FIELD OPERATOR S GUIDE TO ALBERTA PROPERTY TAX PROCEDURES PREPARED BY: J.T. CONSULTING ROGER BEAUPRE, AACI JOE THIBAULT November 16, 2004-0-
THE ALBERTA PROPERTY TAX SYSTEM In Alberta, property taxes are composed of two assessment components: 1. Linear Property Assessment which is comprised of wells and pipelines. 2. Industrial Property Assessment which is comprised of surface processing facilities such as gas plants, batteries, compressor stations, wellsite dehydration and separation installations. Each of these components is administered and calculated in a different manner. LINEAR PROPERTY ASSESSMENT The linear property assessment is administered by the Linear Assessment section of Alberta Municipal Affairs in Edmonton. The well and pipelines assessment is calculated using Alberta Energy and Utilities Board data. Well Assessment AEUB data such as the production status, depth and well production information are used. Alberta Municipal Affairs develops cost factors based on the well status and the well depth to determine the well s assessment value. Low producing wells are given additional depreciation factors based on tables developed by Municipal Affairs. Pipeline Assessment AEUB data used in developing the pipeline assessment includes length, diameter, pipeline material and pipeline status. Pipeline permits showing an operational status are assessed at a 100% rate, while discontinued pipelines are assessed at a 10% of assessment value rate. Abandoned pipelines are assessed at a zero assessment value rate. To qualify as a discontinued pipeline the pipeline change must be filed with the AEUB in the prescribed format for approval and the following conditions must be met: (a) physically isolated or disconnected from any operating facility, (b) cleaned if necessary, (c) purged with fresh water, air or inert gas, and (d) left in a safe condition. To qualify as an abandoned pipeline the pipeline change must be filed with the AEUB in the prescribed format for approval and the following conditions must be met: (a) physically isolated or disconnected from any operating facility, (b) cleaned if necessary, -1-
(c) purged with fresh water, air or inert gas, (d) left in a safe condition, and (e) plugged or capped at all open ends. The Linear Property Assessment will use October 31, 2004 as the effective date to determine the linear assessment for taxation year 2005. Therefore, all well status and pipeline AEUB data as of October 31, 2004 will be reflected on your 2005 taxation year Linear Property Assessment. All pipelines abandoned or discontinued should be reported to AEUB prior to October 31 every year. Important Changes Effective Taxation Year 2000 It is important to remember that effective in 2000 previously classified non-operating pipelines are no longer given 50% depreciation factors. Only AEUB pipeline status is now recognized by Alberta Municipal Affairs. Also, flowlines tied to abandoned wells which were formerly exempt from assessment will now be assessed at 100% of their assessed value if they have not been formally discontinued or abandoned with the AEUB. Instead of the well operator being assessed for a well, the licensee recorded in the AEUB records is now assessed for the well. It will be important now to insure that wells and pipelines sold to new owners be reported to the AEUB; otherwise you will continue to be assessed for these sold properties. Linear Property Assessment Review and Appeals for 2005 Taxation Year Pipeline and Well Assessment Inventory Reports are issued: November December 2004 Inventory changes are identified and reported by: February 15, 2005 Pipeline and Well Assessment Listings are issued: March April, 2005 Pipeline and Well Assessment are reviewed and appealed within 30 days from date of issue. Which Linear Property Assessments Can be Appealed? When the linear property assessment is issued around March 31, 2005 we will have 30 days to review and file any complaints to the Municipal Government Board which is the dispute resolution tribunal for property assessment appeals in Alberta. Any new pipeline assessment permits and/or segment numbers should be closely reviewed to determine: 1. Was the new AEUB pipeline permit segment constructed after October 31, 2004 or not constructed at all. If either situation is the case the pipeline is not assessable for 2005 and should therefore be appealed. 2. The same would apply to new well assessments; were they drilled and completed after October 31, 2004? If so, they should not be assessed in 2005. -2-
3. AEUB pipeline permit operator information; if the pipeline operator has changed the permit should then be assessed to the new operator. 4. Verify that wells and pipelines are assessed in the correct municipality. 5. Wells should be assessed to the licensee of the well. INDUSTRIAL SURFACE FACILITY PROPERTY ASSESSMENT This portion of the assessment function is administered by the individual municipalities and is calculated by locally-appointed assessors. Inventory Review An annual review of surface facility inventories should be completed by year end. The status date for the industrial assessment is December 31, 2004 for taxation year 2005. Existing Facilities Property assessment detail sheets should be reviewed for: 1. Identify idle equipment that is no longer in use. 2. Identify equipment that has been removed or replaced. 3. Identify surface facilities which have been entirely shut down, dismantled and/or removed from location (identify new location where equipment has been moved to if still in use). 4. New equipment added to facility to increase capacity. Procedures for Reporting New Surface Facility Costs For the 2005 taxation year only those new facilities which have been commissioned and are operating as of December 31, 2004 are required to be reported to the assessor. 1. Review AFE controls to identify surface facility type and location. 2. To determine actual costs, obtain copies of AFE, general ledger run and vouchers. 3. Prepare surface facility cost rendition which involves breakdown of costs between machinery and buildings. Claim abnormal and non-assessable cost items. For example, these would include premium overtime, travel time to construction site, bonus for early completion, cost overruns due to inclement weather and remote location costs. 4. Review cost rendition with field operators. 5. Submit cost rendition to assessor. Consideration for Obsolescence Factor for Facilities Assessors should recognize abnormal depreciation as a part of their assessment valuation process. Actual throughput measured against the original design capacity of the plant is one -3-
factor that should be considered, along with the accessibility to additional product and is the field declining more rapidly than the original estimates. Also, comparing the assessment values of similar types of plants in the area with respect to their capacities may identify an inequity in the subject facility s assessment value. Reviewing Assessed Costs of Existing Facilities It may be prudent to review the assessed costs of existing facilities to determine if the nonassessable costs have been taken into consideration by the assessor. -4-
THE INDUSTRIAL ASSESSMENT SHEET The industrial assessment sheet provides a detailed inventory of a surface facility. The following is a description of what information can be found on the industrial assessment sheet. ITEM DESCRIPTION INVENTORY YEAR ACTUAL COST MANUAL COST CONVERSION FACTOR AGE/LIFE DEPRECIATION Type of equipment found at the site. Type of building found at the site. Year of installation of an item. It is important to know that if an equipment item is used or is B condition the year of manufacture should be used so that additional depreciation will be considered. Actual cost is used when a manual cost cannot be used. Reflects the cost to build the facility less abnormal/non-assessable costs. Cost found in the 2003 Assessment Manual. These costs reflect what it cost to purchase and install a new equipment item in 2002. The factor used in converting an actual cost into a 2002 replacement cost new of an improvement. This factor will be determined by the year of installation or inventory year. The estimated useful life of an improvement. For machinery & equipment it is 20 years. For buildings & structures it is usually 50 years. The normal physical/functional depreciation factor. For machinery an initial depreciation allowance of 25% (75% remaining) is given. This 25% depreciation rate is fixed for the first six years of the life of the equipment. Additional depreciation is then allocated on the seventh year and the depreciation is increased to a maximum of 60% (40% remaining) in year 19. For buildings depreciation is calculated by deducting the age of the building from the general assessment year. If the building was built in a general assessment year the depreciation does not start until after the next general assessment. -5-
BASE YEAR MODIFIER This factor will determine the base year replacement cost new of an improvement in the base year of a general assessment. STATUTORY LEVEL FACTOR For machinery & equipment 0.77 For buildings & structures 1.00 Assessed Value = ac x cf x bym x d x slf ac = actual installed costs cf = conversion factor bym = base year modifier d = depreciation slf = statutory level factor All actual installed costs are converted to 2003 assessment manual values. 2003 manual values are then converted to a current year assessment value by applying base year modifiers (based on a construction and material cost index) and depreciation factors. The purpose of this exercise is to achieve a fair and equitable assessment for all similar properties. 1. Actual Installed Cost x Conversion Factor = The Replacement Cost New (2002) 2. The Replacement Cost New (2002) x Base Year Modifier = The Base Year Replacement Cost New 3. The Base Year Replacement Cost New x Depreciation Factor = The Depreciated Replacement Cost New Or The Fair Actual Value 4. The Fair Actual Value x The Statutory Level Factor = The Assessed Value -6-
THE LINEAR PROPERTY ASSESSMENT SHEETS Well Assessment Detail Report PROP. TYPE WS indicates well site assessment - valuation for the well site land - $1,460 per well. WL indicates well assessment. UNIQUE WELL IDENTIFIER ZN Legal description of well. Indicates number of zone. EUB STATUS Indicates the well s operational status as of October 31. YTD HOURS YTD GAS (TM3) YTD OIL (m3) QTY/DEPTH ADJ % ASSESSMENT Indicates the year-to-date hours the well has operated. Indicates the total year-to-date gas well production. Indicates the total year-to-date oil well production. Depth of well. Depreciation factor in recognition of low producing wells. Assessment value of well and well site. Well Assessment Calculation For example, a crude oil pumping well assessment with a depth of 2226.6 meters would be calculated in the following manner: [(2226.6 m 304 m) x $87.30 Rate per meter] = 167,843 + $59,620 Base Rate = 227,463 x 100% (Adjustment Factor to Take Into Consideration Low Production) x 0.8475 (Assessment Year Conversion Factor) = $192,780 Assessment Value for Taxation Year 2000-8-
PIPELINE ASSESSMENT DETAIL REPORT LICENSE NUMBER SEG. NO. PIPE STAT. FROM TO MATERIAL SUBSTANCE SIZE SHARE % ASSESSED LENGTH (KM) RATE PER KM ADJ % ASSESSMENT AEUB pipeline permit number. AEUB pipeline segment number. Pipeline status according to AEUB records. O Operational D Discontinued A Abandoned Legal description of pipeline. Pipeline material. Pipeline product. Pipeline diameter. Percentage of pipeline located in municipality. Pipeline length in kilometers. Pipeline assessment rate per kilometer. Depreciation allowance for discontinued and abandoned pipelines. Assessment value of pipeline. Pipeline Assessment Calculation Pipeline Length x Rate per km x 0.8477 (Assessment Year Conversion Factor) x Adj % = Assessment -13-