Alcan Rolled Products - Ravenswood, LLC v. Hon. Craig A. Griffith, W.Va. State Tax Commissioner

STATE OF WEST VIRGINIA
SUPREME COURT OF APPEALS
FILED
ALCAN ROLLED PRODUCTS – RAVENSWOOD, LLC, June 5, 2013
released at 3:00 p.m.
Petitioner Below, Petitioner RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
OF WEST VIRGINIA
vs.) No. 11-1752 (Jackson County No. 10-AA-3)
THE HONORABLE CRAIG A. GRIFFITH,
WEST VIRGINIA STATE TAX COMMISSIONER,
Respondent Below, Respondent
MEMORANDUM DECISION
The petitioner herein, Alcan Rolled Products – Ravenswood, LLC 1(“Alcan”), appeals
from an order entered November 23, 2011,2 by the Circuit Court of Jackson County. By that
order, the circuit court affirmed the February 25, 2010, ruling of the Jackson County
Commission, sitting as a Board of Equalization and Review (“the Board”). In its decision,
the Board had upheld the Tax Commissioner’s valuation of Alcan’s industrial personal
property for tax year 2010 in the amount of $92,960,786. Before this Court, Alcan
challenges that valuation.
1
On August 1, 2011, the taxpayer herein, Alcan Rolled Products – Ravenswood, LLC,
changed its name to Constellium Rolled Products Ravenswood, LLC. However, for purposes
of the instant appeal, we will refer to the taxpayer by its former name, Alcan, to maintain
consistency with the record of the underlying proceedings.
2
The circuit court entered its initial order in this case on November 23, 2010.
However, because the taxpayer did not receive a copy of the court’s final order, the circuit
court vacated its initial order and re-entered it on November 23, 2011, to permit Alcan to
appeal to this Court. In granting Alcan relief, the circuit court found its Rule 60(b) motion
to be timely and concluded that the Tax Commissioner would not be prejudiced by the re-
entry of the order insofar as Alcan already had paid its 2010 taxes based upon the Tax
Commissioner’s valuation that Alcan challenges herein and appellate review would be based
upon the record developed before the Board. See generally W. Va. R. Civ. P. 60(b)
(permitting party to seek relief from court’s final order based upon mistake and excusable
neglect, among other factors).
1
Upon our review of the parties’ arguments, the appendix record, and the pertinent
authorities, we affirm the circuit court’s decision upholding the valuation of Alcan’s
industrial personal property for tax year 2010. Moreover, because this case does not present
a new or significant issue of law, we find this matter to be proper for disposition pursuant to
Rule 21 of the West Virginia Revised Rules of Appellate Procedure.
The facts giving rise to the instant proceeding are as follows. Alcan owns an
aluminum manufacturing plant; at its plant, Alcan melts aluminum ingots and produces
aluminum plates and other products. For tax year 2010, the Tax Commissioner valued
Alcan’s industrial personal property at $92,960,786. This calculation included all of Alcan’s
equipment and machinery: both (1) Alcan’s older- acquired industrial personal property that
it acquired before 1990 and (2) Alcan’s newer-acquired industrial personal property. With
regard to Alcan’s pre-1990 equipment and machinery, the Tax Commissioner determined that
all of these items together had a combined value of $8,696,762, to reflect this property’s
depreciation to a floor limit of 80% depreciated and 20% good.3 Included within this
grouping of depreciated property is Alcan’s primary piece of manufacturing equipment: a
thirty million pound stretcher (“the stretcher”). The stretcher has been in service for at least
forty years, and produces approximately 85% of the products it produced when new. Alcan
represents that this reduction in production using the stretcher is due to cracks in the
equipment that Alcan plans to repair.4 Commensurate with this diminished production, the
Tax Commissioner allowed Alcan an additional deduction of $10,328,976 for functional
obsolescence, or roughly 10% of the $92,960,786 valuation of all of Alcan’s industrial
personal property, to coincide with the percentage of lost production that is attributable to
the stretcher’s deteriorated condition.
Alcan disagreed with the Tax Commissioner’s valuation of its industrial personal
property and requested review thereof before the Jackson County Commission, sitting as a
Board of Equalization and Review. In support of its argument for a lower valuation of its
3
The Tax Commissioner explained that this floor depreciation limit is the highest level
of depreciation that can be attributed to property that is still being utilized.
4
Alcan represents that it plans to spend approximately $40,300,000 to repair the
stretcher and additional sums to repair other equipment and machinery. These expenditures
may qualify the affected property as “certified capital addition property” for valuation
purposes in the tax year in which these expenses are incurred to make the referenced repairs.
See W. Va. Code § 11-6F-3 (2011) (Supp. 2012) (explaining tax implications for “certified
capital addition property”). However, because Alcan did not make these capital expenditures
in tax year 2010, which is the tax year at issue in the case sub judice, we need not further
consider this matter.
2
industrial personal property, Alcan sought to deduct an additional $35,357,721 in functional
obsolescence to reflect the capital investment it intends to spend to repair the stretcher.5
Incorporating this deduction into the property’s valuation, Alcan requested a re-valuation of
its industrial personal property in the amount of $41,000,656 rather than the $92,960,786
valuation calculated by the Tax Commissioner for the 2010 tax year. By decision entered
February 25, 2010, the Board upheld the Tax Commissioner’s valuation. Alcan then
appealed the Board’s ruling to the Circuit Court of Jackson County. By order entered
November 23, 2011,6 the circuit court affirmed the Board’s decision. From the circuit court’s
order, Alcan now appeals to this Court.
We previously have held that, “[a]s a general rule, there is a presumption that
valuations for taxation purposes fixed by an assessor are correct.” Syl. pt. 2, in part, Western
Pocahontas Props., Ltd. v. County Comm’n of Wetzel Cnty., 189 W. Va. 322, 431 S.E.2d 661(1993). Thus,
“‘“‘[a]n assessment made by a board of review and equalization and
approved by the circuit court will not be reversed when supported by
substantial evidence unless plainly wrong.’ Syl. pt. 1, West Penn Power Co.
v. Board of Review and Equalization[ of Brooke County], 112 W. Va. 442, 164
S.E. 862 (1932).” Syl. pt. 3, Western Pocahontas Properties, Ltd. v. County
Comm’n of Wetzel County, 189 W. Va. 322, 431 S.E.2d 661 (1993).’ Syl. pt.
4, In re Petition of Maple Meadow Mining Co. for Relief from Real Property
Assessment For the Tax Year 1992, 191 W. Va. 519, 446 S.E.2d 912 (1994).”
Syl. pt. 3, In re Tax Assessment of Foster Found.’s Woodlands Ret. Cmty., 223 W. Va. 14,
672 S.E.2d 150 (2008). Accord Syl. pt. 2, In re Tax Assessments Against the S. Land Co.,
143 W. Va. 152, 100 S.E.2d 555 (1957), overruled on other grounds by In re the Assessment
of Shares of Stock of the Kanawha Valley Bank, 144 W. Va. 346, 109 S.E.2d 649 (1959) (“In
a case involving the assessment of property for taxation purposes, which does not involve
the violation of a statute governing the assessment of property, or a violation of a
constitutional provision, or in which a question of the constitutionality of a statute is not
involved, this Court will not set aside or disturb an assessment made by an assessor or the
county court, acting as a board of equalization and review, where the assessment is supported
by substantial evidence.”). A taxpayer seeking to prove that an assessment is wrong must
5
It is not apparent from the record why the figure that Alcan seeks to deduct in
additional functional obsolescence, $35,357,721, is not the same as the amount it has
indicated that it will spend to repair the stretcher, i.e., $40,300,000. See note 4, supra.
6
See supra note 2.
3
do so by clear and convincing evidence. “The burden is on the taxpayer challenging the
assessment to demonstrate by clear and convincing evidence that the tax assessment is
erroneous.” Syl. pt. 2, in part, Western Pocahontas Props., 189 W. Va. 322, 431 S.E.2d 661.
Accord Syl. pt. 5, in part, In re Foster Found., 223 W. Va. 14, 672 S.E.2d 150 (“A taxpayer
challenging an assessor’s tax assessment must prove by clear and convincing evidence that
such tax assessment is erroneous.”); Syl. pt. 3, State ex rel. Prosecuting Attorney of Kanawha
Cnty. v. Bayer Corp., 223 W. Va. 146, 672 S.E.2d 282 (2008) (“A taxpayer seeking relief
from an erroneous tax assessment under W. Va. Code § 11-3-27 (2000) (Repl. Vol. 2008),
must establish entitlement to relief by clear and convincing evidence.”). Finally, “[i]n cases
where a taxpayer challenges an ad valorem tax assessment, a circuit court’s conclusions of
law are reviewed by this Court de novo.” Syl. pt. 3, Pope Props./Charleston Ltd. Liab. Co.
v. Robinson, 230 W. Va. 382, 738 S.E.2d 546 (2013). Upon our review of the record before
us, we conclude that the Tax Commissioner presented substantial evidence7 to support his
valuation of Alcan’s industrial personal property and that Alcan failed to prove by clear and
convincing evidence that such valuation was erroneous.
When assessing property for taxation purposes, the Tax Commissioner is required to
“value all industrial property in the State at fair market value.” W. Va. Code § 11-1C-10(c)
(1994) (Repl. Vol. 2008).
Title 110, Series 1P of the West Virginia Code of State Rules confers
upon the State Tax Commissioner discretion in choosing and applying the
most accurate method of appraising commercial and industrial properties. The
exercise of such discretion will not be disturbed upon judicial review absent
a showing of abuse of discretion.
Syl. pt. 5, In re Tax Assessment Against Am. Bituminous Power Partners, L.P., 208 W. Va.
250, 539 S.E.2d 757 (2000). Pursuant to W. Va. C.S.R. § 110-1P-2.5.3.2 (1991), the cost
approach is the method most favored for the valuation of industrial equipment and
machinery. The “cost approach” is explained as follows:
To determine fair market value under th[e cost] approach, replacement
7
While we find that the Tax Commissioner presented substantial evidence of its
valuation of Alcan’s industrial personal property, the record before the Board did not include
the appearance, or testimony, of the Tax Commissioner’s employee who evaluated the
property’s functional obsolescence and allowed a further reduction for this depreciation. In
future cases, the better approach would be to present the testimony of all appraisers
participating in the valuation process so as to permit cross-examination regarding their
methodology by the taxpayer challenging the correctness of such appraisal.
4
cost of the improvements is reduced by the amount of accrued depreciation
and added to an estimated land value. In applying the cost approach, the Tax
Commissioner will consider three (3) types of depreciation: physical
deterioration, functional obsolescence, and economic obsolescence.
W. Va. C.S.R. § 110-1P-2.2.1.1 (1991). The parties do not dispute that the Tax
Commissioner properly selected the cost approach in valuing Alcan’s industrial personal
property in the case sub judice.
Nevertheless, Alcan asserts that such valuation was wrong because, it claims, the Tax
Commissioner did not apply the correct trend tables when it employed the cost approach.
Alcan further argues that the Tax Commissioner also failed to make adjustments to its
valuation for depreciation as required by the cost approach: “In applying the cost approach,
the Tax Commissioner will consider three (3) types of depreciation: physical deterioration,
functional obsolescence, and economic obsolescence.” W. Va. C.S.R. § 110-1P-2.2.1.1. See
also W. Va. C.S.R. § 110-1P-2.5.3.3 (1991) (“When physically inspecting commercial and
industrial personal property for appraisal, three (3) types of depreciation should be
considered[:] physical deterioration, economic obsolescence and functional obsolescence.”).
In its estimation, Alcan contends that the Tax Commissioner did not properly account for the
physical deterioration or functional obsolescence of Alcan’s property,8 including its most
significant item of industrial personal property: Alcan’s thirty million pound stretcher. We
disagree.
Alcan first argues that the Tax Commissioner used the wrong trend tables in valuing
its industrial personal property under the cost approach. A valuation of property using the
cost approach requires an initial determination of the replacement cost of the subject
property. See W. Va. C.S.R. § 110-1P-2.2.1.1. This calculation is referred to as the
“replacement cost new” (“RCN”) and contemplates the cost to replace the taxpayer’s existing
property with comparable new property. In the case sub judice, the Tax Commissioner
determined that the RCN for Alcan’s industrial personal property, including its stretcher,
would be $252,965,487. By contrast, Alcan proposed an RCN amount of $240,773,142. The
main difference between these two figures seems to be the specific characterization of the
nature of Alcan’s operations and the application of trend tables that correspond to such
characterization from which the RCN, and depreciation, are then calculated. In this regard,
the Tax Commissioner classified Alcan as a metal manufacturing facility specializing in
aluminum production and processing, whereas Alcan classified itself as a metalworking
machinery manufacturing facility. Based upon the descriptions of the nature of Alcan’s
8
Alcan does not assert error regarding economic obsolescence. See W. Va. C.S.R.
§ 110-1P-2.2.1.1 (1991); W. Va. C.S.R. § 110-1P-2.5.3.3 (1991).
5
business set forth in the underlying proceeding, i.e., melting aluminum ingots and producing
aluminum plates and other products, we find that the Tax Commissioner accurately
characterized the nature of Alcan’s business operations and, accordingly, properly applied
the corresponding trend tables to determine the RCN of Alcan’s industrial personal property.
Thus, we conclude that Alcan has not demonstrated, by clear and convincing evidence, that
the Tax Commissioner’s selection of trend tables to determine the RCN component of the
cost approach analysis was erroneous.
Alcan next argues that the Tax Commissioner erred in his depreciation of Alcan’s
industrial personal property based upon physical deterioration. “Physical deterioration” is
defined as “a loss in value due to natural wear and tear of property resulting from age, use,
abuse, etc.” W. Va. C.S.R. § 110-1P-2.3.20 (1991). In recognition of the advanced age and
usage of much of Alcan’s equipment and machinery, including its stretcher, the Tax
Commissioner valued all of Alcan’s industrial personal property that it had acquired before
1990 at a combined value of $8,696,762. The Tax Commissioner explained that this value
was the lowest level of depreciation it could assign to property that is still being used, i.e.,
20% good and 80% depreciated. Alcan argued that its pre-1990 property should be
depreciated further, at “salvage value.” However, property classified as “salvage” typically
signifies that the property is no longer operational and is useful to its owner only as scrap
parts. See, e.g., Campbell Soup Co. v. Tracy, 88 Ohio St. 3d 473, 479, 727 N.E.2d 1259,
1264 (2000) (per curiam) (observing that “salvage value” is defined as “‘expected price for
a fixed asset no longer needed in business operations; also called SCRAP VALUE’” (quoting
Siegel & Shim, Dictionary of Accounting Terms 375 (1987))). See also W. Va. Code § 11-
6A-3 (1973) (Repl. Vol. 2008) (construing “salvage value” as “the price for which such
[item] would sell . . . if voluntarily offered for sale by the owner thereof); W. Va. Code § 11-
6E-2(b) (1996) (Repl. Vol. 2008) (“‘Salvage value’ means the lower of fair market salvage
value or five percent of the original cost of the property.”). By Alcan’s own admission,
though, “salvage” does not accurately describe the property at issue herein. Alcan’s primary
piece of pre-1990 equipment and machinery, its stretcher, produces the majority of Alcan’s
products. Furthermore, Alcan has stated that it intends to spend over $40 million to repair
its stretcher. It goes without saying that a piece of equipment that is so vital to a company’s
manufacturing process can hardly be classified as “salvage” when it is still being used at 85%
capacity and is slated to undergo major repairs to ensure its continued operation for the
foreseeable future. Therefore, we find that Alcan has not proven, by clear and convincing
evidence, that the Tax Commissioner’s physical deterioration depreciation of Alcan’s
industrial personal property was erroneous.
Finally, Alcan argues that the Tax Commissioner improperly depreciated Alcan’s
industrial personal property based upon functional obsolescence. “Functional obsolescence”
contemplates “[t]he loss of value due to factors such as excess capacity, changes in
technology, flow of material, seasonal use, part-time use or other like factors. The inability
6
to perform adequately the function for which an item was designed.” W. Va. C.S.R. § 110-
1P-2.3.8 (1991). After meeting with Alcan executives, the Tax Commissioner allowed an
additional 10% reduction in the value of Alcan’s industrial personal property in recognition
of the true condition of Alcan’s equipment and machinery. This reduction appears to
correlate with the stretcher’s diminished production capacity that is attributable to its
deteriorated condition. Nevertheless, Alcan contends that it should have been granted an
additional reduction for functional obsolescence of $35,357,721 to correspond with the
capital expenditure it plans to make to repair the stretcher.9 We find this argument to be
flawed for two reasons. First, and foremost, although Alcan has approved its intended capital
expenditure, it did not actually incur these expenses during the 2010 tax year. Accordingly,
until Alcan actually expends such funds, we find that it would be premature to reduce the
value of Alcan’s industrial personal property to reflect an intended, rather than an actual,
expense because it has not yet been invested in the subject property. See generally W. Va.
Code § 11-6F-2(a) (2012) (Supp. 2012) (defining “certified capital addition property”).
Moreover, as noted above, “functional obsolescence” allows a reduction in value to account
for, among other things, “the inability to perform adequately the function for which an item
was designed.” W. Va. C.S.R. § 110-1P-2.3.8. In this regard, we find that the Tax
Commissioner correctly allowed an additional reduction in value of $10,328,976 for
functional obsolescence. This allowance accurately not only recognized Alcan’s continued
usage of its equipment and machinery at 85% its original capacity but also considered that
the production capacity of these machines has been diminished below the level at which they
previously functioned. Therefore, we conclude that Alcan has not proven, by clear and
convincing evidence, that the Tax Commissioner’s functional obsolescence depreciation of
Alcan’s industrial personal property was erroneous.
For the foregoing reasons, we conclude that the circuit court correctly found that the
taxpayer in this case, Alcan, failed to prove by clear and convincing evidence that the Tax
Commissioner’s valuation of Alcan’s industrial personal property was erroneous.
Accordingly, the November 23, 2011,10 order of the Circuit Court of Jackson County is
hereby affirmed.
Affirmed.
ISSUED: June 5, 2013
9
See supra notes 4 & 5.
10
See note 2, supra.
7
CONCURRED IN BY:
Chief Justice Brent D. Benjamin
Justice Robin Jean Davis
Justice Margaret L. Workman
Justice Menis E. Ketchum
Justice Allen H. Loughry II
8