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January 21, 2013

County board denies ALCOA appeal

Monday, January 21, 2013 — The Stanly County Board of Equalization and Review has denied an appeal from ALCOA concerning the taxability of certain costs and items.

The main basis of the situation is a disagreement between auditors and ALCOA as to whether certain materials the company listed as non-taxable were correctly categorized in the company’s return.

Issues developed with the company’s tax bill when an audit was conducted in May 2010.

At the time, the auditors from Tax Management Inc. found ALCOA had claimed the cost to remove and dispose of spent pot liners was listed as non-taxable.

The company considered these as Asset Retirement Obligations (ARO), which are liabilities associated with the retirement of a fixed asset.

Auditors disagreed with ALCOA’s non-taxable categorization and used a statute from state law to review past records.

It is called the “discovery” statute and states that “when a property is discovered and listed to a taxpayer in any year, it shall be presented that it should have been listed by the same taxpayer for the preceding five years” unless they can give evidence why it should not.

ALCOA was given official notification of the decision on Sept. 13 and sent Stanly County a “written exception” to the audit findings on Sept. 18 stating their disagreement with the classification “for property taxes that the auditor has applied to several of the assets (on ALCOA’s account).”

County Tax Administrator Melia Miller responded on Nov. 9 saying her decision was “that the Asset Retirement Obligation cost is considered part of the historical installed cost.”

ALCOA filed for appeal on Nov. 13 which led to the board’s hearing last week.

In the letter of appeal, Louis Stabile on behalf of the company, said the spent pot liner “is not an asset or replacement part in the cell but an EPA hazardous waste that cannot be processed for reuse.”

During the meeting, Stabile and Randall Kaiser, plant asset manager, presented ALCOA’s case before the board with their argument the pot liners are not taxable assets.

“We’re appealing the decision that a pot liner is a fixed asset,” Stabile told the board. “The issue was the capitalization that they did on the assets. They considered the pot liners as assets, because they were capitalized for accounting purposes. The pot liner is a hazardous waste.”

Kiser described the process is which sodium from the flourides and the carbonous materials in the bottom changes composition which “generates a hazardous waste and you take that pot out of service, because it contains cyanide which is above EPA guidelines.”

“To classify (the pot liners) as a capital asset doesn’t seem proper,” Stabile said.

Auditor Raina Dyer referred to the state statute which says all real and personal property “unless exempted by taxation by the Constitutions or by statute” are subject to taxation.

“These, from what we have seen, are a personal property asset,” Dyer said. “It’s not exempted by any statute. It’s not real estate. So, that means it’s some type of personal property.”

Stabile argued it becomes a hazardous waste, but Dyer rebutted saying it was not a hazardous waste when first installed.

In response to a question from Board Chairman Sam Estridge, it was made clear the equipment has been removed and is no longer on the tax rolls.

“There has been a position stated by the North Carolina Department of Revenue that I based my decision on,” Miller said. “The position was that Asset Retirement Obligations are taxable. They are part of the operation of an asset.”

“Our position remains they are taxable because they are not exempted,” Dyer added.

A motion to deny the appeal was made by Board Member Jerry Burleson with a second by Vickie Long.

Board Member Richard Cosgrove voted “no” and the motion to deny the appeal passed 2-1.

Miller emphasized that the company is not behind in tax payments nor have they broken any laws.

“For this discovery, we are still talking about taxability and value,” Miller said. “In the tax world, you have to establish the value before the tax bill is ever created.”

She also noted the company has been “cooperative and cordial” in dealing with the matter.

“This is simply a disagreement,” Miller said.

ALCOA still has the option of appealing the local board’s decision at the state level.

 

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