Minor memos

Minor memos

April 01, 2005

MINOR MEMOS. German Gref, the Russian minister for economic development and trade, said he won a bottle of cognac by challenging two authors of the second half of the Russian tax code — the part that deals with business taxes — to interpret a chapter of the tax code that was chosen at random, and they gave “exactly opposite commentaries.” Gref said this shows a lack of coherence in this part of the tax code and how badly it needs to be rewritten . . . . The US Tax Court said that the amount a real estate developer spent to persuade the city to change the zoning laws so that he could build two large office buildings in Los Angeles could not be added to his “tax basis” in the buildings and recovered through tax depreciation. It said the spending added value to the land.  The cost of land is not depreciable. The case is Maguire/Thomas Partners v. Commissioner. The court released its decision on February 28 . . . . The IRS told an electric cooperative that in calculating its income for a year, it should take into account the actual amount the coop will pay to buy electricity from wholesale suppliers, even though it is 75 days after the year ends before the coop has the final figure on what it owes. The IRS said the amount is “knowable” when the tax year ended, even though the coop does not take time to calculate it. The coop pays its suppliers based on estimates and then does a reconciliation calculation within 75 days after the year ends. The IRS discussed this in a private letter ruling that it released in late March. The ruling is PLR 200510008 . . . . An Arizona appeals court said in late February that the starting point for valuing pipelines for property tax purposes is the original cost when the pipeline is first put into service — and not the amount a new buyer paid more recently for it. The difference meant a property tax valuation for an oil pipeline owned by a Kinder Morgan partnership of $121.8 million rather than $232.2 million. Pipelines and other utility property are “centrally” assessed by the state in Arizona, unlike other property that is valued by local property tax assessors. The statute providing for central assessment is particular about how valuations are supposed to be done. Kinder Morgan bought the pipeline in 1998 from the original developer, but it argued the property tax assessment should start with what the original developer paid to build it rather than the price Kinder Morgan paid. The appeals court agreed. The case is SFPP, L.P. v. Arizona Department of Revenue. The court released its decision on February 24. The court told the tax collector that if he has a problem with this result, he should complain to the legislature to fix the statute.

Keith Martin