BP PIPELINES (ALASKA) INC., CONOCOPHILLIPS TRANSPORTATION ALASKA, INC., EXXONMOBIL PIPELINE COMPANY, KOCH ALASKA PIPELINE COMPANY, LLC, UNOCAL PIPELINE COMPANY, and ALYESKA PIPELINE SERVICE COMPANY, Appellants and Cross-Appellees,
STATE OF ALASKA, DEPARTMENT OF REVENUE, and STATE ASSESSMENT REVIEW BOARD, Appellees and Cross-Appellees, NORTH SLOPE BOROUGH, FAIRBANKS NORTH STAR BOROUGH, and CITY OF VALDEZ, Appellees, Cross-Appellants, and Cross-Appellees. CITY OF VALDEZ, Cross-Appellant/Appellee,
BP PIPELINES (ALASKA) INC., CONOCOPHILLIPS TRANSPORTATION ALASKA, INC., EXXONMOBIL PIPELINE COMPANY, KOCH ALASKA PIPELINE COMPANY, LLC, UNOCAL PIPELINE COMPANY, ALYESKA PIPELINE SERVICE COMPANY, STATE OF ALASKA DEPARTMENT OF REVENUE, STATE ASSESSMENT REVIEW BOARD, NORTH SLOPE BOROUGH, FAIRBANKS NORTH STAR BOROUGH, Cross-Appellees/Appellants
Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Sharon Gleason, Judge. Superior Court No. 3AN-06-08446 CI.
Leon T. Vance, Faulkner Banfield, P.C., Juneau, Alexander O. Bryner, Feldman Orlansky & Sanders, Anchorage, Michael R. Garatoni, Garatoni Breen & Malone, Inc., San Antonio, Texas, for Appellants/Cross-Appellees.
William Walker, Craig Richards, Sara Rishko, Walker & Levesque, LLC, Valdez, for Cross-Appellant/Appellee City of Valdez.
Robert M. Johnson, Law Office of Robert M. Johnson, Anchorage, and Kenneth J. Diemer, Assistant Attorney General, Anchorage, and Richard Svobodny, Acting Attorney General, Juneau, for Appellees/Cross-Appellees State of Alaska Department of Revenue and State Assessment Review Board.
Mauri Long and Jessica Dillon, Dillon & Findley, P.C., Anchorage, for Appellee North Slope Borough. Robin Brena and Laura S. Gould, Brena, Bell & Clarkson, P.C., Anchorage, for Appellee Fairbanks North Star Borough.
Before: Fabe, Chief Justice, Winfree, Stowers, and Maassen, Justices, and Senior Justice Matthews.[*] [Carpeneti, Justice, not participating.]. WINFREE, Justice, with whom STOWERS, Justice, joins, dissenting in part.
FABE, Chief Justice.
WINFREE, Justice, with whom STOWERS, Justice, joins, dissenting in part.
This case involves the assessed value of the Trans-Alaska Pipeline System for property tax purposes. On appeal from the Alaska State Department of Revenue and the State Assessment Review Board, the superior court conducted a trial de novo to assess the value of the pipeline by calculating its replacement cost and then accounting for depreciation. The parties dispute the method used to assess the pipeline's value as well as the specific deductions made for functional and economic obsolescence. We affirm the superior court's valuation.
II. FACTS AND PROCEEDINGS
The Trans-Alaska Pipeline System is an 800-mile-long oil pipeline that connects oil reserves in Alaska's North Slope to a shipping terminal in the City of Valdez. This appeal involves a dispute between the Owners  of the pipeline and government entities about the assessed value of the pipeline for tax purposes.
Alaskan municipalities may levy and collect a tax on oil and gas property, including pipeline property, but the State Department of Revenue assesses the " full and true value" of that property. Alaska Statute 43.56.060 controls the Department of Revenue's assessment. A party may appeal the Department of Revenue's valuation to the five-member State Assessment Review Board. In turn, the superior court reviews an appeal of the Assessment Review Board's decision in a trial de novo. In this case, the Owners of the Trans-Alaska Pipeline System appeal the superior court's valuation of the pipeline for 2006 property tax assessment purposes.
In 2006 the Department of Revenue valued all pipelines in Alaska through a mass appraisal process, meaning that it used " standardized approaches and standardized adjustments"
for them all. When deciding how to assess these pipelines, the Department of Revenue considered the three primary methods for calculating a property's value: (1) the income method, measuring the property's earning power through the capitalization of its income; (2) the cost method, measuring the cost of acquiring a substitute property of equivalent utility; and (3) the sales comparison method, analyzing the sales price of comparable property. The Department of Revenue decided that the most reliable method was to estimate the replacement cost of the pipeline less depreciation. After conducting this " replacement cost new" analysis for the Trans-Alaska Pipeline System, the Department of Revenue's assessor, Randy Hoffbeck, determined that the pipeline's 2006 value was $3.641 billion.
Both the Owners and the Municipalities  seeking to levy and collect tax on the Trans-Alaska Pipeline System appealed the Department of Revenue's valuation to the State Assessment Review Board. After a three-day hearing in May 2006, the Assessment Review Board rejected the Owners' argument that the pipeline should be valued using the income approach rather than the cost approach. The Assessment Review Board agreed with the Municipalities that the Department of Revenue made certain inappropriate deductions when assessing the value of the property. Thus the Assessment Review Board raised the valuation of the Trans-Alaska Pipeline System to $4.3062718 billion.
The Owners and Municipalities appealed the Assessment Review Board's decision to the superior court. The Owners argued that the 2006 assessed value of the Trans-Alaska Pipeline System should be reduced to $850 million, and the Municipalities argued that the assessed value should be raised to $11.570 billion. After a five-week trial de novo in August and September of 2009, Superior Court Judge Sharon Gleason issued a decision in May 2010 finding the value to be $9.98 billion for the 2006 tax year. The Owners, Municipalities, and the Department of Revenue all filed motions for reconsideration. The superior court issued an amended decision upon reconsideration in October 2010. That decision forms the basis of this appeal.
The superior court determined that the Department of Revenue and the State Assessment Review Board's reliance on the cost approach to valuation, rather than an income approach as proposed by the Owners, was not improper, unsupported by the record, or fundamentally wrong. But the superior court agreed with the Municipalities that the Assessment Review Board's valuation was improper in certain respects.
The superior court found the Municipalities' cost study to be more credible and accurate than any of the other cost studies in the record, including that presented by the Owners and that relied upon by the Department of Revenue and the Assessment Review Board. Based on this study, the superior court determined that the valuation's scaling adjustment for excess capacity should be larger and should be characterized as economic or external rather than functional obsolescence. The superior court arrived at a final valuation of $9.977934 billion for the 2006 tax year, more than twice the Assessment Review Board's valuation.
In its final judgment, the superior court directed the Department of Revenue to issue a supplemental certified assessment roll based on the superior court's valuation of the Trans-Alaska Pipeline System that would form the basis of the supplemental taxes owed by the Owners. The superior court ruled that interest owed on the supplemental taxes would begin to run on June 30, 2006, when the taxes would have been due in 2006.
The Owners appeal the superior court's decision, arguing that the pipeline should
have been assessed at fair market value as measured by tariff income rather than use value as measured by replacement cost. The Owners also argue that the superior court's assessment improperly reached non-taxable property, that the superior court misconstrued a settlement agreement, and that the superior court's imposition of interest dating from 2006 was in error. The Municipalities cross-appeal, arguing that the superior court erred in applying a scaling deduction for economic obsolescence.
III. STANDARD OF REVIEW
When parties appeal the superior court's review of an administrative agency's decision in a trial de novo, we review only the superior court's decision, not that of the administrative agency. We review the superior court's factual findings under the clearly erroneous standard and will not overturn a factual finding unless " left with the firm and definite conviction on the entire record that a mistake has been made."  On questions of law, we are not bound by the lower court's decision. " Our duty is to adopt the rule of law that is most persuasive in light of precedent, reason, and policy." 
A. The Superior Court Did Not Err By Assessing The Use Value Of The Trans-Alaska Pipeline System.
1. Alaska Statute 43.56.060 does not require pipeline property to be assessed at its " fair market value."
The Alaska Constitution provides that " [s]tandards for appraisal of all property assessed by the State . . . shall be prescribed by law."  Consistent with this commandment, AS 43.56.060 provides that the Department of Revenue shall assess " property used . . . for the pipeline transportation of gas or unrefined oil or for the production of gas or unrefined oil at its full and true value as of January 1 of the assessment year."  It also specifies that the full and true value of pipeline property is " determined . . . with due regard to the economic value of the property based on the estimated life of the proven reserves of gas or unrefined oil then technically, economically, and legally deliverable into the transportation facility."  The parties dispute the meaning of this " full and true value" appraisal standard. The Owners contend that the " full and true value" of the pipeline can only be assessed by looking at its fair market value. The Municipalities agree with the Department of Revenue and the Assessment Review Board that " full and true value" may be measured by any one of several assessment standards, including fair market value or use value.
The superior court determined that the Department of Revenue and the State Assessment Review Board assessed the value of the Trans-Alaska Pipeline System by looking at the " use value" of the pipeline, defined as " the value that [the pipeline] has for its specific use in an integrated system in transporting [Alaska North Slope] products from the Owners' affiliates from the Alaska North Slope to market." The superior court found that the use value premise had " not been demonstrated to constitute a fundamentally wrong principle of valuation." The superior court found that " economic value" has " no generally accepted definition in the appraisal profession," and the Owners do not dispute this finding. The superior court further concluded that " neither the term 'full and true value' nor the term 'economic value' as used in [AS 43.56.060(e)] mandates, as a matter of law, the exclusive reliance on the regulated
tariff income stream to derive a value of [the Trans-Alaska Pipeline System] for property tax purposes."
The Owners argue on appeal that the legislature intended the phrase " full and true value" to mean " fair market value" and contend that market value should be assessed by calculating the value of the pipeline's income from tariffs.
The Appraisal of Real Estate defines " market value" as
[t]he most probable price, as of a specified date . . . for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.
" Market value" differs from " use value," which " focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the highest and best use of the property or the monetary amount that might be realized from its sale."
The Owners contend that the superior court erroneously gave the Department of Revenue and the State Assessment Review Board the discretion to select an assessment standard when in fact the statute compels the use of the " fair market value" standard. The Owners' primary argument is that " full and true value" is defined elsewhere by the legislature as " fair market value," and analyzing the statutory scheme as a whole indicates that " full and true value" should be defined as " fair market value" under AS 43.56.060(e)(2) as well.
Thus the question for this court is whether AS 43.56.060 compels the use of a " fair market value" standard and prohibits the use of a " use value" standard. The plain text and history of AS 43.56.060 indicate that the legislature did not intend for " fair market value" to be the only allowable standard for the assessment of pipeline property.
" When the legislature uses the same term in two closely related statutes, we will normally presume that the legislature intended that term to mean the same thing in both cases."  The Owners point out that AS 43.56, which sets the assessment standard for oil and gas property, operates in conjunction with AS 29.45, which allows municipalities to tax property, including oil and gas properties. Alaska Statute 29.45.110(a) defines " full and true value" as " market value," or " 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."  But AS 29.45.110(a) refers to property that the municipality, not the state, assesses. And that chapter explicitly provides that the full and true value of pipeline property is determined not under AS 29.45, but " under AS 43.56 as assessed by the Department of Revenue."  Thus, AS 29.45.110's definition of full and true value is not relevant to the assessment standard used by the Department of Revenue.
The Owners note that the legislature also defined " full and true value" as " market value" in certain sections of AS 43.56.060. But AS 43.56.060 defines " full and true value" differently for each type of oil and gas property the statute covers. For exploration property, " full and true value" is defined as " market value," but that definition is explicitly limited to exploration property. The " full and true value" of production property, on the other hand, is " determined . . . on the basis of replacement cost less depreciation based on the economic life of proven reserves." 
The value of under-construction production and pipeline property in the first year of assessment is measured by " the actual cost incurred or accrued with respect to the property as of the date of assessment."  Thus there is no global definition of " full and true value" in AS 43.56.060, and there is no definition of " full and true value" specific to pipeline property.
The legislative history of AS 43.56.060 supports the Municipalities' position that the legislature did not intend " full and true value" to have the uniform meaning of " market value" throughout the property tax statutes. In 1973 the Director of the Alaska Oil and Gas Division testified to the House Finance Committee about the bill that would become AS 43.56. He noted that the phrase " full and true value" was " a problem" because there were " many different methods of assessment" and that " he defied a tax assessor to determine 'full and true value.'"  The Director then went down the list of types of oil and gas property covered under AS 43.56.060:
Under Sec. 60 of the Governor's bill, sub-section (a) is a provision for what is assessed. . . . (b) Deals only with exploration equipment, based on market value. . . . (c) Cover[s] production equipment. The tax assessor would check the equipment, old and new, and tax accordingly, using actual cost less depreciation. . . . (d) Pipeline and pipeline equipment. It starts with the actual cost as a basis, but is depreciated on the economic life except in the event the physical life is different.
The Director's testimony indicates that " full and true value" was construed differently for each subsection, that " market value" was thought to be the standard only for exploration property, and that the cost approach was considered to be a definition of " full and true value" distinct from market value.
The testimony of former Attorney General John Havelock also supports the Municipalities' view that " full and true value" is not synonymous with " fair market value."  The Attorney General was asked whether it would " make much difference" for production property to be valued at " fair market value" as opposed to the method laid out in the draft bill. Havelock responded that " it would be a considerable change" because " [t]he fair market value method would introduce an element of uncertainty in property that doesn't have a fair market value."  He explained that he " didn't think the fair market value was appropriate" for valuing production property. While Havelock was referring to production rather than pipeline property, his testimony shows that fair market value was not considered the common standard for valuing all property under AS 43.56.060 and that the standard used for both pipeline and production property was considered distinct from fair market value.
We therefore conclude that the statutory language of AS 43.56.060 does not compel the Department of Revenue to use a fair market valuation standard. But although the use of a fair market standard is not always required, we must also examine whether the superior court erred in this case by assessing the Trans-Alaska Pipeline System under a use value standard.
2. The superior court did not err by applying a use value standard in this case.
The parties dispute whether the Assessment Review Board's decision to evaluate the pipeline under a use value standard implicates ...