BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the proposed adoption of New Rules I and II relating to property tax
for privately owned landfills
TO: All Concerned Persons
1. On December 18, 2008, at 3:00 p.m., a public hearing will be held in the 4- East Conference Room (Fourth Floor) Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the adoption of the above-stated rules.
Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.
2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., December 5, 2008, to advise us of the nature of the accommodation that you need. Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-3696; or e-mail firstname.lastname@example.org.
3. The department conducted an informal negotiated rulemaking meeting with the privately owned landfills throughout the state on July 2, 2008. The proposed rules contained in this notice are the result of that meeting. The proposed new rules do not replace or modify any section currently found in the Administrative Rules of Montana. The proposed new rules provide as follows:
NEW RULE I LANDFILL VALUATION DEFINITIONS The following definitions apply to terms contained in this subchapter:
(1) "Appraisal period" means the reappraisal cycle provided for in 15-7-111, MCA.
(2) "Compaction ratio" refers to the ratio that expresses the relationship of the number of tons that will fill one cubic yard of capacity. For example, if the compaction ratio is .70, then 70% of one ton, 1,400 pounds of waste, can be deposited into one cubic yard of capacity. Compaction ratios for landfills are typically in the .50 to .70 range. Unless the landfill owner or its agent can provide by a preponderance of evidence to the contrary, the compaction ratio will be .70.
(3) "Cover materials" means at least six inches of dirt or a dirt-like substance. It does not mean a tarp or tarp-like product.
(4) "Discount rate" is a rate expressed in a percentage that is used to discount the annual royalty payments over the projection period to a present value. The majority of the discount rates for landfills are in the 20% to 30% range. Unless the landfill owner or its agent can provide by a preponderance of evidence to the contrary, a discount rate of 20% will be used.
(5) "Improvements" means buildings, scales, and other structures permanently affixed to the ground necessary to operate a landfill.
(6) "Other property related income" means landfill income generated by the property, such as land/dirt farms and methane gas collection.
(7) "Reversionary value" means the market value of the landfill after it is closed.
(8) "Royalty rate" means a rate applied to the annual gross receipts that results in the estimated royalty payment for each year of the projection period. Unless the landfill owner or its agent or the department can provide by a preponderance of evidence to the contrary, the royalty rate will be 10%.
(9) "Royalty method" means a discounted cash flow analysis based on the premise that a landowner would lease land to a licensed landfill operator for a set percentage of the tipping fees received for dumping at the site. The present value of the annual royalty rate of payments must be estimated over the projected economic life of the licensed landfill, plus the present value of the landfill after it is closed.
(10) "Licensed Landfill" means an area of land or an excavation where wastes are placed for permanent disposal, and that is not a land application unit, surface impoundment, injection well, or waste pile. Licensed landfills are subject to federal regulations of the Environmental Protection Agency (EPA) and law as "permitted landfills" under Subtitle D of the Resource Conservation and Recovery Act of 1976 (RCRA) and state regulations through the Department of Environmental Quality (DEQ).
(11) "Tipping fees" are the dollar charge per ton for dumping municipal solid waste and other approved waste at the licensed landfill. Any mandatory property related fees or property related taxes imposed by regulatory or taxing authorities shall not be included.
AUTH: 15-1-201, 15-7-111, MCA
IMP: 15-6-134, 15-7-111, 15-8-111, MCA
REASONABLE NECESSITY: The department is proposing to adopt New Rule I to define the terms that are contained in New Rule II.
NEW RULE II METHOD FOR VALUATION OF LICENSED LANDFILLS
(1) The market value of licensed landfills for each reappraisal cycle shall be determined through use of the royalty method. If during the course of a reappraisal cycle it becomes necessary, pursuant to 15-7-111, MCA, to adjust the market value of the licensed landfill to account for the addition, deletion, or retirement of property, the market value shall be determined through use of the same royalty method.
(2) The royalty method that will be used to determine the market value of licensed landfills will be applied using the following steps:
(a) The department shall estimate the amount of waste coming into the landfill for the appraisal period. The owner of the licensed landfill or its agent shall provide copies of its Department of Environmental Quality, Solid Waste Management System License Renewal Application for each of the immediate five years prior to the appraisal period. The amount of tonnage reported on the applications for the referenced five-year time period will be reviewed to estimate the annual increase of waste tonnage for the remaining economic life of the licensed landfill.
(i) The following calculation will be used to estimate annual incoming waste tonnage:
tons from the most recent year
x (1 + estimated annual increase)
= estimated first year tonnage.
(b) The department shall estimate the licensed landfill owner's annual tipping fees less any bulk discounts for the appraisal period. To accomplish this, the licensed landfill owner or its agent shall identify its annual tipping fees rate for compactor vehicles for the immediate five years prior to the appraisal period. The landfill owner shall identify its annual bulk discount rate by providing copies to the department of all of its annual disposal contracts. The discounted tipping fees for the immediate five years prior to the appraisal period will be reviewed to estimate the annual increase in the discounted tipping fees for the appraisal period. When calculating the discounted tipping fees, the department shall be aware of any potential aberrations identified by the licensed landfill owner or its agent that may exist in the documentation submitted by the landfill owner or its agent pursuant to this section. The department shall take those aberrations under consideration when calculating the discounted tipping fees.
(i) The discounted tipping fees will be calculated as follows:
most current year tipping fees
x (1- most current year bulk discount)
x (1 + estimated annual increase)
= discounted tipping fees for the projected remaining economic life of the licensed landfill.
(c) The department shall calculate the remaining capacity of the licensed landfill for each tax year. To accomplish this, the existing capacity at the beginning of the projection period will be taken from the estimate recorded on the landfill owner's most recent Solid Waste Management System License Renewal Application.
(i) To compute the remaining capacity for each tax year, the tonnage received during the year must be converted into cubic yards of landfill that would be filled. The compaction ratio is used to make the conversion.
(ii) The number of cubic yards used during each year is calculated as follows:
÷ compaction ratio
= cubic yards used.
(iii) The remaining capacity shall be calculated as follows:
total landfill capacity
- cubic yards used
= airspace capacity before accounting for cover materials.
(iv) If cover materials are used in the landfill, the remaining capacity shall be calculated by multiplying the airspace capacity above-computed by .85 to account for the industry standard of reduction of remaining airspace by 15% for cover materials, otherwise no adjustment for cover material will be made.
(d) The department will use a royalty rate to calculate the estimated royalty payment for each tax year.
(i) The first year's royalty payment is computed as follows:
tons received first year
x discounted tipping fees
x royalty rate
= royalty payment.
(3) The discount rate shall be applied to each year's royalty payment as determined in (2)(d).
(4) The department shall estimate the reversionary value of the closed landfill. To accomplish this, the landfill owner or its agent shall provide the department with a projected closure date. The reversionary value will be discounted to the present worth.
(5) Any other property related income not included in the above calculations shall be added to the overall property value. The department shall consider the cost approach, the sales comparison approach and the income approach to value and use the most defensible approach in estimating the value of the other property related income.
(6) The market value of any improvements to real property owned by the lessee, and not included in the royalty agreement between the lessee and the land owner, will be added to the overall property value.
(7) The department shall calculate the final valuation for each tax year in the appraisal period applying this rule.
(8) Any information required to be supplied by the licensed landfill owner shall be held as confidential by the department.
AUTH: 15-1-201, 15-7-111, MCA
IMP: 15-6-134, 15-7-111, 15-8-111, MCA
REASONABLE NECESSITY: The department is proposing to adopt New Rule II to explain the method that the department will use to value licensed landfills. The rule addresses the steps that will be applied to determine the royalty value during a reappraisal cycle. The rule outlines the responsibility of the licensed landfill owner to identify its annual tipping fees rate for compactor vehicles for the immediate five years prior to the appraisal period. The rule directs the department to estimate the reversionary value of the closed landfill.
4. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-3696; or e-mail email@example.com and must be received no later than December 30, 2008.
5. Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.
6. An electronic copy of this Notice of Public Hearing is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes." The department strives to make the electronic copy of this Notice of Public Hearing conform to the official version of the Notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the Notice and the electronic version of the Notice, only the official printed text will be considered. In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
7. The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the person in 4 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.
8. The bill sponsor notice requirements of 2-4-302, MCA, do not apply.
/s/ Cleo Anderson /s/ Dan R. Bucks
CLEO ANDERSON DAN R. BUCKS
Rule Reviewer Director of Revenue
Certified to Secretary of State November 17, 2008