Updated september 2018
Proving Economic Obsolescence is All In the Timing
TBM-WC Sabine, LLC (“TBM”) owns natural gas pipeline and surface equipment in Sabine Parish, Louisiana. In support of its claim of economic obsolescence, TBM provided information with its annual property tax rendition demonstrating the condition of the pipeline and establishing that the surface facilities were idle during the tax year in question. TBM also provided an unaudited, consolidated financial statement that did not specifically attribute income and expenses to TBM. Finally, TBM provided a short statement regarding the utilization percentage of its pipeline. Based on this information, the assessor recognized considerable obsolescence in the surface equipment, but only about 12% in the pipeline. TBM appealed the pipeline valuation to the Louisiana Tax Commission (“LTC”).
At the hearing before the LTC, TBM introduced additional evidence of obsolescence that had not been provided to the assessor, which apparently had been available to TBM. The LTC ruled in TBM’s favor, but did not issue factual findings or any conclusion that the assessor had abused her discretion in denying additional obsolescence. The assessor appealed to district court in Sabine Parish, which promptly reinstated the assessor’s determination. TBM appealed to Louisiana’s Third Circuit Court of Appeal.
The Court of Appeal affirmed on all counts. First, the Court reiterated that the LTC was only to review property tax assessments, not make them. It then held that it was incumbent on TBM to provide all data and information regarding obsolescence to the assessor. Providing information, even compelling information, to the LTC on appeal was insufficient. Importantly, the Court never questioned whether the information was too little, just that it was too late.
Next, the Court stated that, in reviewing the LTC’s decision, it must determine whether the LTC manifestly erred when it held that the assessor abused her discretion in rejecting TBM’s evidence of economic obsolescence. It concluded that the LTC had indeed erred. The Court noted that the assessor's determinations were based on data provided by TBM, and that TBM had no complaint with assessor's exercise of discretion in accepting the depreciated value of surface equipment, but only complained about her exercise of discretion when she denied the requested obsolescence on the pipeline. Essentially, the Court found that, because TBM agreed that the assessor’s valuation was correct as to surface equipment, it could not challenge her valuation of other property.
Notably, the LTC revised its regulations this summer, at least partly in response to this case. The regulations now require any information to be introduced before the LTC must first have been provided to the assessor. The LTC recognized that it may be impractical for taxpayers to provide full-blown appraisals, but any documentation that would be used by an appraiser in conducting an appraisal, such as audited financial statements, purchase/sale agreements, substantiated utilization reports, etc., should be provided to the assessor.
TBM-WC Sabine, LLC v. Sabine Parish Board of Review, 2017-1189 (La. App. 3rd Cir. 7/18/18), ___ So.3d ___.
Angela W. Adolph, Partner
Kean Miller LLP
American Property Tax Counsel (APTC)