Written by: Patrick Price
In a recent landmark decision, the Minnesota Supreme Court ruled in favor of Centerpoint Energy Resources Corp., the owner of a natural gas pipeline, in the case of Commissioner of Revenue v. Centerpoint Energy Resources Corp. This decision affirmed the trial court’s previous ruling, which had reduced the valuation of the pipeline for property tax purposes. However, the court’s decision hinged on the acceptance of the taxpayer’s argument for external obsolescence and the dismissal of the Commissioner’s expert witness opinion regarding the cap rate selection.
This article delves into the details of the case and explores the implications of the Minnesota Supreme Court’s decision.
BACKGROUND OF THE CASE
The tax court had initially reduced the valuation of the natural gas pipeline, leading the Commissioner of Revenue to appeal the decision. However, the state’s Supreme Court sided with the trial court, affirming its ruling. The court deemed the trial court’s decision correct in disregarding the Commissioner’s expert witness opinion on the cap rate selection and accepting the taxpayer’s argument for external obsolescence.
THE SIGNIFICANCE OF CAP RATE SELECTION AND EXTERNAL OBSOLESCENCE
The court emphasized that the taxpayer presented superior evidence supporting its chosen cap rate in the income approach. This evidence played a crucial role in the court’s decision to accept the taxpayer’s position. Additionally, the court recognized that the regulatory treatment of rate-regulated utilities, such as the natural gas pipeline in question, creates external obsolescence that must be deducted in the cost approach. This acknowledgment further bolstered the taxpayer’s case.
THE ROLE OF INDEPENDENT FEE APPRAISAL
The court noted that the determination of the taxpayer’s independent fee appraisal provided sufficient evidence to establish that the assessment was excessive. This appraisal played a pivotal role in validating the taxpayer’s claims and contributed to the court’s ruling in its favor.
IMPLICATIONS OF THE COURT’S DECISION
The Minnesota Supreme Court’s ruling sets an important precedent for property tax cases involving natural gas pipelines and potentially other rate-regulated utilities. The court’s decision highlights the significance of presenting strong evidence for cap rate selection in the income approach and recognizing the impact of external obsolescence caused by regulatory treatment in the cost approach. Property owners in similar situations can now draw upon this ruling to support their arguments and potentially challenge excessive property tax assessments.
By affirming the trial court’s ruling, the Minnesota Supreme Court acknowledged the taxpayer’s evidence for cap rate selection and accepted its argument for external obsolescence. This decision has broader implications for property tax cases involving rate-regulated utilities and emphasizes the importance of presenting compelling evidence to support valuation claims—property owners can now leverage this ruling as a precedent to challenge excessive assessments and seek fair taxation.
GET THE MOST OUT OF YOUR PROPERTY TAX ASSESSMENT
When your company’s property tax assessment is hanging in the balance, or the revaluation of your property is questionable, DMA’s property tax experts can help. Our dedicated team of complex property experts specializes in the valuation of centrally-assessed properties. With jurisdictional and industry-specific expertise, our team can navigate the known complexities of varying property tax rules and regulations.
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