Railcar Tax Overview

The department is generally responsible for valuing and classifying property in Montana. By law, the department not only annually values and assesses the railcar property, but also bills and collects the taxes associated with the railcar assessments. The taxes collected are deposited into the state's general fund.

In Montana, valuation of private railroad cars is on an ad valorem basis, latin for "according to value."

From a statutory standpoint, the base methodology for private railcar valuation in Montana is similar to most states: the number of miles traveled within the state by the cars within a particular fleet (company or reporting car mark), divided by the total system miles traveled by those cars. Total system miles are the total number of miles traveled, on all railroads, in all states, during the reporting period. This is referred to as the Statutory Method, per 15-23-213 MCA:

Formula: Montana Miles / Total System Miles = Allocation Percentage

In 2003/2004, the department entered into a negotiated rulemaking process with the railcar industry, in response to renewed pressure from the railroad industry, pertaining to the provisions of the '4-R' Act (Railroad Revitalization and Regulatory Reform Act of 1976). The result of this negotiated rulemaking was the adoption of a new methodology for private railroad car valuation in Montana.

This new methodology is set forth in the Administrative Rules of Montana, specifically, 42.22.121 ARM.

• The department uses recognized unit appraisal methodologies to value the cars in an interstate company's fleet, and then allocates a portion of the interstate value to Montana to account for 100 percent of the state's portion of that value.
• The department's Business Tax and Valuation Bureau administers this process. The department's Accounts Receivable and Collections Bureau provides collection services while the Tax, Policy and Research unit compiles and analyzes data.

• Because of the nature of the railcar industry, individual car movements are very difficult to track and attribute to any one county or levy district. Centrally assessed properties are generally valued using unitary methodologies.
• This means that the entire fleet of a taxpayer's railcars is valued as a whole, without regard to the location of the property.
• The property can be in any state in the nation, as well as Montana. This is called the unit value. The total unit value is then allocated to Montana based on the operating characteristics such as mileage, speed, and other activities.

• To determine the market value, the department uses historical cost less depreciation (HCLD) or original cost less depreciation (OCLD) approaches.
• The department also adds to these costs any improvements or special equipment that may be present on the railcar. The department calculates depreciation equally over the life of the railcars (straight-line method) taking into consideration all forms of physical, functional, and external depreciation or obsolescence.
• Thus, Fleet Value is equal to the total cost of cars (plus betterments) depreciated at 4% per year on a half year convention down to a minimum car value of $2,000 per car.

Railcar activity is allocated to Montana based on a formula.

Formula:

Allocation % = miles in Montana / (speed of car * 365 days) / railcars in fleet speed = miles per day (mpd)

Example Calculation:

As an example, if we assume a group of 145,785 cars traveled 124,462,437 miles in Montana the Allocation % would be 0.520%.

Allocation % = 124,462,437 miles in MT / (450 mpd × 365) / 145,785 cars = 0.520%

The tax is based on the time each car is in the state (miles per day/ traveled) and its historic or original cost less depreciation.

• The default rate for rail cars is 450 miles per day for flat, box, and gondola cars while all other cars are 250 miles per day.
• Rail car companies can provide speed studies for cars that may travel faster than the default rates.
• Instructions to file a speed study are included in the annual speed study letter sent in January as each year the department chooses a different month for which speed studies must be conducted.

Although private railroad car tax is assessed and taxed by the state in lieu of local ad valorem property tax, federal law requires parity in the tax assessed against private railcars to that assessed against other business property.

This federal law, the "4-R" Act, specifically provides that railroad cars cannot be taxed differently than other commercial and industrial property. The tax rate and statewide mill levy is calculated on an annual basis by the department's Tax, Policy, and Research Unit.

Formula

Fleet Value × Allocation % × Class 12 Tax Rate × Average Industrial Mill Levy = Taxes Due

Example

$14,000,000 × 0.52% × 0.0312% × .53883 = $122,387.69