Cable company's property taxes before Supreme Court [The Montana Standard, Butte]
(Montana Standard (Butte) Via Acquire Media NewsEdge) Sept. 22--HELENA -- The Montana Supreme Court will hear oral arguments Wednesday in a multimillion-dollar dispute over the state Revenue Department's changing of how Bresnan Communications' properties were assessed for taxes.
The arguments begin at 9:30 a.m.
The Revenue Department is appealing a 2012 decision by state District Judge Susan Watters of Billings in favor of Bresnan, now owned by Charter Communications.
Watters ruled that the Revenue Department illegally lumped all Bresnan's properties -- such as those needed to provide cable television, Internet and telephone services -- into one classification for tax purposes. The agency, she said, also wrongly ordered all of the properties to be centrally assessed by the state as a telecommunications service company.
The department's decision effectively doubled the tax rate on some of Bresnan's property, from 3 percent to 6 percent, and raised its total property taxes.
Bresnan said the department's changes more than quadrupled its Montana property taxes, from $1.7 million in 2009 to $7.3 million in 2010.
Watters' decision lowered Bresnan's property tax bill by $5.6 million in 2010 alone.
The Revenue Department defended its assessment changes.
"The Legislature has directed the department to assess telecommunications companies as a unit when they are used as a unit," C. A. Daw, the department's chief legal counsel, told The Gazette State Bureau last week. "Trying to break a modern integrated telecommunications company like Bresnan up into component pieces is a shell game that shifts the tax burden to other taxpayers, including homeowners and small businesses."
Charter released this statement to the State Bureau prior to the hearing: "Bresnan has always fully and properly paid its state and local taxes, and the District Court that heard all the evidence related to this dispute agreed. The department's efforts to retroactively change what Bresnan pays is not supported by the laws of this state or by the facts of this case."
The dispute arose after the Revenue Department, following an audit, reclassified Bresnan's property as a "centrally assessed telecommunications services company" for tax year 2010.
When Bresnan bought the company in 2003, it provided customers with only one-way cable television, and in limited markets, two-way data or Internet service, Revenue Department lawyers said in a brief.
But by tax years 2007 to 2010, Bresnan offered cable television (video), telephone (voice) and Internet services over a single network, promoting it as the company's "Triple Play" to customers in 20 Montana counties and in Wyoming, Colorado and Utah, the state's brief said. Bresnan upgraded its property to allow for enhanced video services such as video on demand, and added Internet and residential and commercial voice service.
The department said Bresnan boasted in advertising that it had "invested hundreds of millions of dollars to bring state of the art telecommunications infrastructure to Montana."
The Revenue Department previously had classified Bresnan's locally reported properties under Class 8, which covers cable television systems, with a tax rate of 3 percent.
Bresnan centrally reported its voice operations under Bresnan Digital Services, and its microwave operation in tax years 2007-2009, under Class 13, with a 6 percent tax rate.
"Filing as three separate entities meant Bresnan had to divvy its assets among its reporting forms," the Revenue Department brief said. "Bresnan apportioned over 90 percent of its property to its locally reported filings with the attendant 3 percent tax rate."
After the audit, the department concluded that Bresnan operated as "a single and continuous interstate and inter-county telecommunications services company" and by law needed to centrally assess and classify all Bresnan's property under Class 13.
The Revenue Department also revised the company's assessments for 2007-2009.
Bresnan sued, saying the department decision to assign all of its properties to Class 13 was "illegal, improper and a violation of law."
From the outset, Bresnan it was obliged to segregate its video, voice and data services for various reasons.
State law imposes excise taxes on voice services but not on video or data. Cable franchise agreements, through which Bresnan obtained the right to install cable TV systems in public rights of way, impose franchise fees on video revenues, but not on voice or data. Bresnan also offered residential voice through a third-party vendor, which had a revenue-sharing arrangement from voice but not from video or data.
The company said it also segregated equipment and revenues for property tax purposes.
"Many Montana taxpayers own property, and are assessed by the department, in more than one property tax class," Bresnan attorneys said. "All Montana cable television systems are locally assessed under Class 8. As instructed, Bresnan reported, was assessed and paid property taxes under both Class 8 and Class 13."
But in 2010, Bresnan said, the Revenue Department unilaterally changed its method of assessment, putting all its company's Montana properties into Class 13 central assessment, and did so retroactively.
The department said it has the legal authority to revise assessments for past years.
"It is illogical that the Legislature would grant (the department) the authority to investigate a taxpayer to ensure its property value was assessed at 100 percent of its market value, but prevent the agency from taking the steps necessary to resolving inconsistencies or errors discovered by the investigation," the Revenue Department said.
(c)2013 The Montana Standard (Butte, Mont.)
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