Section R884-24P-20 - Construction Work in Progress Pursuant to Utah Constitution Art. XIII, Section 2 and Utah Code Ann. Sections 59-2-201 and 59-2-301(1) For purposes of this section: (a) "Construction work in progress" means improvements as defined in Section 59-2-102, and personal property as defined in Section 59-2-102, that are not functionally complete.(b) "Project" means any undertaking involving construction, expansion or modernization.(c) "Construction" means: (i) creation of a new facility;(ii) acquisition of personal property; or(iii) any alteration to the real property of an existing facility other than normal repairs or maintenance.(d) "Expansion" means an increase in production or capacity as a result of the project.(e) "Modernization" means a change or contrast in character or quality resulting from the introduction of improved techniques, methods or products.(f) "Functionally complete" or "functional completion" means capable of providing economic benefit to the owner through fulfillment of the purpose for which it was constructed. In the case of a cost-regulated utility, a project shall be functionally complete when the operating property associated with the project has been capitalized on the books and is part of the rate base of that utility.(g) "Allocable preconstruction costs" means expenditures associated with the planning and preparation for the construction of a project. To be classified as an allocable preconstruction cost, an expenditure must be capitalized.(h) "Cost- regulated utility" means a power company, oil and gas pipeline company, gas distribution company or telecommunication company whose earnings are determined by a rate of return applied to rate base. Rate of return and rate base are set and approved by a state or federal regulatory commission.(i) "Centrally assessed property" means property that is required to be assessed under Section 59-2-201.(j) "Locally assessed property" means property that is required to be assessed under Section 59-2-301. (2) All construction work in progress shall be valued at "full cash value" as described in this section.(3)(b) For purposes of this rule, discount rates shall be determined by the Tax Commission, and shall be consistent with market, financial and economic conditions.(4) Appraisal of Allocable Preconstruction Costs.(a) If requested by the taxpayer, preconstruction costs associated with centrally assessed property may be allocated to the value of the project in relation to the relative amount of total expenditures made on the project by the lien date. Allocation will be allowed only if the following conditions are satisfied by January 30 of the tax year for which the request is sought:(i) a detailed list of preconstruction cost data is supplied to the Tax Commission; and(ii) the percent of completion of the project and the preconstruction cost data are certified by the taxpayer as to their accuracy.(b)(i) The preconstruction costs allocated under Subsection (4)(a) shall be discounted using the rate determined under Subsection (3).(ii) The discounted allocated value described in Subsection (4)(b)(i), shall be added to the values determined under the various approaches used in the method of valuation determined under Subsection (6).(c) The preconstruction costs allocated under this Subsection (4) are subject to audit for four years. If adjustments are necessary after examination of the records, those adjustments will be classified as property escaping assessment.(5) Appraisal of Locally Assessed Properties.(a) On or before January 1 of each tax year, each county assessor shall determine the following for projects involving locally assessed property:(i) the full cash value of the project expected upon completion;(ii) the expected date of functional completion of the project currently under construction; and (iii) the percentage of completion of the project as of the lien date.(b) Determination of the percentage of completion of a project for locally assessed property shall be based on the following percentages of completion:(i) 10% - Excavation-foundation;(ii) 30% - Rough lumber, rough labor;(iii) 50% - Roofing, rough plumbing, rough electrical, heating;(iv) 65% - Insulation, drywall, exterior finish;(v) 75% - Finish lumber, finish labor, painting;(vi) 90% - Cabinets, cabinet tops, tile, finish plumbing, finish electrical; and(vii) 100% - Floor covering, appliances, exterior concrete, misc. (c) The value of a project on January 1 shall be determined by multiplying the full cash value of the project expected upon completion by the percentage of completion of the project as determined under this Subsection (5).(6) Appraisal of Centrally Assessed Properties. (a) No adjustments under this rule shall be made to the income indicator of value for a project under construction that is owned by a cost-regulated utility when the project is allowed in rate base.(b) The full cash value of a project under construction as of January 1 of the tax year, shall be determined by adjusting the cost and income approaches as provided in this Subsection (6)(b).(i) Adjustments to reflect the time value of money in appraising construction work in progress valued under the cost and income approaches shall be made for each approach as provided in this Subsection (6)(b)(i).(A)(I) Each company shall report the expected completion dates and costs of the projects.(II) A project expected to be completed during the tax year for which the valuation is being determined shall be considered completed on January 1 or July 1, whichever is closest to the expected completion date.(III) The Tax Commission shall determine the expected completion date for any project whose completion is scheduled during a tax year after the tax year for which the valuation is being made.(B) If requested by the company, the value of allocable preconstruction costs determined under Subsection (4) shall be subtracted from the total cost of each project. The difference shall be referred to as the adjusted cost value of the project.(C) The adjusted cost value for each of the future years before functional completion shall be discounted to reflect the present value of the project under construction. The discount rate shall be determined under Subsection (3).(D) The discounted adjusted cost value shall then be added to the values determined under the income approach and cost approach.(ii) No adjustment will be made to reflect the time value of money for a project valued under the stock and debt approach to value.Utah Admin. Code R884-24P-20
Amended by Utah State Bulletin Number 2023-21, effective 10/27/2023