Massachusetts assesses and taxes conventional (wireline or landline) real and personal telephone property each year. The cities and towns value the real property portion, that is the land and buildings, but the Department of Revenue values the personal property, namely poles, wires, conduits, underground cable and conduits, generators and central office machinery, depending upon the corporate status of the company. The central office equipment is comprised of digital electronic and radio frequency gear that routes the telephone signals from customer to customer, converts the signals to fiber optic light signals, and reconverts light signals back to electronic digital signals for end customer communication. Also, as part of the central office, emergency generators are used and valued by the Department. They maintain electric connectivity and, what is commonly known as, the dial tone. While continued levels of sophistication and technology have occurred in the development of telephone property, such as T-1 lines, DSL or digital subscriber lines, high copper compression and fiber optic to the house, called FiOS, the fundamental principles of moving electronic or light signals into and out of a customer premises has not changed.
With the deregulation of the telephone industry, more and more landline property is becoming less and less regulated. As such, the Department of Revenue (DOR), through its 5941 reporting form continues to review and upgrade its tax reporting requests of the companies to maintain a steady flow of information from the telephone companies to the Department for use in the valuation process.
The landline telephone industry is in a state of flux that is greater than it has been since its inception 100 years ago. Areas of flux include:
- greater competition within the industry through deregulation,
- the requirement that the incumbent landline company allow access by competitive local and long distance exchange companies on its poles, wires, conduits and through its systems,
- the cannibalization by AT&T and Verizon of its own landline customer base with cellular wireless,
- the declining use of paired copper wires but an ever increasing compression of information over the remaining copper pairs being used,
- the erosion of the conventional landline customer base to wireless and cable operators,
- competition from the cable industry and the advent of VOIP (Voice Over Internet Protocol),
- deployment of fiber to the premises with the unregulated environment on regulated property,
- trunk line compression,
- the installation of excess long haul fiber optic cables which are not lit at this time,
- excess conduit construction,
- bankruptcies and the distinctions and problems created with fresh start accounting,
- lack of maintenance, breakage of lines and spares,
- competition from satellite data systems,
- continued advancement in the digital electronic circuitry being used, and
- ever ascending depreciation rates and write downs taken by the companies.
The Department is required to value telephone personal property through this maze of change and issue those values to each community in the Commonwealth annually on May 15th.
The Department has developed a mass appraisal model with which to perform the valuation. The mass appraisal model fundamentally relies upon the reporting in the 5941 form of original costs by FCC (Federal Communications Commission) accounting codes, the trending of original costs to current costs, and the application of depreciation. The depreciation applied is a composite depreciation of physical, functional, and economic obsolescence and tracks depreciation recommended by the FCC. In addition, the Department applies another 25 percent economic obsolescence to the landline company's property at this time in order to address the competitive issues previously mentioned.
The appraisal model employs the use of composite multipliers. The composite multiplier is an index which is applied to the original costs reported by the company, by account, by year. By utilizing composite multipliers, the Department can efficiently and electronically adjust the original cost to its value in one mathematical step. The development of the composite multipliers, which include original costs trended times depreciation by year by account, is updated annually to reflect an additional year of cost escalation and an additional year of depreciation.
In reviewing additional economic obsolescence above and beyond that embodied in the composite multipliers, DOR considers market sales of landline telephone companies throughout the United States, the income derived from the landline system, and the general trend back towards exclusivity of the telephone system through the deployment of FiOS.
The Department requires the companies to report its property by original cost by year by account category for each community in the Commonwealth and applies the mass appraisal model to each community. This methodology ensures to the best of the Department's ability the efficient valuation of property located within each community and not an allocation of a state wide value to each community.
Any questions regarding the model, methodology, and application to each individual community should be addressed to the Bureau of Local Assessment at the Department of Revenue.
This article was written by George E. Sansoucy, P.E and is a synopsis of his presentation, "The Mass Appraisal of Wireline Telephone and Communications Property for Central Valuation and Local Assessment," presented at the International Association of Assessing Officers International Conference - 75 th Anniversary, in Louisville, Kentucky on September 16, 2009.