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DURHAM — A state Court of Appeals panel ruled Tuesday against Durham County in a tax-assessment case involving an IBM subsidiary, 40,799 pieces of computer equipment and some $5.2 million in disputed revenue.
The panel’s three judges sent the eight-year-old dispute back to the N.C. Property Tax Commission with orders to make what they termed “a reasoned decision” about the proper depreciation schedule to apply to the equipment.
County officials now have to decide whether to fight it out again in front of the commission, or appeal Tuesday’s ruling to the N.C. Supreme Court.
“We are reviewing our options and strategy,” County Attorney Lowell Siler said in a statement issued early Tuesday evening by the county’s public affairs staff.
The disagreement between IBM Credit Corp. and the county concerns the proper value of equipment the company was leasing to 364 customers at the start of 2001.
County tax assessors, using tables published by the N.C. Department of Revenue, pegged the equipment’s value at $144.3 million.
IBM Credit, however, maintains its true value was almost $96.5 million — some $47.8 million less than the county’s estimate.
The Property Tax Commission has already heard the case twice, and both times sided with the county.
But the Court of Appeals overturned the commission’s first decision on the matter in 2007, holding that it didn’t apply the proper burden of proof to the county’s assessment. The Supreme Court agreed last year.
Instructed to consider the case a second time, the Property Tax Commission stood by its initial ruling. But Tuesday’s Court of Appeals ruling again said the panel had failed to apply the proper burden of proof.
The tables the county relies on assume that computer equipment drops in value 30 percent almost immediately, then loses another 60 percent over five years.
IBM Credit, however, argues that computers depreciate much more quickly thanks to what the author of Tuesday’s opinion, Judge Robert N. Hunter Jr., termed the “rapid technological changes in the computer industry.”
Hunter and his fellow panelists, Judge Linda Stephens and Chief Judge John C. Martin, agreed that IBM Credit had in the proceedings before the Property Tax Commission met its burden of establishing that the original assessment overstated the value of its goods.
Once it did, it became the county’s job to show that its methods did in fact produce the equipment’s true value.
The Property Tax Commission erred by failing to insist that it do so, the judges said. It “took no new evidence” in the second-round hearing and didn’t explain in its decision why the county’s evaluation method was better-grounded than IBM Credit’s, they said.
Hunter, the opinion’s author, is a Republican elected to the court last year. Martin and Stephens are Democrats, and both have Durham ties. Martin was born here, and Stephens is sister-in-law to Durham Superior Court Judge Ronald Stephens.
The county’s potential $5.2 million liability to IBM Credit includes interest on the company’s initial tax payment on the difference between the two value estimates. County officials have not included a payment reserve in their fiscal 2010-11 budget estimates, and at this point don’t think it will affect next year’s budget, County Manager Mike Ruffin said.
“I don’t think it’s imminent at this point in time,” Ruffin said, referring to the possible need to pay the company.
Decisions about legal strategy are between Siler and the County Commissioners, Ruffin said.
The county was previously represented in the case by former County Attorney Chuck Kitchen, who left the payroll on Nov. 30 in accord with the terms of his severance package. He was ousted over the summer over disagreements with commissioner and administrators about an unrelated case.
