Kilkenny, Halpern and Lane. The opinion of the court was delivered by Kilkenny, P.J.A.D.
These are consolidated appeals by three Middlesex County municipalities from judgments of the State Division of Tax Appeals, fixing the 1967 assessed valuations of certain transmission pipelines owned by Transcontinental Pipe Line Corp. to the extent of their respective footages in each of the appealing municipalities. There is a cross-appeal by Transcontinental.
In determining assessed valuations for these pipelines, the municipal assessors used the so-called "Middlesex County Formula." This formula had been adopted and recommended for use in valuing pipelines by the Middlesex County Assessors Association, an unofficial association of municipal assessors. It consisted in establishing first , the "cost" of the pipelines, according to their varying dimensions; secondly , deducting therefrom a non-cumulative 15% (20% for 20-inch pipe) for depreciation to arrive at "true value," and third , applying a uniform county-wide ratio of 50% to establish "assessed value." ("Idle" pipelines, not in active use, were given a true value of only 50% of that ascribed to pipelines in active use.) Once this value was determined, it remained constant in later years, despite ever-increasing depreciation and obsolescence, or increases in economic values.
We note at this point that the New Jersey Assessors Association, also an unofficial body, had adopted and recommended for use in the valuation of transmission pipelines a formula whereby "cost" would be diminished by 45% as a constant factor of depreciation, as opposed to the 15% used under the "Middlesex County Formula." These pipelines run through New Jersey on their way from Texas and the south to the New York metropolitan area.
The State Division did not accept either the 15% or the 45% straight non-cumulative depreciation deduction from historical cost to arrive at true value. Instead, it used a cumulative 3% annual deduction from cost for depreciation. The taxpayer was limited by the controlling Federal Power Commission to this 3% figure. The State Division found, for example, that in 1967 pipelines were entitled to 3% for 16 years, resulting in a 48% deduction for depreciation. But it then added an "appreciation" factor of 25% because of value increases over that same period.
In addition, the State Division found that Carteret was observing the 50% county ratio in assessing properties, but Woodbridge used a 37% ratio and Edison 41%. For this reason, it concluded that Woodbridge and Edison were discriminating against the pipeline company in using against it a 50% ratio of true value in fixing the assessed valuation, while other taxpayers were being assessed at the lower ratios of 41% and 37%.
The position of the municipalities on appeal is that there is a presumption of validity in the assessed valuations as fixed by the municipal assessors and affirmed by the County Board. They argue that the taxpayer did not sustain its burden on appeal of overcoming that presumption. The existence of such a presumption and the burden of proof in an appeal to the State Division may be conceded. See Aetna Life Insurance Co. v. City of Newark , 10 N.J. 99, 105 (1952); Riverview Gardens Section 1 v. North Arlington Borough , 9 N.J. 167, 174-175 (1952). At the same time, the judgment of the State Division must be
presumed to be valid and correct. Anyone appealing therefrom has the burden of overcoming that presumption. Moreover, in an appeal from the final decision of any State administrative agency, appellate courts apply the "substantial evidence" rule. Atkinson v. Parsekian , 37 N.J. 143, 149 (1962).
The position of the pipeline company in its cross-appeal is that there was no legal justification for the State Division's adding a 25% "appreciation" factor in its arriving at "true value" by the normal "historical cost minus depreciation" approach.
Both sides agree that the value concept -- "what a willing buyer would pay a willing seller" -- is not applicable in valuing mere segments in a municipality of a natural gas pipeline which extends from the source of supply in Texas to the New York metropolitan area. We agree. So, too, it is conceded that the "capitalization of income" approach is not a feasible method. The value of these pipelines was not established herein by any such proof. So, only the cost minus depreciation method was employed in the instant case.
The municipalities contend that the "cost" of these pipelines was never established by the pipeline company. They maintain that, without proof of this basic fact, there was nothing upon which one could calculate depreciation and ultimately true value. The fallacy of this argument lies in the fact that the municipal assessors based their calculations on historical costs, evidenced by the taxpayer's inventories and demonstrated by tax bills paid by the taxpayer during prior years. See, Exhibits P-2, P-3, P-4 and P-5. Thus, there was a finding by the Division that 36-inch pipe cost per foot $46; the 24-inch pipe $27; the 20-inch pipe $16; the 12-inch $10; the 10-inch $8, and the 8-inch $6. The idle ...