Brain Freeze: Multiple Property Valuations Questioned

Brain Freeze: Multiple Property Valuations Questioned

by Joseph J. Calvanico

When any case reaches the Supreme Court of any given state, it is reasonable to conclude that the case is in the hands of the most learned legal minds in that state. It is also reasonable to conclude that the decision will be well reasoned. It is, therefore, disappointing when one finds cases in direct contrast. This is particularly true, lately, when it comes to real estate valuation as it pertains to property tax disputes. Litigation in Wisconsin, Ohio, and Iowa are all unfortunate examples of such cases.[1] Now, consider State, Dep't of Revenue v. BP Pipelines (Alaska) Inc.[2]  (“The Pipeline Case”).

Despite a provision in the statutes that states that property is to be valued at an equivalent of market value: Alaska Stat. § 29.45.110.

Full and True Value.

(a) The assessor shall assess property at its full and true value as of January 1 of the assessment year, except as provided in this section, 29.45.060, and 29.45.230. The full and true value is the estimated price that the property would bring in an open market and under the then prevailing market conditions in a sale between a willing seller and a willing buyer both conversant with the property and with prevailing general price levels.[3]

Instead, the court said: “ In the 2006 appeal we held that Alaska Stat. § 29.45.060 does not require a market value standard and that the superior court permissibly applied the use value standard to value TAPS [Trans-Alaska Pipeline System]. BP Pipelines (Alaska) Inc. v. State, 325 P.3d 478, 483-86 (Alaska 2014) ("The plain text and history of Alaska Stat. § 29.45.060 indicate that the legislature did not intend for `fair market value' to be the only allowable standard for the assessment of pipeline property." Id. at 483).”[4]

As a reminder, Use Value is often much higher than Market Value because “… an appraiser focuses on the value the real estate contributes to the enterprise of which it is a part, or the use to which it is devoted, without regard to the highest and best use of the property or the monetary amount that might be realized from the sale.”[5]

As in Wellmark, the court could have revisited, and relied upon, the statutory standard, but decided instead that stare decisis is too big a hurdle to overcome. This approach effectively created an exception, excluding pipelines from all other classes of property valued using the market value. Additionally, it is likely that use value will yield a higher taxable value than market value, resulting in a greater tax burden.

Another similarity to Wellmark is the court’s misuse of statutory authority: “But there is no authority supporting the Owners' position that the value of TAPS for tax assessment purposes must be based only on the tariff income it generates. (emphasis added) And the superior court's decision to value TAPS based on its actual use—transporting oil and gas from the Alaska North Slope for affiliated producers—is well supported.”[6]  The owner taxpayers argued that the statutes mandate market value, correctly pointing out that in the early 2000s TAPS was being valued on the market value standard using an income approach.  Rather than directly contradict the statutory mandate to apply market value, the court focused on the taxpayer’s reliance on the income approach - an unorthodox sleight of hand.

Moreover, the court implicitly dismissed intuitive economic principles. Sagaciously anticipating an increasing tax burden, the taxpayer adopted a safety net. As portrayed by the court, the taxpayer argued“… that even if the court properly applied a use-value standard and used the replacement-cost-new-less-depreciation method to value TAPS, it erred by failing to reduce the value of TAPS due to legal restrictions on its use. The Owners argue that the legal restrictions are a form of external obsolescence.”[7]  In support of this argument, the court said, “The Owners suggest that "[l]egal regulation in general, and tariff regulation in particular, make TAPS less valuable to own than a newly constructed property would be, requiring a deduction for external obsolescence."[8]

Economic or external obsolescence is “a loss in value caused by negative externalities, i.e., factors outside a property.”[9] Government policies are expressly stated in the Appraisal of Real Estate 14th Edition on page 32. Clearly, the court did not refer to appraisal literature or textbooks in its holding, asserting that … “the record simply does not reflect that regulation adversely affects the value of the pipeline.”[10] This conclusion contradicts the principle outlined in the taxpayer expert’s report, which was left out of the court’s calculation. In doing so, the court discredited its tax revenue-enhancing preference: "[I]f the income shortfall method was applied based on tariff income, the [replacement-cost-new-less-depreciation] valuation would no longer reflect the `full and true' economic value (emphasis added) of TAPS as a critical component of the integrated [Alaska North Slope] production and transportation system."[11] Transparency of purpose is not always so clearly viewed as here and in Wellmark.  

Many of the state courts mentioned at the outset of this article struggle with valuation, in general. In particular, they struggle with the valuation of special purpose property. This need not continue – again, The Appraisal of Real Estate 14th Edition comes to the rescue and offers advice, as follows:

“To investigate the functional utility and value…of a special purpose property, the appraiser can employ several strategies:


-          Review Appraisal literature…

-          Search for market data

-          Interview current or recent occupant and other operators in that particular field

-          Interview…engineers


The internet has made an abundance of information available to anyone who cares to seek it. Pipeline valuation is no exception. One can find several articles and resources on this topic. In addition, there are other resources from the other appraisal disciplines. Business valuation resources provide a good backdrop to the financial considerations of any given industry. Further, companies like IBIS and First Research provide excellent industry reports that can give insight into the industry that uses special purpose property.


Resources to consider include:

  • The Appraisal Institute
  • The International Right of Way Association
  • The National Association of Certified Valuation Analysts
  • The American Society of Appraisers
  • IBIS
  • First Research
  • Pratt’s Stats
  • Morningstar

ABOUT THE AUTHOR: Joseph J. Calvanico, MAI, FRICS is Managing Director at Loop Capital and has nearly 40 years of experience in real and personal property tax and valuation with several major accounting services firms, completing valuations in over 40 states and 10 countries. Mr. Calvanico is a graduate of the University of Wisconsin and The John Marshall Law School.

Mr. Calvanico is an Accredited Senior Appraiser and Member of the Royal Institution of Chartered Surveyors. Mr. Calvanico also holds the Certified Member of the Institute (CMI) designation of the Institute for Professionals in Taxation (IPT). 


[2] 354 P.3d 1053.

[4] 354 P.3d 1053.

[5] The Appraisal of Real Estate, 14th Edition, p. 62. Appraisal Institute.

[6] 354 P.3d 1053.

[7] Id.

[8] Id., FN 35.

[9] The Appraisal of Real Estate, 14th Edition, p. 632. Appraisal Institute.

[10] 354 P.3d 1053.

[11] Id