconstruction cost less depreciation. Proper consideration may be made for functional or economic obsolescence and for operation of nonprofitable facilities which necessitate regulatory body approval to eliminate; (2)(A) The market value of all outstanding capital stock and funded debt, excluding current and deferred liabilities, except accumulated deferred income taxes, investment tax credits, and items associated therewith. A premium or discount to capital stock may be considered above or below the current market price where evidence warrants. (B) In cases where the outstanding capital stock is not traded or is not capable of reasonably accurate determination, book values may be substituted; (3)(A)(i) The utility operating income after deduction of all actual income taxes paid, capitalized in the manner and at such rates as shall be just and reasonable, but in no event shall the capitalization rate be less than six percent (6%). The deduction from income of deferred income taxes, investment tax credits, and items associated therewith is specifically prohibited for purposes of this subsection. (ii) The utility operating income after the deduction of all income tax expense capitalized in a manner which recognizes the utility's ability to defer income taxes, utilizing accumulated deferred income taxes, investment tax credits, and items associated therewith as cost-free debt in the capital structure to determine the capitalization rate. (B) The utility operating income to be capitalized should be determined by reference to the company's historical income stream, appropriately weighted, with consideration to the future income stream. (C) Directory sales revenue produced in this state is considered attributable to utility real and personal property located in this state and is to be appropriately considered in determining operating income; and (4) Such other information as evidence to value as may be obtained that will enable the division to determine the fair market value of the property of the companies. The fair market value of affiliated properties separately assessed and the nonoperating properties of such companies shall be ascertained and determined as nearly as possible and deducted from the total unit value of the properties of the companies if the properties are included in the unit value. Insofar as it is possible or practical to do so, the same method of evaluating the properties of the companies separately assessed, or nonoperating properties, shall be used as was used in determining the unit value of the company. (c) The division, in valuing property pursuant to subsection (b) of this section for broadband communications entities, shall exclude all intangible property acquired after January 1, 2015, in accordance with the following provisions, provided that the values determined pursuant to this subsection shall be correlated to a final unit value and then allocated to the state: (1) The cost approach should be calculated based on the total original cost of the tangible and intangible operating property, less depreciation and amortization reflected on the company's balance sheet; (2) The cost approach value determined pursuant to subdivision (c)(1) of this section shall be adjusted to determine the “adjusted cost indicator value”. The adjusted cost indicator equals the value determined pursuant to subdivision (c)(1) of this section reduced by all intangible property acquired after January 1, 2015. Intangible assets acquired after January 1, 2015, shall not include assets previously included in an Arkansas property tax valuation; (3) The value determined pursuant to subdivisions (b)(2) and (3) of this section shall be adjusted by multiplying each by a fraction as follows; provided, however, that this adjustment shall only apply if the original cost less depreciation of the tangible property located in this state is less than or equal to the adjusted value allocated to this state: (A) The numerator equals the “adjusted cost indicator value” determined pursuant to subdivision (c)(2) of this section; and (B) The denominator equals the original cost of the operating assets less depreciation as reflected on the balance sheet determined pursuant to subdivision (c)(1) of this section; (4) For purposes of this section, intangible property includes but is not limited to goodwill, trademarks and trade names, licenses, established customer base and lists, patents, franchises, rights and proprietary technology, but, solely for purposes of this subsection, intangible property does not include software; and (5) For purposes of this subsection, “broadband communications entities” means entities investing in intangible and tangible property to enhance broadband deployment and connectivity and shall include the following: (A) Commercial mobile service as defined in § 23-17-403; (B) Telecommunications providers as defined in § 23-17-403; (C) Video service providers as defined in § 23-19-202; and (D) Cable television systems as defined in § 26-26-1801.