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Acceptable evidence in valuing a power plant for property tax.

NRG Wholesale Generation (NRG) owns a power plant in Choctaw County, Mississippi. Although the power plant facility has the characteristics of other industrial real property, Mississippi statutes and regulations provide that a power plant is classified as an industrial personal property.

The County Tax Assessor determined that the true value of NRG's facility was $467.2 million, while NRG's own appraisal of its facility placed the value at $110 million. NRG appeared before the County Board of Supervisors in protest. The Board discovered an error in the assessment and increased the value of the facility to $560 million. NRG appealed to the circuit court.

On appeal, NRG retained an appraiser to value the facility. To conclude to a true value for the facility, the appraiser applied all three approaches to value, finding the value to be $180 million. After the close of discovery, the County moved to exclude the appraiser's testimony, arguing that the appraiser used methods for determining the value of industrial personal property different from the method mandated by state law and regulation. NRG countered that the definition of true value in Mississippi encompasses all approaches to value.

The circuit court granted the County's motion, noting that no Department of Revenue (Department) regulations allowed a taxpayer to use a method other than the one prescribed by state law and regulation. Allowing the appraiser to testify to an appraisal based on another method would contradict the guidelines established for expert witnesses. NRG again appealed.

The state supreme court agreed that the definition of true value encompasses all three approaches to value, but another statute provides that "for different types of categories of property, differing approaches may be appropriate." A Department regulation provides that, for industrial personal property, the true value is the "Original acquisition cost new ... multiplied by the appropriate inflation factor furnished by [the Department, then] multiplied by the appropriate percent good depreciation factor" based on age. A Department manual also says that cost less depreciation is the preferred method because insufficient sales exist, and the income approach is impractical because of the Department's inability to obtain accurate income information from industries.

NRG relied on one part of the statute--the portion allowing all three approaches to value-- while failing to consider the rest of the statute that allowed for differing approaches for different categories of property. Because a power plant is classified as industrial personal property instead of real property for Mississippi assessment purposes, the state supreme court held that the only acceptable approach was that mandated by the Department: trended historical cost less depreciation. Because NRG's appraiser did not use this mandated approach, the court held that the circuit court did not err in excluding NRG's proffered expert testimony.

NRG Wholesale Generation LP v. Kerr

Supreme Court of Mississippi

December 6, 2018

258 So.3d 278

Benjamin A. Blair, JD, is a partner in the Indianapolis office of the international law firm of Faegre Baker Daniels LLP, where his practice focuses on state and local tax litigation for clients across the United States. A frequent speaker and author on taxation and valuation issues, Blair holds a juris doctor from the Indiana University Maurer School of Law, where he also serves as an adjunct professor. Contact:
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Title Annotation:Recent Court Decisions on Real Estate and Valuation
Author:Blair, Benjamin A.
Publication:Appraisal Journal
Geographic Code:1U6MS
Date:Mar 22, 2019
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