BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rules I (42.20.901) and II (42.20.902) relating to property tax for privately owned landfills

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NOTICE OF ADOPTION

 

TO:  All Concerned Persons

 

1.  On November 26, 2008, the department published MAR Notice No. 42-2-803 regarding the proposed adoption of the above-stated rules at page 2460 of the 2008 Montana Administrative Register, issue no. 22.

 

2.  A public hearing was held on December 18, 2008, to consider the proposed adoption.  The proposed rules considered at this hearing are the result of a negotiated rulemaking process conducted on July 2, 2008, which involved privately owned sanitary landfills in the state of Montana and staff from both the Department of Environmental Quality and the Department of Revenue.  Oral testimony was received at the hearing and is summarized as follows along with the response of the department:

 

            COMMENT NO. 1:  Mr. Dub Stocker, Attorney, Fort Worth, Texas representing the Great Falls and Missoula Montana landfills stated that he applauded the department's efforts in promulgating these rules and they had done a fine job.

 

            RESPONSE NO. 1:  The department appreciates Mr. Stocker's assistance and appreciation of the department's efforts in proposing these rules.

 

            COMMENT NO. 2:  Mr. Stocker, Mr. Roger Bridgeford representing Montana Waste, and Mr. Max Bauer representing Allied Waste all questioned the portion of the rules dealing with 6 inches of daily fill, 18 inches of interim fill, and 3 feet or more of a cap.  Mr. Stocker stated that he thought this could cause a great deal of confusion as to when the airspace is computed and who is going to monitor whether it is 6 inches, 6 1/2 inches, or 5 3/4 inches.  Mr. Bridgeford stated that the Montana Department of Environmental Quality (DEQ) requires a daily cover of 6 inches.  Mr. Stocker stated that he thought this could cause litigation in the future.  These gentlemen suggested another 15 percent be added to the compaction ratio of 70 percent to account for daily cover material required added to their land fill.  This would increase the total compaction ratio to 85 percent.

 

            RESPONSE NO. 2:  The IAAO article suggested a compaction ratio range from 50 percent to 70 percent.  In a prior agreement on the valuation of privately held sanitary landfills, there was an agreement on a compaction ratio of 70 percent.  A 70 percent compaction ratio provides that 70 percent of 1 ton of garbage, or 1400 pounds can be deposited into one cubic yard.  A 50 percent compaction ratio would provide that 50 percent of 1 ton, or 1000 pounds of garbage can be deposited into one cubic yard.

            When researching the issue of landfill compaction ratio on the internet, the articles refer to compaction ratios within the ranges of the IAAO article on valuation of sanitary landfills.  The articles discuss typical sanitary landfill operations, and indicate a range of 50 percent to 70 percent for compaction ratios is appropriate.  It seems logical that typical land fill operations would have the same type of daily cover material requirements and those would already be factored into those compaction ratios.

            The compaction ratio is important in estimating the projected remaining life of the sanitary landfill using the number of tons of fill the landfill operator takes in each year, and the estimated amount of remaining space left in the landfill.  In instances where the landfill owner or its agent can provide a preponderance of evidence to the contrary, the rule provides for an adjustment to the compaction ratio of 70 percent.  In that instance and as information is available, the department will review the actual measurements of the remaining air space left in the landfill over time and any other important data reported to the DEQ by the landfill operator to confirm the evidence supplied by the landfill owner.   It will also review the amount and type of cover material that is regularly used.

            As a result, the department has amended New Rule I (42.20.901) as shown below.

 

            COMMENT NO. 3:  Mr. Stocker asked where the term "improvements" is used in the rules because it appears to only be referenced in the definitions rule and in a minor way in New Rule I.

            He also asked what the department would do if these privately owned sanitary landfills produced methane gas and used it just for their own equipment, trucks, and bulldozers to run things.  He stated that they would not be selling the gas.  For this reason, the landfill operation is a jigsaw puzzle with different pieces of equipment that make a landfill operate and run.  He further stated that the royalty method captures all of that. It would not catch something that is outside the business that requires a capital improvement that might not be captured by the royalty method.  Mr. Stocker stated that all the improvements to the business would be captured in the hypothetical royalty methodology that is used which still leaves out the chance for either the department or the landowner coming in with additional proof to prove that 10 percent is not a fair royalty.

            Mr. Stocker further stated that when the operation gets beyond the business from which the permit allows on a particular piece of property such as property that has been segregated and developed for a commercial use other than a sanitary landfill, then that would not be subject to the rule.

            Mr. Stocker suggested the department consider removing the definition of "improvements" from New Rule I and in New Rule II(6).

 

RESPONSE NO. 3:  The sanitary land fill representatives suggested the royalty method of valuation covered all the current real property improvements made to the landfill properties.  In a prior sanitary landfill valuation agreement, there was no discussion of real property improvements.  The IAAO article discussing the royalty method of valuation is also silent in regard to real property improvements.  However, in the IAAO article introduction on the valuation of sanitary landfills, the author states that leases between a landowner and landfill operator are generally triple net, with the operator paying all the costs of operating a landfill, as well as closure and post-closure costs.  This would suggest the royalty method of valuation was only valuing the use of the land as a landfill, and not the real property improvements made to the landfill.

            We have many situations in Montana where real property improvements are owned by a party other than the land owner.  In these instances, we do not ignore the improvements made to the land simply because someone other than the land owner owns the improvements; the department values and assesses the improvements to the improvement owner.  Historically, improvements on sanitary landfills have been valued separately.   In fact currently, minimal improvements exist at two of the sanitary landfill locations that will be impacted by this rule - BFI in Missoula County and Montana Waste in Cascade County.  In Cascade County, a scale, scale house, and fencing are the extent of the "other improvements" made to the land fill site.  This operation has been in place for 10 to 15 years.  The improvements have been separately valued, and provide an example of structures necessary to operate a land fill.

            Again, the department believes that under the royalty method of valuation, the royalty being paid to the land owner is for the use of the land as a landfill, and the value of improvements made to the property beyond this use should be added to the overall value of the landfill.  Additional improvements made to the property are paid for by the person or entity making the improvements, and wouldn't be reflected in higher royalty payments. 

            For the foregoing reasons, the department intends to adopt the current definition of "improvements" in (5) of New Rule I (42.20.901) and associated language in (6) of New Rule II (42.20.902).

 

COMMENT NO. 4:  Mr. Jim Sites, Attorney, Billings, Montana and Mr. Stocker questioned the department's intent with regard to the language pertaining to mandatory property related fees or property related taxes imposed by a regulatory taxing authority as stated in New Rule I.

Mr. Bauer asked for more clarification of the term "related to the property" because DEQ bases a lot of the fees on volume and on population estimates not the property.  He stated that DEQ assesses a fee on the tonnage basis, so he suggested the original definition that was proposed in the negotiated rulemaking be used instead of the one in the proposed rule, which was "any mandatory assessment or fee".

Mr. Stocker stated the question is, "who and how are you going to enforce it", and "who is the arbitrator of what is a property related fee or tax"?

Mr. Bauer and Mr. Dave Duffy, representing City County Sanitation of Helena, stated that the term "property" should be removed.  Mr. Duffy stated that in addition to the tipping fees, there might be a charge for additional fees established by the Legislature for recycling or other purposes and those should not be included in the calculations of the taxes.

 

RESPONSE NO. 4:  The IAAO article on the royalty method of valuation is silent regarding any proposed reductions to the tipping fee advertised at the landfill gate.  The department's proposed definition of tipping fee provided "[a]ny mandatory property related fees or property related taxes imposed by regulatory or taxing authorities shall not be included."  The department included this language to provide flexibility and to benefit the industry; however, this language has not received positive acknowledgment from the industry.

If industry members determine in the future that the definition of tipping fees should be amended to allow the department to consider reductions to the dollar charge per ton for dumping municipal solid waste and other approved waste at licensed landfills to account for property related fees or property related taxes imposed by regulatory or taxing authorities, the department would be agreeable to subsequent rule making efforts.

            For the foregoing reasons, the department intends to amend the proposed language in (11) of New Rule I.

 

3.  As a result of the comments received the department adopts New Rule I (42.20.901) with the following changes:

 

NEW RULE I (42.20.901)  LANDFILL VALUATION DEFINITIONS  The following definitions apply to terms contained in this subchapter:

(1) and (2) remain as proposed.

(3)  "Cover materials" means at least six inches of dirt or a dirt-like substance that is applied to the exposed garbage each day and is not removed.  It does not mean a tarp or tarp-like product.

(4) through (10) remain as proposed.

(11)  "Tipping fees" are the dollar charge per ton for dumping municipal solid waste and other approved waste at the licensed landfill.  Any mandatory property related fees or property related taxes imposed by regulatory or taxing authorities shall not be included.

 

            AUTH:  15-1-201, 15-7-111, MCA

            IMP:  15-6-134, 15-7-111, 15-8-111, MCA

 

4.  The department adopts New Rule II (42.20.902) as proposed.

 

5.  An electronic copy of this Adoption Notice is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes."  The department strives to make the electronic copy of this Adoption Notice conform to the official version of the Notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the Notice and the electronic version of the Notice, only the official printed text will be considered.  In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

 

 

 

/s/  C. A. Daw______________                 /s/  Dan R. Bucks __________

CLEO ANDERSON                                      DAN R. BUCKS

Rule Reviewer                                               Director of Revenue

 

Certified to Secretary of State May 4, 2009