Salt Lake Cnty. v. Utah State Tax Comm'n

1

2023 UT 24

Salt Lake County, Petitioner v. Utah State Tax Commission and Delta Air Lines, Inc, Respondents

No. 20210938

Supreme Court of Utah

November 9, 2023

Heard May 8, 2023

On Petition for Review of Agency Decision

Utah State Tax Commission Judge Jane Phan No. 17-979

Attorneys: Sim Gill, Timothy A. Bodily, Bradley C. Johnson Timothy J. By water, Salt Lake City, for petitioners

Sean D. Reyes, Att'y Gen., Sarah E. Goldberg, Laron J. Lind Michelle A. Lombardi, Asst. Atty's Gen., Salt Lake City for respondent Utah State Tax Commission

Gary R. Thorup, James D. Gilson, Cole P. Crowther, Salt Lake Ciy, for respondent Delta Air Lines, Inc.

Justice Hagen authored the opinion of the Court, in which Chief Justice Durrant, Associate Chief Justice Pearce, Justice Petersen, and Justice Pohlman joined.

OPINION

Hagen, Justice

INTRODUCTION

¶1 To ensure "that each person and corporation pays a tax in proportion to the fair market value of his, her, or its tangible property," the Utah Constitution requires that all tangible property be "assessed at a uniform and equal rate in proportion o s fair market value, to be ascertained as provided by law." Utah Const, art. XIII, § 2(1)(a). In 2017, the Utah Legislature amended Utah Code section 59-2-201 by adding subsection 4 (the Aircraft Valuation Law), which provides a preferred method for ascertaining the fair market value of one particular type of tangible property-aircraft. The question presented in this case is whether the application of the Aircraft Valuation Law to Delta Air Lines' aircraft resulted in an assessment below fair market value in violation of the Utah Constitution.

¶2 For tax year 2017, the Property Tax Division valued Delta's aircraft according to the statute's preferred methodology, which required the Division to add together the current market value for each individual aircraft and then apply a fleet discount based on the number of aircraft Delta owns. Salt Lake County challenged the valuation before the Utah State Tax Commission, asserting that the valuation violated the Utah Constitution because it did not reflect the fair market value of Delta's aircraft. The County contended that other valuation methods that assess the value of the aircraft operating together as a unit should be used, and it presented evidence that those methods produced a higher valuation of Delta's property.

¶3 The Commission concluded that the Division correctly followed the requirements of the Aircraft Valuation Law in determining the 2017 value of Delta's aircraft. The Commission further found that the County did not carry its burden to establish by clear and convincing evidence that the legislature's preferred method of valuation did not reasonably reflect fair market value. Because the County did not make the required statutory showing, the Commission declined to apply the alternative valuation method advanced by the County.

¶4 The County petitions this court to review the Commission's determination. The County contends that the Aircraft Valuation Law, as applied to the 2017 assessment of Delta's aircraft, violates the Utah Constitution's requirement that property be assessed uniformly in proportion to its fair market value. Specifically, the County argues that the Aircraft Valuation Law's preferred methodology resulted in valuing Delta's aircraft below fair market value.

¶5 The Aircraft Valuation Law allows the Commission to use an alternative valuation method if the preferred method does not reasonably reflect fair market value. But to successfully invoke that statutory safety valve, certain conditions must be met. Because the County did not make the showing necessary to trigger the alternative valuation method, it cannot demonstrate that the Aircraft Valuation Law, as applied to Delta's 2017 assessment violates the air market value provision of the Utah Constitution.

BACKGROUND

¶6 The property tax obligations of certain businesses-including airlines-are centrally assessed by the Utah State Tax Commission, rather than by individual counties. See Utah Code § 59-2-201(1)(a)(iii). The Commission's Property Tax Division performs the original assessments, subject to review by the Commission. Utah Admin. Code R861-1A-16(4)(c), R884-24P-62.

¶7 Before 2017, he Division assessed airline properties under a unitary approach. A unitary approach "value[s] the synergistic nature of a business's collective property." Salt Lake City S. R.R. Co. v. Utah State Tax Comm'n, 1999 UT 90, ¶ 21, 987 P.2d 594. It "attempts] to capture the fair market value of [a] [c]ompany's property operating together as a single unit" Id.

¶8 Employing the unitary approach, the Division used a combination of three appraisal methods to determine the value of an airline's property operating as a single unit. Those methods consisted of the cost valuation method, which "determines property value based on original cost less depreciation;" the income method, which "determines property value by computing the present value of anticipated income generated by the property;" and the market method, which "examines the prices at which comparable properties have been bought and sold." Id. ¶ 14. The appraisers for the Division would then reconcile these various valuation methodologies by assigning each methodology a different weight based on the quality of the evidence and other factors of appraisal judgment. The methods used and the weight that he Division placed on each method could vary by airline.

¶9 In 2017, the legislature enacted the Aircraft Valuation Law, establishing a single methodology for valuing aircraft when determining the property tax obligation of airlines. Utah Code § 59-2-201 (4).^[1] Subsection 4 requires the Commission to assess the fair market value of aircraft by using the "Airliner Price Guide" (APG), an airline industry pricing publication. Id. § 59-2-201 (4) (b)(ii). And when valuing an airline's fleet, subsection 4 provides for an incremental downward "fleet adjustment" of "up to a maximum 20% reduction." Id. § 59-2-201 (4) (c)(iii) But the statute permits the Commission to use an alternative valuation method where it "has clear and convincing evidence that the aircraft values reflected in the [APG] do not reasonably reflect fair market value of the aircraft" and it "cannot identify an alternative aircraft pricing guide from which the commission may determine aircraft value." Id. § 59-2-201 (4) (d)(i), (ii).

¶10 In 2017, Delta's operating property in Utah was located entirely in Salt Lake County. The Division prepared its 2017 assessment of Delta's aircraft according to the Aircraft Valuation Law's mandates, placing "100% weight on the [APG] methodology that used current market values minus a 20% fleet adjustment"

¶11 The APG methodology resulted in a $14.6 billion fair market valuation of Dela's operating property. The Division also prepared valuations of Delta's property using two other methodologies. The cost approach resulted in a valuation of $21.3 billion, and the income approach resulted in a valuation of $40.9 billion. But because the Aircraft Valuation Law requires the Commission to use the APG with a fleet discount, the Division placed no weight on those other methodologies.

¶12 The County objected before the Commission o the Division's 2017 assessment of Delta's property, asserting that the Division did not assess the property at fair market value and, therefore, violated the Utah Constitution. In support of that argument, the County submitted its own appraisal of $37.3 billion. The County's appraisal used a combination of a cost approach, income approach, and stock-and debt-based market approach, but it did not include an APG valuation. The County's appraiser reported that he did not use an APG valuation as required by the Aircraft Valuation Law because, in his opinion, it did not reflect fair market value.

¶13 Delta submitted its own expert's report, rebutting the County's appraisal. Delta's report identified a number of errors in the County's appraisal, but its primary critique was that the County's expert did not consider the application of either the APG or any alternative aircraft pricing guide as required by the Aircraft Valuation Law.

¶14 The Commission determined that the Division's assessment using the APG was the correct valuation under the Aircraft Valuation Law. The Commission further concluded that the County had not met its burden, as required by the Aircraft Valuation Law, to support using an alternative method of valuation for Delta's property. Because "[i]t is not for the Tax Commission to determine questions of legality or constitutionality of legislative enactments," Nebeker v. Utah State Tax Comm'n, 2001 UT 74, ¶ 15, 34 P.3d 180 (cleaned up), the Commission did not address the County's constitutional challenge.

¶15 The Commission upheld the Division's 2017 assessment of Delta's property. The County petitions for review of the Commission's determination. We have jurisdiction to review the Commission's decision under Utah Code section 78A-3-102(3)(e)(ii

ISSUE AND STANDARD OF REVIEW

¶16 The County challenges the constitutionality of the Aircraft Valuation Law as applied to the 2017 assessment of Delta's aircraft.^[2]"Because it is not for the [T]ax [C]ommission to determine questions of legality or constitutionality of legislative enactments, we have no agency decision to review" regarding the constitutionality of the Aircraft Valuation Law. Durbano Props., LC v. Utah State Tax Comm'n, 2023 UT 6, If 9, 529 P.3d 348 (cleaned up). We "therefore address the constitutionality of the statute for the first time as a question of law." Id.

ANALYSIS

¶17 The County argues that the Aircraft Valuation Law is unconstitutional as applied by...