LOGA Industry Report - Winter 2009 - (Page 29) Claiming Obsolescence for Ad Valorem Tax Purposes by Jim Exnicios, Liskow and Lewis There appears to be a light at the end of the tunnel with respect to the dispute over whether an assessor must consider evidence of functional or economic obsolescence in arriving at the fair market value of oil and gas property for ad valorem tax assessment purposes. LOGA filed two separate lawsuits in the 19th Judicial District Court for the Parish of East Baton Rouge challenging the handling of the issue by the Louisiana Tax Commission in the 2008 rule promulgation process. In addition, the Louisiana Assessors Association joined with the assessor for Jefferson Davis Parish and filed an appeal from an adverse Louisiana Tax Commission decision involving the issue in the matter styled Kratzer, et al v. Cayuse Pipeline, Inc., C-68108, 31st Judicial District Court for the Parish of Jefferson Davis. All three suits are still pending in the court system. So, where is the optimism coming from? The lawsuits have provided a context for the industry, the Louisiana Tax Commission and the assessors to frame the obsolescence dispute in terms each side understands and to seek common ground. The recently completed Louisiana Tax Commission 2009 ad valorem rule promulgation process provides an insight into where the obsolescence issue is heading. There appears to be consensus emerging on a few key points. First, as a matter of law and sound appraisal principles, assessors have to consider evidence of functional or economic obsolescence in arriving at the fair market value of oil and gas properties. Second, no amount of court decisions or detailed rules concerning quality and weight of evidence is capable of bringing certainty to what is always a facts and circumstances analysis. Third, as part of the consideration process, assessors are charged with the legal responsibility to properly weigh the evidence presented and use their best judgment in determining the appropriate amount of discount, if any, to apply in arriving at the fair market value. Finally, if a taxpayer believes that an assessor either did not consider or considered and did not make the appropriate adjustment based upon the evidence submitted concerning functional or economic obsolescence, the Louisiana Tax Commission and ultimately the Louisiana court system are available to review the assessor’s actions. The Louisiana Tax Commission 2009 rules will be published in the Louisiana Register in the coming months, and it is anticipated that those rules will address the obsolescence issue in the manner described here. In the meantime, any taxpayer who believes that an assessor either failed to consider or considered and did make the appropriate adjustment based upon the evidence submitted for 2008 or prior years’ assessments, should press on with the appeals process. ● 390600_Shoreline.indd 1 7/17/08 www.loga.la | 8:42:32 PM 29 http://www.shorelinegas.com http://www.loga.la
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