Level 3 v. ADOR

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE LEVEL 3 COMMUNICATIONS, LLC., a limited liability company, ) ) ) Plaintiff/Appellant, ) ) v. ) ) ARIZONA DEPARTMENT OF REVENUE; ) COCHISE COUNTY; MARICOPA COUNTY; ) PIMA COUNTY; PINAL COUNTY; AND ) YUMA COUNTY, ) ) Defendants/Appellees. ) ) DIVISION ONE FILED: 07/23/09 PHILIP G. URRY,CLERK BY: DN 1 CA-TX 08-0001 DEPARTMENT T MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Arizona Tax Court Cause Nos. TX2002-000605 and TX2005-050383 The Honorable Thomas Dunevant, III, Judge AFFIRMED Mooney, Wright & Moore, PLLC By Paul J. Mooney Jim L. Wright Attorneys for Plaintiff/Appellant Mesa Terry Goddard, Attorney General Phoenix By Kenneth J. Love, Assistant Attorney General Melissa Covarrubias, Assistant Attorney General And Hiscock & Barclay LLP By Peter J. Crossett Attorneys for Defendants/Appellees Syracuse, NY T H O M P S O N, Presiding Judge ¶1 Level 3 Communications, L.L.C. (Taxpayer) appeals a judgment rejecting its claims that the Arizona Department of Revenue s (ADOR) valuation of its property failed to adequately account for following functional reasons, we and economic affirm the obsolescence. tax court s For ruling the as to economic obsolescence. FACTUAL AND PROCEDURAL BACKGROUND ¶2 voice, Taxpayer is a telecommunications company that provides data, and internet communications services through a network of fiber-optic cable running throughout North America. Its cable network consists of 18,900 intercity miles of fiberoptic cable and twenty-seven metropolitan networks. enters Arizona Maricopa, from Pinal, and the Pima west through Counties; Yuma and The network County; exits to crosses the east through Cochise County. ¶3 This case arises out of the valuation of Taxpayer s personal property for purposes of the Arizona property tax. Article 9, Section 11, of the Arizona Constitution requires the Arizona Legislature to prescribe the manner, method and mode of assessing, equalizing and levying taxes in the State of Arizona. In Arizona Revised Statutes (A.R.S.) §§ 42-14401 to 42-14404, the Legislature directs 2 ADOR to centrally value telecommunication companies property. includes intracity cable The property at issue configurations and collation facilities, conduit (the hollow tube through which fiber cable is pulled), and fiber-optic cable (collectively, the Property). ¶4 Section 42-14402(A)(7) requires the telecommunications company s chief officer in this state to file a statement under oath with ADOR by April 1 containing, among other things, a complete and correct inventory of all personal property it owned in this state on the preceding January 1, where the property was located, and its value. Section 42-14403(1) (1999) instructs ADOR value the property as follows: On or before August 31 of each year the department shall determine the valuation as of January 1 of the property of all telecommunications companies operating in this state at its full cash value. Real estate shall be valued at market value, and personal property shall be valued on a unitary basis at its historical cost less depreciation. For purposes of this section: 1. Depreciation is computed based on the tables adopted by the department in its personal property manual in effect on January 1, 1993 for the following categories: (a) Buildings with a twenty-five year life. (b) Cable with a fifteen year life. (c) Telecommunications five year life. (d) Any other telecommunications property that is not included in subdivisions 3 equipment with a (a), (b) life. and (c) with a seven year The statute defines historical cost as the original cost as reported on the company s books and records. 14403(2). The tables incorporated into A.R.S. § 42- A.R.S. § 42-14403 include an example permitting ADOR to value a property below the valuation stated in the table. ¶5 Applying the property valuation formula in A.R.S. § 42-14403 to Taxpayer s information, ADOR assessed the full cash value. collect Counties taxes use for such valuations themselves and to for assess, each levy, taxing unit and or district appearing upon their rolls. ¶6 To determine whether Taxpayer qualified for any additional adjustment for obsolescence, ADOR subsequently hired Stephen Barreca to identify all forms of obsolescence associated with Taxpayer s property and to develop a market value figure for the relevant tax years. appraiser, David Derron, to determined market value under These figures would allow ADOR s compare the Barreca s cost approach independently with ADOR s statutory valuation under A.R.S. § 42-14403 and decide whether Taxpayer was entitled to an additional adjustment for obsolescence. ¶7 Barreca studied lists of Taxpayer s property and used indices to trend the original costs to the valuation date value. 4 He then performed a replacement-cost new analysis, assuming that three conduits would property appraised. capacity model to best approximate Barreca calculate used the the the cost utility recognized of of the cost-to- installing three conduits versus the twelve that had been originally installed. Taxpayer s analysis expert is a witness conceded that the generally accepted valuation cost-to-capacity technique that assumes that not all costs vary with size in a straight line. ¶8 Barreca then derived and deducted the depreciation, including all relevant replacement cost income sales and new. forms He comparison deemed them inappropriate. of obsolescence, considered, methods of but did from not valuation the use, the because he Barreca s cost valuations for each tax year, along with the full cash valuations the Department had derived from strictly applying A.R.S. § 42-14403, are follows: Barreca s Cost Valuations ADOR s Cost Valuations 2003 $132,286,083 $116,813,012 2004 $123,860,625 $101,314,083 2005 $127,535,177 $98,772,478 2006 $131,030,571 $93,115,694 2007 $164,907,840 $90,000,000 Tax Year 5 as In light of these results, ADOR determined that no further downward adjustment of the statutory valuations was warranted. ¶9 Taxpayer unsuccessfully appealed ADOR's valuations for tax years 2003 through 2006 to the State Equalization Board (the Board). Taxpayer then appealed to the tax court pursuant to A.R.S. §§ 42-14005, 42-16158, 42-16168, 42-16201, 42-16203, 4216204 and 42-16207. values were reasons, Taxpayer contended that the ADOR and Board excessive they failed and to inequitable recognize relating to the Subject Property. because, sufficient among other obsolescence The tax court consolidated these complaints. ¶10 Meanwhile, the Arizona Legislature amended A.R.S. § 42-14403(A) in 2006 to state: In addition, the taxpayer may submit documentation showing the need for, and the department shall consider, an additional adjustment to recognize obsolescence using standard appraisal methods and techniques. See 2006 Ariz. Sess. Laws, ch. 38, § 1 (2nd Reg. Sess.). The amendment also defined obsolescence as a reduction in the value of an asset resulting from functional or economic obsolescence. A.R.S. § 42-14403(C)(2) (2006). ¶11 After Taxpayer sought additional obsolescence for the 2007 tax year, ADOR reduced its full cash value by $5 million based on obsolescence believed to exist in its fiber-optic cable and conduit. ADOR had based its valuation on property that 6 Taxpayer had owned in Arizona on or before January 1, 2006, preceding the statute s effective date of September 21, 2006. ADOR then set the full cash value for the 2007 tax year at $90,000,000.1 Taxpayer appealed that valuation directly to the tax court, where it was consolidated along with the other cases. ¶12 ADOR presented evidence that it had applied A.R.S. § 42-14403 to Taxpayer s data, and, in each case, the resulting values fell below the actual fair market value. ADOR consequently argued that Taxpayer was not entitled to further reductions for obsolescence below the statutory calculation. ¶13 Derron described ADOR s calculation of the depreciated values based upon the statutory formula in A.R.S. § 42-14403. It used the installation years and the written-down costs supplied by Taxpayer, and not the original costs, to compute depreciation.2 1 The bulk of the overall value was attributable to Derron testified available at this point, reduction. that, had ADOR would Barreca s not have report been granted the 2 Taxpayer reduced the value of its intercity cable and conduit to fair value, or the estimate of the amount at which an asset could be bought or sold in a transaction between willing parties. Financial Accounting Standard (FAS) 157. Taxpayer based its fair value on an impairment study performed by American Appraisal in accordance with FAS 121 and 144. The FAS standards require that long-lived assets be reviewed for impairment when events or changed circumstances indicate that the asset s carrying amount may not be recoverable. FAS Statement No. 121, as amended by FAS Statement No. 144. In conducting the review, the entity should estimate 7 conduit; for example, in 2003 conduit accounted for $105,495,095 of more than $133,000,000 in Arizona property. ¶14 In accordance with A.R.S. § 42-14403(B)(1), Derron depreciated the cable on a fifteen-year life and calculated the resulting values for all the property in tax years 2003 to 2007: 116,813,012, $101,314,083, $95,011,763. Derron $98,772,478, testified that he $93,115,694, believed and that the statutory formula precluded him from making any reductions for obsolescence. Because the resulting full cash values derived under A.R.S. § 42-14403 fell below the actual fair market value, ADOR determined that it had no discretion to allow for obsolescence below the statutory value. ¶15 Taxpayer introduced Weinert of AUS Consulting. testimony from appraiser Jerome Weinert based his opinion supporting an adjustment for obsolescence on replacement cost and income valuations. He did not employ the third standard appraisal technique, the market approach. ¶16 Weinert had no specific Arizona income data. He used the discounted cash flow (DCF), an income valuation technique, to estimate the value of Taxpayer s North American assets. A the future cash flows expected to result from the asset s use and disposition. FAS Statement No. 121. If the undiscounted total future cash flow (excluding interest) is less than the carrying amount, the entity may recognize impairment loss. Id. The study wrote down the system-wide value of intercity conduit by about $884 million, and Taxpayer recognized a $2.364 billion impairment of certain North American assets. 8 DCF analysis recognizes the future cash outflows necessary to achieve the projected cash flows. that are Am. Soc y of Appraisers, Valuing Machinery and Equipment: The Fundamentals Of Appraising Machinery and Technical Assets 180 [hereinafter Valuing Machinery and Equipment ]. (2d ed. 2000) The technique measures the direct economic benefits derived from ownership, in the form of future cash inflows and outflows attributed to the property, stated at their present value. ¶17 Id. Weinert acknowledges that Taxpayer does not report any information on its revenues, expenses, or income on a statewide basis in Arizona. The economic obsolescence he found was on a national going concern basis. ¶18 Weinert also used the cost method to value Taxpayer s property. This entailed starting with impaired costs and making adjustments to return the values to the original costs. He then trended the values to calculate the reproduction cost new, or the recreated value of Taxpayer s net worth in January of the preceding year. Next, Weinert used a methodology to determine the cost replacement new values, or the current cost of a similar new property having the nearest equivalent utility as the property being appraised, Valuing Machinery and Equipment 44, focusing on the cable and conduit. Weinert s replacement cost analysis incorporated the assumption that each year eight or nine of the conduits carrying the fiber-optic cable would not 9 be replaced. Weinert After further calculating deducted for the replacement physical cost new, depreciation and additional functional obsolescence. ¶19 the Finally, Weinert deducted economic obsolescence from depreciated replacement cost new results. This step entailed a comparison of the values obtained from the income and cost methods obsolescence. percentage and attributed the difference to economic Weinert then deducted the economic obsolescence from the replacement cost new less depreciation figure to arrive at the final full cash value.3 ¶20 Prior to ruling, the tax court requested and received briefing on the obsolescence issue in light of our decision in Eurofresh, Inc. v. Graham County, 218 Ariz. 382, 187 P.3d 530 (App. 2007). Neither party requested findings of fact under Arizona Rule of Civil Procedure 52(a). in favor of ADOR and entered judgment. 3 The tax court then ruled Taxpayer appealed. Whereas Weinert opined that the conduit had a functional and economic life of twenty years, Barreca contended that the conduit had a forty-year depreciable life. ADOR depreciated the conduit based upon a fifteen-year life under A.R.S. § 42-14403(B)(1)(b), giving the Property even more builtin obsolescence than Weinert would have attributed to it. The accelerated depreciation would have included additional depreciation that might be attributed to obsolescence. 10 DISCUSSION A. Economic obsolescence ¶21 In an appeal following a bench trial, we view the facts in the light most favorable to sustaining the judgment. See Cimarron Foothills Cmty. Ass n v. Kippen, 206 Ariz. 455, 457, ¶¶ 1-2, 79 P.3d 1214, 1216 (App. 2003). We review questions of law and mixed questions of law and fact de novo. Robson Ranch Mountains, L.L.C. v. Pinal County, 203 Ariz. 120, 125, ¶ 13, 51 P.3d 342, 347 (App. 2002). 1. ¶22 Taxpayer s burden The valuation as approved by the appropriate state or county authority is presumed to be correct and lawful. § 42-16212(B) (2006). with competent A taxpayer can overcome the presumption evidence that the valuation is Eurofresh, 218 Ariz. at 386, ¶ 16, 187 P.3d at 534. competent for appraisal this purpose methods appropriate and under the A.R.S. when techniques particular it is derived which are excessive. Evidence is by standard shown circumstances to be involved. Inspiration Consol. Copper Co. v. Ariz. Dep t of Revenue, 147 Ariz. 216, 223, 709 P.2d 573, 580 (App. 1985), superseded by statute on other grounds, A.R.S. § 12-348(A) (2003). ¶23 valuation If the taxpayer and taxing authority employ different methods, the taxpayer s evidence is not competent unless it demonstrates the appropriateness of its method under 11 the circumstances. Id. at 219, 709 P.2d at 576. If the parties use the same valuation method but differ as to the correct treatment of factors utilized in such method, the taxpayer s evidence is nevertheless competent and sufficient to overcome the statutory presumption. independently competent value evidence the Id. Further, the tax court cannot property rebutting until the the taxpayer presumption authority s valuation is correct. that presents the taxing Eurofresh, 218 Ariz. at 386, ¶ 18, 187 P.3d at 534. ¶24 Obsolescence is defined as a loss classified as either economic or functional. of value and Nordstrom, Inc. v. Maricopa County, 207 Ariz. 553, 559, ¶ 27, 88 P.3d 1165, 1171 (App. 2004). Economic obsolescence is a loss in value caused by forces external to the property and outside the control of the property owner. Ariz. Dep t of Revenue v. Questar S. Trails Pipeline Co., 215 Ariz. 577, 580, ¶ 12, 161 P.3d 620, 623 (App. 2007) (quoting Magna Inv. & Dev. Corp. v. Pima County, 128 Ariz. 291, 293, 625 P.2d 354, 356 (App. 1981)); Black s Law Dictionary 1107 (8th ed. 2004) (economic obsolescence results from external economic factors, such changed governmental regulations. ). defined economic permanent obsolescence impairment of the in as decreased demand or More recently, this court Eurofresh utility or as temporary salability of or an improvement or property due to negative influences outside the 12 property. 218 Ariz. at 386, ¶ 22, 187 P.3d at 534 (quoting Appraisal Institute, The Appraisal of Real Estate 363 (12th ed. 2001.)). ¶25 In Eurofresh, the taxpayer sought a forty-percent reduction from the agreed replacement cost value of the property based upon economic or external obsolescence. n.3, ¶¶ 1, 8, 187 P.3d at 531, 532 n.3. Id. at 383, 384 The taxpayer had asserted that the external obsolescence evidenced by the three other greenhouse sales is market-wide and for that reason, must necessarily affect the value of its property. 25, 187 P.3d at 535. Id. at 387, ¶ The taxpayer s appraiser concluded that three other greenhouses had sold for less than their adjusted replacement cost and the differential market-wide external obsolescence. was attributable to Id. at 384-85, ¶ 9, 187 P.3d at 532-33. ¶26 We adopted a three-part test that a taxpayer must meet to support a claim for external obsolescence. 187 P.3d at 538. Id. at 390, ¶ 37, The taxpayer must submit probative evidence establishing: (1) the cause of the claimed obsolescence, (2) the quantity of the claimed obsolescence, and (3) that the asserted cause of the obsolescence actually affects the property. ¶27 Applying this test, we held that the Id. taxpayer had offered no probative evidence that the obsolescence observed in comparable properties also affected the property at issue. 13 Id. at 392-93, ¶ 49, 187 P.3d at 540-41. Consequently, we reversed the tax court s judgment adopting the taxpayer s proposed full cash value. Id. 2. ¶28 that Taxpayer s evidence Applying Eurofresh to this case, the tax court found Taxpayer s evidence did not satisfy its requirements because the loss in value of the property was not caused by obsolescence. Rather, Level 3 simply future supply of fiber-optic capacity. the industry was in the Mere erroneous business judgment does not create obsolescence. that underestimated economic The evidence showed difficulty, but demand continued, though at a slower rate than Taxpayer had expected. Consequently, the tax court entered judgment in favor of ADOR without opinions. discussing the merits of the respective experts Indeed, it stated that the underlying facts of its analysis were not in dispute. ¶29 The tax court accepted perfect storm had struck. Taxpayer s evidence that a Taxpayer contended that the utility and salability of its property were permanently impaired as a result of having overbuilt its network of fiber and conduit and that installation costs for those accounts eighty-five percent of its total reported costs. combined for According to Taxpayer, [t]hese facts illustrate why the historical costs 14 now being used by ADOR to value Level 3 s property are too high and must be adjusted downward to account for obsolescence. ¶30 Taxpayer points out that increased competition and reduced demand, recognized external obsolescence considerations, were established here. See Application of Putnam Theatrical Corp., 228 N.Y.S.2d 93, 98-99 (N.Y. App. Div. 1962) (finding that a theater suffered from economic obsolescence based upon a substantial decline in attendance after the advent of television, and an office area was affected by competition from shopping centers); Black s Law Dictionary 1107 (external obsolescence results from external economic factors, such as decreased demand"). Taxpayer also correctly points out that economic obsolescence need not be permanent. Eurofresh, 218 Ariz. at 386, ¶ 22, 187 P.3d at 534 (external obsolescence may be a temporary or permanent impairment ). ¶31 More fundamentally, however, our cases have recognized that external obsolescence is not established by a factor within the taxpayer s control. Questar, 215 Ariz. at 580, ¶ 12, 161 P.3d at 623 (economic obsolescence is a loss in value caused by forces external to the property and outside the control of the property owner ); Eurofresh, 218 Ariz. at 386, ¶ 22, 187 P.3d at 534 (in the real property context, external obsolescence is not usually considered curable on the part of the owner, landlord, or tenant ). 15 Taxpayer states that it overbuilt in light of the skyrocketing demand that attracted the attention of suppliers and the unanticipated increase in the capacity of opto-electronic equipment. Taxpayer s business decisions and overbuilding were within its control and thus do not support its claim of economic obsolescence. As the tax court explained, [m]ere erroneous business judgment does not create obsolescence. ¶32 Furthermore, as ADOR argued to the tax court in post- trial briefing, there was no evidence that Taxpayer s property had actually been affected in a meaningful way. no filings for bankruptcy; indeed, Taxpayer There had been actually had continued to acquire companies and properties and was expanding in Arizona.4 ADOR s worksheets also reflect that Taxpayer had added new property, and the maps in Weinert s appraisal show expansion both in Arizona intercity and metro routes. This evidence supports the tax court s holding that Taxpayer failed to show any actual effect. See generally Putnam, 228 N.Y.S.2d at 98 (rejecting an economic obsolescence claim because [t]he reasons advanced to show a down-grading of the area are overborne by evidence that Syracuse is the focal point of a region which has been characterized by rapid growth ). 4 ADOR had allowed for external obsolescence in valuing the Property and maintained that position at trial. At that time, however, ADOR did not have the benefit of this court s opinion in Eurofresh setting a competency standard for external obsolescence evidence. 16 ¶33 Alternatively, we can affirm the tax court s holding on another basis identified in Eurofresh. The Eurofresh taxpayer had incorrectly argued that the property must suffer from external obsolescence because the taxpayer s observed external obsolescence in other greenhouses. appraiser 218 Ariz. at 391-92, ¶ 45, 187 P.3d at 539-40. Taxpayer here asks us to take Weinert s a similar leap of faith with actual market transactions evidence. ¶34 In this case, Weinert developed a cost of replacement less depreciation indicator of value but then sought a further reduction for economic obsolescence ranging from 24.52 percent to 45.77 percent for tax years 2003 to 2007. Weinert s calculations are based upon the North American going concern value and are not specific to Arizona. Taxpayer does not even maintain separate data on income, productivity or profitability of its Arizona property. More importantly, Weinert failed to show whether or how the market-wide obsolescence data actually affects Taxpayer s assets in Arizona. ¶35 At trial, Weinert produced a list of sales allegedly demonstrating that the value of telecom network facilities are deeply discounted from original cost. Yet Weinert made no adjustments for comparability, the comparison properties that he used were dissimilar in configuration and scope, and some of his comparison transactions were bankruptcy sales. 17 These values are not comparable to Taxpayer s property, as Taxpayer has not filed for bankruptcy, and the evidence reveals that it has acquired properties and is expanding in Arizona. Summary of Weinert s appraisal Indeed, the Executive acknowledges the lack of comparability: The market or comparable sales approach to value looks to market sales of comparable property in order to arrive at value. utilized In due to this appraisal, concerns over the market approach comparability. By was not its own expert s admission, Taxpayer s information does not pass muster under Eurofresh. ¶36 Taxpayer s lack of data specific to the income, productivity, or profitability of its Arizona tangible assets is fatal to its economic obsolescence claim. Its position seems to be that the value and associated property tax on its tangible assets in time Taxpayer experiences a problem somewhere else in its system. Taxpayer argues economic that Arizona its should Arizona be reduced tangible any assets experience obsolescence of the same type and rate as any other property in its system. Even if we take this analysis at face value, we must reject it as a matter of law because it is the type of unsupported conjecture we declined 5 to adopt in Eurofresh.5 Two Indiana cases making an obsolescence adjustment on an income shortfall basis are distinguishable. Both Meridian Towers East & West v. Washington Township Assessor, 805 N.E.2d 475 (Ind. Tax Ct. 2003), and Canal Square Ltd. Partnership v. 18 Consequently, we affirm the tax court s rejection of economic obsolescence on this basis as well.6 B. Functional obsolescence ¶37 Taxpayer also complains that the tax court failed to account for functional obsolescence. This type of obsolescence is either a physical element that buyers are unwilling to pay State Board of Tax Commissioners, 694 N.E.2d 801 (Ind. Tax Ct. 1998), deal with valuations of property located all in one state. They provide no basis for calculating obsolescence on a system-wide basis and applying it to only those assets in a particular state or locale. Taxpayer s reliance on such authority is misplaced. 6 We also reject Taxpayer s request for additional obsolescence because it amounts to double counting depreciation. Taxpayer argued in a post-trial memorandum that the utility and salability of its Property is permanently impaired as a result of having overbuilt its network of fiber and conduit and that installation costs for those accounts account for eighty-five percent of its total reported costs. Taxpayer claimed that [t]hese facts illustrate why the historical costs now being used by ADOR to value Level 3 s property are too high and must be adjusted downward to account for obsolescence. But even if we accept Taxpayer s analysis of the cause of obsolescence, it is already accounted for in the replacement cost less depreciation value of the four conduit system Weinert developed. To further deduct for obsolescence would result in double counting. Taxpayer defends Weinert s analysis as simply a method for capitalizing income loss, which is a recognized method similar to market extraction. But ADOR points out that Weinert s circular usage of income shortfall is not an accepted capitalized loss method and has been rejected. See United Tel. Co. v. Dep t of Revenue, 770 P.2d 43, 51 (Or. 1989). More fundamentally, market extraction and income capitalization measure all forms of depreciation, including external/economic obsolescence, and should not be deducted after an appraiser has already adjusted to account for obsolescence. 19 for or a deficiency that impairs the utility of property when compared to a more modern replacement, leading to a loss in value. Nordstrom, 207 Ariz. at 559-60, ¶ 27, 88 P.3d at 1171- 72. ¶38 ADOR contends that the tax court addressed functional obsolescence by stating: Since the loss in value of the property was not caused by obsolescence, it cannot be deducted. Therefore, the amount of lost value does not matter. In other words, even allowing for the unused conduits, ADOR s value was lower than the property s fair market value and the functional obsolescence claim fails. ¶39 We assume that the tax court considered the functional obsolescence evidence presented at trial. See Fuentes v. Fuentes, 209 Ariz. 51, 55-56, ¶¶ 17-18, 97 P.3d 876, 880-81 (App. 2004) (explaining that an appellate court can assume that a factor was considered when a party submitted pertaining to it and the evidence was admitted). implicitly rejected the functional evidence The tax court obsolescence claim by entering judgment in favor of ADOR and the Counties. ¶40 testified Both that parties ADOR experts should acknowledged deduct nearly that Weinert one-twelfth of the total cost for each unused conduit as functional obsolescence. He based this conclusion on a model using what he termed civil construction costs. Weinert 20 conceded, however, that the American Society of Appraisers treatise did not recognize his obsolescence methodology as authoritative. ¶41 ADOR Barreca countered based on a appraisal authorities. that this inutility this evidence cost-to-capacity with testimony model recognized from by Unlike Weinert, Barreca did not find constituted functional obsolescence. In Barreca s view, it was a matter of economic obsolescence to be factored into a particular asset or cluster of assets. ¶42 A former telecommunications engineer, Barreca testified that many construction costs would be incurred whether there were three conduits or twelve conduits. Consequently, any loss in value from functional obsolescence would not be nearly as severe as Weinert had projected. his value for obsolescence based When Barreca factored in upon the failure to use conduit, the gross value for all of Taxpayer s Property still exceeded the statutory value that ADOR had established. ¶43 Accordingly, there was already unrecognized obsolescence in the value that ADOR obtained from using the statutory formula. Because no obsolescence adjustment was necessary, the tax court properly concluded that the amount of lost value does not matter. Taxpayer accuses the tax court of ignoring functional obsolescence and demands reversal. ADOR points out, a trier of fact is not testimony from Weinert or any other expert. 21 bound by But as opinion See Ariz. R. Evid. 702 (expert testimony is designed to assist the trier of fact). The tax court testimony. See is in Magna, the best 128 Ariz. position at 294, to evaluate 625 P.2d at this 357. Accordingly, the tax court was not bound to accept Weinert s characterization of this as functional obsolescence and had the discretion to disregard it. See Crystal Point Joint Venture v. Ariz. Dep t of Revenue, 188 Ariz. 96, 104, 932 P.2d 1367, 1375 (App. 1997) (explaining that the trier of fact may disregard expert testimony in a number of circumstances, including when it is contradicted by other expert testimony or an expert s factual predicates are disputed). ¶44 Moreover, the tax court was required to judge the impact of any personal property obsolescence on a unitary basis, i.e., the property as a whole. See A.R.S. § 42-14403(A). Although certain pieces of the Property may have been obsolete, the result was governed by the impact of that factor on the Property as a whole. In light of Barreca s evaluation, the tax court could reasonably find that Taxpayer had failed to prove that obsolescence of whatever kind had reduced the full cash value below the statutory valuation amount. See Flood Control Dist. of Maricopa County v. Hing, 147 Ariz. 292, 300, 709 P.2d 1351, 1359 (App. 1985) (citing State Tax Comm n v. United Verde Extension Mining Co., 39 Ariz. 136, 140, 4 P.2d 395, 399 (1931)) (explaining that an appellate court 22 will uphold a property valuation that falls anywhere between the high and low estimates so long as it is reasonable). ¶45 The tax court also could reject Weinert s claim based upon his failure to employ a standard appraisal technique appropriate under the circumstances for valuing the conduit and fiber costs. First, Weinert developed a replacement cost value. ADOR concedes that this is a standard step in the cost approach to value. But Weinert then developed a linear theory of deducting costs and incorrectly assumed that a backhoe would be employed to appropriate replace under the the conduit. circumstances. This method was More globally, not Weinert could not produce any authority to support using the income shortfall calculation from a system going-concern value applying it to the Arizona tangible asset cost value. evidence was not competent and ADOR s valuation. 23 consequently could not and This rebut CONCLUSION ¶46 deny We affirm the tax court s judgment. Taxpayer s request for attorneys fees In addition, we on appeal in accordance with A.R.S. § 12-348(B) (2003). /s/ ________________________________ JON W. THOMPSON, Presiding Judge CONCURRING: /s/ __________________________ DONN KESSLER, Judge /s/ __________________________ MARGARET H. DOWNIE, Judge 24

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