Opex Communications, Inc. v. PROP. TAX ADM.

Citations: 166 P.3d 225; 2007 Colo. App. LEXIS 878; 2007 WL 1438675Docket: 05CA1774

Court: Colorado Court of Appeals; May 17, 2007; Colorado; State Appellate Court

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OPEX Communications, Inc. appeals a ruling from the Colorado State Board of Assessment Appeals (BAA) affirming the Property Tax Administrator's (PTA) classification of OPEX as a public utility subject to property tax assessment under C.R.S. § 39-4-102(1). OPEX, a non-facilities-based reseller of long-distance telephone services, does not own or operate any telecommunications equipment but has contracts with Qwest Communications and Global Crossing for toll access. Despite lacking tangible property in Colorado, OPEX serves over 4,000 customers who use its services via order forms, with the local carrier connecting calls to the contracted providers for interstate transmission.

The PTA assessed property taxes for OPEX, valuing its contracts at $573,800 for 2003 and $1,299,000 for 2004. OPEX contested its classification as a public utility and the property valuation, leading to a BAA hearing. The BAA upheld the PTA's assessment, confirming OPEX qualifies as a telephone company for tax purposes, and adjusted the 2004 valuation downward to $607,168. OPEX argues the BAA erred, claiming it does not directly facilitate communications as it does not own the necessary equipment. The court, however, interprets the definition of a 'telephone company' under Colorado law and finds OPEX meets the criteria for public utility classification.

The BAA's determination that OPEX qualifies as a telephone company is reviewed de novo. The term "telephone company" remains undefined in Colorado's tax assessment statutes, prompting an interpretation based on its ordinary meaning. Tax statutes are to be construed narrowly, favoring the taxpayer when ambiguities arise. A company is classified as a telephone company if it facilitates two-way communication among a significant number of unrelated users. Key characteristics include providing communication services that allow customers to connect with others at various locations. 

A distinction is made between traditional telephone companies and those providing private links, with the latter not meeting the criteria for classification as a telephone company. The court previously ruled that a company offering long-distance services through leased lines from traditional providers qualifies as a telephone company for tax purposes, which is applicable to OPEX. 

The classification of non-facilities-based resellers of long-distance services as telephone companies is a novel issue in Colorado. However, relevant case law from other jurisdictions supports this classification, emphasizing the focus on the ability to facilitate communication rather than ownership of transmission equipment. Alabama and Kansas courts have concluded that non-facilities-based resellers perform the same functions as traditional companies, thereby qualifying as telephone companies.

OPEX contracts for long-distance telephone transmission services, resells them to the public, bills customers, competes with traditional telephone companies, and manages customer service issues. Consequently, OPEX is classified as a telephone company under 39-4-101(3)(a), regardless of its lack of ownership or control over equipment and facilities, as the statute does not impose such requirements. The broad definition of 'telephone company' recognized by the supreme court encompasses OPEX's activities. OPEX's reliance on the Fast Phones, Inc. case is incorrect; that case addressed whether a reseller qualified as a 'telephone exchange' under a licensing fee statute, not as a 'telephone company.' The distinction between operating a telephone business and a telephone exchange is significant. OPEX's argument to use statutes governing public utility regulation to define 'public utility' for tax assessment is unpersuasive, as the definitions for regulatory and tax purposes differ significantly. The court reaffirms that OPEX qualifies as a telephone company and, thus, is subject to property tax assessment. Regarding the 2004 property valuation, the Board of Assessment Appeals (BAA) is upheld in its factual determinations unless unsupported by competent evidence or in violation of statutory assessment procedures. The court emphasizes that it cannot reweigh evidence or substitute its judgment for that of the BAA, which retains the authority to evaluate witness credibility and evidence sufficiency. The BAA is not obligated to accept uncontradicted evidence as decisive and may consider any reasonable inferences that affect such evidence. Under 39-4-102(1), the Property Tax Administrator (PTA) assesses the actual value of a public utility by evaluating tangible and intangible property, operating revenues, and the market value of outstanding securities, if determinable.

The PTA assigns weight to various factors to determine the just value of a public utility, as mandated by Section 39-4-102(1). For the tax year 2004, the PTA assessed OPEX's Colorado property at $1,299,000, derived from a total property value of approximately $55,000,000. The PTA's assessor utilized the cost, income, and stock and debt approaches for valuation, ultimately favoring the income approach to capture both tangible and intangible asset values.

The Board of Assessment Appeals (BAA) reviewed testimony from the assessor and an OPEX owner, concluding that the assessed value was excessive due to declines in OPEX's revenue and customer base. However, the BAA found that OPEX's property value for 2004 was equal to the prior year's value of $25,923,000. The BAA applied a Colorado allocation factor of 2.39 and an equalization factor of 98% to derive a final property value of $607,168 for 2004.

OPEX acknowledged the appropriateness of the income approach but argued that the BAA should have given more weight to the owner's testimony regarding the property's value. The BAA considered but ultimately rejected the owner's claims, finding insufficient evidence to support a significant value decline to $18,000,000. Evaluating the credibility of the owner's testimony fell within the BAA's discretion. 

The assessor's valuation utilized a three-year weighted average of OPEX's income, but a substantial discount was applied for income taxes that OPEX did not actually owe as a Subchapter S corporation. This misapplied discount led to a lower valuation for 2003 than warranted, suggesting that the 2004 value, when adjusted for tax considerations, was likely at least as high as the inaccurately low 2003 figure. The BAA's determination was upheld, with Judges Vogt and Carparelli concurring.