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Appeal from the Circuit Court of Wetzel County
Honorable John Madden, Judge
Civil Action No. AP-91-9M
AFFIRMED
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Logan Hassig
Snyder & Hassig
New Martinsville, West Virginia
Attorney for the Appellants

Robert J. Hannen
Schrader, Byrd, Byrum & Companion
Wheeling, West Virginia
Attorney for the Appellee

James J. Alex
Special Assistant Attorney General
Charleston, West Virginia
Amicus Curiae for Tax Commissioner
of State of West Virginia

Thomas N. McJunkin
John A. Mairs
Jackson & Kelly
Charleston, West Virginia
Amicus Curiae for West Virginia Coal Association

JUSTICE McHUGH delivered the Opinion of the Court.

        1. "It is a general rule that valuations for taxation purposes fixed by an assessing officer are presumed to be correct. The burden of showing an assessment to be erroneous is, of course, upon the taxpayer, and proof of such fact must be clear." Syl. pt. 7, In re Tax Assessments Against Pocahontas Land Co., 172 W. Va. 53, 303 S.E.2d 691 (1983).

        2. As a general rule, there is a presumption that valuations for taxation purposes fixed by an assessor are correct. Thus, a tax assessment of coal property will be presumed to be correct when the assessor, in assessing the coal property: (1) relies upon the legislative rules prescribing the methods by which property is to be assessed; and (2) uses, as a guide, information furnished by the tax department, such as a list of comparable sales of similar property. The burden is on the taxpayer challenging the assessment to demonstrate by clear and convincing evidence that the tax assessment is erroneous.

        3. "An assessment made by a board of review and equalization and approved by the circuit court will not be reversed when supported by substantial evidence unless plainly wrong." Syl. pt. 1, West Penn Power Co. v. Board of Review and Equalization, 112 W. Va. 442, 164 S.E. 862 (1932).

McHugh, Justice:

        In these consolidated cases, Western Pocahontas Properties, Ltd. (hereinafter "Western Pocahontas"), Littleton Fuel Company (hereinafter "Littleton") and Puckett Investment Company (hereinafter "Puckett") seek review of orders of the Circuit Court of Wetzel County which denied their appeals of the county tax assessor's valuation of their coal properties located in Wetzel County, West Virginia. We conclude upon review of this case that the orders of the circuit court should be affirmed.

172 W. Va. at 61, 303 S.E.2d at 699. We summarized this holding in syllabus point 7 of In re Tax Assessments Against Pocahontas Land Co.: "It is a general rule that valuations for taxation purposes fixed by an assessing officer are presumed to be correct. The burden of showing an assessment to be erroneous is, of course, upon the taxpayer, and proof of such fact must be clear." Therefore, the burden in this case was on the appellants to demonstrate by clear and convincing evidence that the tax assessments were erroneous.

        The term "unmineable" is defined at 110 W. Va. C.S.R. § 1-11.4(b)(17) (1988) as "[c]oal which is not mineable as defined above."

        The assessor was also required under the legislative rules to consider comparable sales in valuing reserves. Specifically, 110 W. Va. C.S.R. § 1-11.4 (c)(1)(I)(3) (1988) provides:

            (A) General. -- Reserves shall be valued considering a review of sales reflecting arms-length, willing buyer-willing seller transactions of such properties, and the market conditions in the region within which the property is located. The coal reserve value shall be the product of the reserve acres multiplied by the regional reserve value per acre for the region in which the property is located.

        Information is also provided by the tax department to assist the assessor in valuing the coal property for tax purposes. For example, 110 W. Va. C.S.R. § 1-11.4(c)(1)(I)(3)(B) (1988) requires, in pertinent part, that

        [t]he values per acre for reserves shall be established annually by the Tax Commissioner after review of recorded willing seller-willing buyer arms-length coal property sales that have occurred in the State of West Virginia during the five (5) years prior to the appraisal date, and through inspection of other appropriate information.

        Finally, the assessor may also seek the assistance of an experienced mining expert familiar with the coal property to be assessed. This Court recognized the benefit of employing an experienced mining expert to assist the assessor in valuing coal properties in In re Tax Assessments Against The Southern Land Co., 143 W. Va. 152, 164-65, 100 S.E.2d 555, 562 (1957), disapproved on another point, In re Assessment of Kanawha Valley Bank, 144 W. Va. 346, 109 S.E.2d 649 (1959).

        We, therefore, shall summarize the procedure to be employed by the assessor, in valuing coal property, in light of the parties' respective burdens of proof. As a general rule, there is a presumption that valuations for taxation purposes fixed by an assessor are correct. Thus, a tax assessment of coal property will be presumed to be correct when the assessor, in assessing the coal property: (1) relies upon the legislative rules prescribing the methods by which property is to be assessed; and (2) uses, as a guide, information furnished by the tax department, such as a list of comparable sales of similar property. The burden is on the taxpayer challenging the assessment to demonstrate by clear and convincing evidence that the tax assessment is erroneous.

        John Mooney, district engineer of Pocahontas Properties, testified that his company does not have any plans to mine this coal and that it has been attempting to lease or sell this coal. On cross-examination, Mr. Mooney acknowledged that his company has not made any projections as to what it would cost to develop the coal in Wetzel County. Mr. Mooney testified that his company had not made any projections "because we are not [coal] operators. We lease property--or attempt to lease it to the operating entities."

        Ronald L. Lewis, an engineer for the John T. Boyd Company, appeared as a witness on behalf of the appellants. Mr. Lewis testified that, in assessing the value of the property, he took into consideration the "income potential of the property," "the lack of transportation," and "other comparable sales in the general region."See footnote 9 Mr. Lewis testified that, with respect to Littleton and Western Pocahontas,See footnote 10 the sale in the region he believed was most comparable was the sale from ARCO to Puckett. Mr. Lewis assigned the nominal value of $1.00 per acre to both the Littleton coal property and the Western Pocahontas coal property.See footnote 11 Mr. Lewis testified that the number of gas wells on the property makes the use of "longwall" mining impractical, but that the wells did not preclude the use of the "continuous miner."

        David L. Bauer, land manager for Puckett, testified that the sale of property to Puckett by ARCO was an arm's length transaction. He stated that there was no common interest or common ownership between the two companies. On cross-examination, Mr. Bauer acknowledged that the two and one-half percent royalty provision in the contract of sale with ARCO had no value because Puckett knew at the time it purchased the property there would be no mining during the five-year period the royalty provision was in effect. Furthermore, he acknowledged that ARCO paid the 1987 real estate taxes assessed against the property on behalf of Puckett in the amount of approximately $62,500.See footnote 12 When asked on cross-examination whether he had ever acquired property where the second half of the tax liability was paid by the seller, Mr. Bauer responded, "[n]o, not that I know of."

        Mr. Bauer testified that Puckett has made attempts to sell the property but that price was never discussed with potential buyers. In response to questions from the Commission, Mr. Bauer testified that Puckett performed drilling to determine the value of the methane gas reserves but that the "deliverability was far less than we anticipated." He acknowledged, however, that he thought they would "eventually" continue to explore for more methane gas.

        Mr. Lewis also testified with respect to the valuation of the Puckett reserves.See footnote 13 Mr. Lewis testified that "probably 45 percent of the total acreage conveyed is too thin to be mined from a technological standpoint used in other Pittsburgh seam mines or has claystone, mudstone type top, which will be prohibitive in mining costs." Mr. Lewis maintained that mining the remaining balance of the reserve, which he would characterize as a "normal Pittsburgh seam," would be prohibitive because of the costs which would have to be incurred in investing in new mines and in mining using the room-and-pillar method.

        Mr. Lewis further testified that "[f]rom an income standpoint," the coal in the Puckett reserve cannot be mined at a profit "today."See footnote 14 However, Mr. Lewis acknowledged that Puckett's coal in Wetzel County can be mined using existing technology, and generally accepted mining practices and suitable equipment.

        On cross-examination, Mr. Lewis further acknowledged that he did not consider any other sales in arriving at his determination of the value of the reserves. He testified that "[t]he basic thing I based my conclusion on was that the future income potential of the property was a negative number when you take into account the holding costs." When asked on cross-examination whether his approach was strictly from the income approach and the various capitalization of investment dollars, Mr. Lewis responded that he considered two factors: (1) whether there was any foreseeable future from the income potential of the property; and (2) the actual value of the transaction.

production equipment due to the high density of gas/oil wells. An efficient longwall mining plan is precluded by the numerous wells." Mr. Lewis, an engineer employed by the John T. Boyd company, testified at the Puckett hearing that if the oil and gas wells were inactive, they could be plugged, and longwall mining could be used. However, additional costs would be incurred to plug the wells.

Mr. Bolden testified that if the seam is thicker and more than 50 percent of the coal is recovered, then the value would be greater than $160.

        Basically, we examined the Littleton Fuel property. It was our conclusion that the Pittsburgh seam underlain the entire property at a depth of 1650 to 1300 feet. The seam, itself, the main seam varied from five to seven feet in thickness. The estimated reserves were 91.6 million tons in place and 45.8 million tons of recoverable clean coal. And the quality of the coal was washed at 1.5 specific gravity, was seven percent ash, 3.3 percent sulfur.

            A. I absolutely considered it an arms-length transaction at the time. You might even say that it was not an asset of ARCO's, but a liability. And predominantly because of the property taxes.

            B. Income approach.--A property's present worth is directly related to its ability to produce an income over the life of the property. The selection of an overall capitalization rate will be derived from current available market data by dividing annual net income by the current selling price of comparable properties. The present fair market value of the property shall then be determined by dividing the annual economic rent by the capitalization rate.