Nevada Tax Commission v. Southwest Gas Corp. , 88 Nev. 309 ( 1972 )

OPINION

By the Court, Thompson, J.:

This appeal is from a judgment in an action brought by Southwest Gas to recover taxes paid under protest. At issue is whether the Nevada Tax Commission properly applied its valuation formula for property tax assessment purposes to Nevada Northern Gas Company for the 1963-64 tax year.¹ Following a trial de novo, the district court found an improper application of formula which caused an excessive tax in the amount of $20,457. Southwest Gas was given judgment for that amount and this appeal followed.

The formula adopted by the Commission to fix the value of gas and gas pipeline companies for assessment purposes requires the proper weighting of three indicators of value when available and applicable. Those indicators of value are the book cost less depreciation of the properties, the capitalized income at a reasonable rate, and the market value of the stock and debt. The formula per se is appropriate. State v. Nevada Power Co., 80 Nev. 131, 390 P.2d 50 (1964). The application of it to the properties of Nevada Northern was challenged in the district court for the reason that the Tax Commission utilized only the book cost less depreciation indicator of value in assessing Nevada Northern’s gas pipelines. The capitalized income and stock and debt indicators of value were not used in making the assessment. It was and is the Commission’s position that those indicators of value were neither available nor applicable since Nevada Northern had no income during the tax year in question, and had not traded stock. The taxpayer contends that all three indicators of value were “available and applicable” notwithstanding the absence of income and stock trading, and should have been utilized and properly weighted in the assessment process. The trial court was persuaded to adopt the taxpayer’s contention, imputed an income where none existed, and inferred a market value for the taxpayer’s stock though none had been traded. The court’s decision rests upon the testimony given by the taxpayer’s expert witness to the effect that it was good appraisal practice to impute income and infer stock market value in the circumstances here present. That testimony was controverted by witnesses for the Commission who believed that the capitalization of income indicator of value and the stock-debt indicator were unreliable in circumstances where the income had to be imputed and the market value of the stock inferred.

1. The parties agree that it is the taxpayer’s burden to show by clear and satisfactory evidence that the valuation established by the Commission is unjust and inequitable. NRS 361.410(2); NRS 361.430. This burden is not met unless the court can find that the Tax Commission applied a fundamentally wrong principle, or refused to exercise its best judgment, or that the assessment was so excessive as to give rise to an implication of fraud or mala fides. Pittsburg Silver Peak v. Tax Commission, 49 Nev. 46, 55, 235 P. 643 (1925). The taxpayer does not here contend that the Commission is chargeable with fraud or bad faith, nor does it suggest that the Commission failed to exercise its best judgment. The thrust of the taxpayer’s position, below and here, is that the Commission applied a fundamentally wrong principle in that it failed to utilize all three indicators of value in the assessment process. We are told that the testimony of its expert witness constitutes substantial evidence of a clear and convincing nature in support of this proposition, and that we may not, therefore, set aside the trial court ruling.

At best, the valuation of property is an illusory matter upon which experts hold differences of opinion. As a general proposition, the taxpayer’s burden of proof is not met by merely showing a difference of opinion between witnesses and the assessing authority. Chicago and North Western Railway Co. v. Prentis, 161 N.W.2d 84 (Iowa 1968). There exists no absolute mathematical formula to establish market value. Indeed, the formula adopted by the Tax Commission for the assessment of gas and gas pipeline companies requires only that the three indicators of value, properly weighted, be considered “when available and applicable.” The very existence of the phrase “when available and applicable” points to a recognition that some of those indicators of value may not appropriately be utilized in certain limited situations. That phrase leaves room for the exercise of reasonable judgment by the assessing authority. It is our opinion that the Tax Commission and staff reasonably could conclude that the capitalization of income and stock-debt indicators of value were not “available and applicable” in the circumstances here present, and that the expert testimony offered by the taxpayer that such indicators of value could have been used through the processes of imputation and inference does not constitute clear, convincing and substantial evidence that the Commission applied a fundamentally wrong principle in ascertaining value. Pittsburgh Silver Peak v. Tax Commission, supra.

2. Although the taxpayer suggests the possible existence of a constitutional problem in this case, we perceive none.

Reversed.

Batjer, Mowbray, and Gunderson, JJ., concur.

1 On December 31, 1963, Nevada Northern merged into Southwest Gas.