The Intermediate Court of Appeals of West Virginia has upheld a decision by the Office of Tax Appeals (OTA) that reduced the assessed value of natural gas pipelines owned by MarkWest Liberty NGL Pipeline, LLC (MarkWest). The ruling stems from a dispute over the property tax assessment of three 20-inch natural gas pipelines located in Wetzel County, West Virginia. The county assessor, Scott Lemley, challenged the OTA’s decision, but the court found no reason to overturn the tax reduction.
Background of the Case
MarkWest filed its commercial personal property tax returns for the 2023 tax year, seeking a reduction in the assessed value of the pipelines. The company argued that the pipelines had suffered economic obsolescence due to underutilization. Economic obsolescence, as defined by West Virginia law, is a loss in property value caused by external factors, such as changes in use, legislation, or shifts in supply and demand.
MarkWest’s argument centered on the fact that the 20-inch pipelines, built in 2018 to handle increased natural gas liquid (NGL) volume, were not operating at full capacity. This underutilization, MarkWest contended, was a result of the economic downturn caused by the COVID-19 pandemic, which led to reduced demand for NGLs.
The Wetzel County Assessor, however, disagreed with MarkWest’s assessment, leading to an appeal to the OTA. The OTA, after reviewing evidence and hearing arguments from both sides, sided with MarkWest and applied a 35% reduction in the assessed value of the pipelines due to economic obsolescence.
Key Arguments and Findings
The Assessor raised several arguments on appeal, primarily challenging the OTA’s decision to grant the tax reduction. He argued that the OTA erred in several ways, including:
* Requiring More Than Consideration: The Assessor contended that he was only required to “consider” MarkWest’s claim for economic obsolescence, not necessarily grant it. The court rejected this argument, stating that the 2023 amendments to West Virginia law required MarkWest to demonstrate, by a preponderance of the evidence, that an adjustment to its tax assessment to include economic obsolescence was warranted.
* Lack of Independent Valuation: The Assessor argued that the OTA should have required MarkWest to provide an independent appraisal or opinion of the pipelines’ value. The court found that MarkWest’s evidence, which focused on the economic obsolescence adjustment to the existing cost-based valuation, was sufficient and no new appraisal was needed.
* Judicial Notice of the Pandemic: The Assessor argued that the OTA improperly took judicial notice of the COVID-19 pandemic’s effect on the U.S. economy. The court agreed that the impact of the pandemic on the economy was not a fact subject to judicial notice. However, the court found the error harmless because the OTA’s ultimate decision was based on the specific impact the pandemic had on MarkWest’s pipelines.
* Methodology of Economic Obsolescence: The Assessor challenged the methodology used by MarkWest’s expert to calculate the economic obsolescence reduction. The Assessor argued that the chosen methodology was flawed and did not accurately reflect the pipelines’ value. The court deferred to the OTA’s decision and found no error in its acceptance of the income capitalization of loss method used by the expert.
The court’s decision hinged on the standard of review, which dictates how much deference the court gives to the OTA’s findings. The court explained that it would not overturn the OTA’s decision unless it was “clearly wrong” or based on an abuse of discretion.
The court found that the OTA’s decision to apply the 35% reduction was supported by the evidence and that the Assessor failed to provide sufficient evidence to rebut MarkWest’s claims. The court emphasized that the OTA, as the fact-finder, was in the best position to assess the credibility of the evidence presented.
The Role of Economic Obsolescence
The case highlights the importance of economic obsolescence in property tax assessments, particularly in industries subject to market fluctuations. The court’s decision reinforces the principle that property values should reflect real-world economic conditions.
In this case, the pipelines were built to handle an anticipated increase in natural gas production. However, due to the economic changes brought about by the pandemic, that increase never materialized. As a result, the pipelines were underutilized, leading to a loss in value. The OTA recognized this loss and correctly applied the economic obsolescence reduction.
MarkWest’s Cross-Assignment of Error
MarkWest also filed a cross-assignment of error, arguing that the OTA erred in determining that only one of the expert’s four submitted methods for quantifying economic obsolescence was valid under West Virginia law. The court declined to address this argument, stating that it would require the court to provide an advisory opinion, which is not permitted under the law.