Nev. Admin. Code § 361.456 — 361.456

NAC 361.456    Income approach indicator of value: Capitalization rate. ( NRS 360.090 , 361.320 )    The
capitalization rate will be established from a selected number of carriers and
determined in the following manner to arrive at the typical company in the
airline industry group when the information is available:
1.  The band-of-investment method will be
used in the compilation of the capitalization rate.
2.  The band-of-investment method represents
the cost of the money needed by the typical company in the airline industry
group to acquire its operating plant and carry on its operations. It is
composed of two factors:
(a) The capitalization ratios of the typical
company; and
(b) The cost of the items which comprise the total
capital structure of the typical company.
3.  A “typical company” means a theoretical
company which is representative of the carriers within an airline industry
group. These carriers will be comparable in amount of revenues, bond ratings
and nature of operations. Certain nonairline conglomerates which have airline
operations in this State will be studied in light of other similar
conglomerates. Regular carriers will not be grouped with conglomerates where
possible. Development of typical company factors will reflect input by the
carriers within the airline industry group which are centrally assessed. As
used in this subsection, “nature of operations” includes, without limitation,
the size, route structure and fleet diversification of the air carrier.
4.  The items which comprise the total
capital structure of the typical company are those amounts as recorded for
financial reporting purposes that represent the sources of the money or capital
funds made available to acquire the taxable operating property of the airline
industry group. As used in this subsection, “capital funds” means money
obtained from:
(a) Creditors through notes or bonds;
(b) Stockholders through stocks, paid-in capital
and undistributed retained earnings; and
(c) Similar financial capital accounts except not
from the Federal Government through deferred income taxes.
Ê The capital
structure of the typical company will be derived through the use of a statistical
median from the calculations of the selected sample carriers.
5.  In addition to the total capital
structure of the typical company derived by the Department pursuant to
subsection 4, the taxpayer may present and the Department shall consider the total
capital structure of the typical company based upon the common equity,
preferred equity and the long-term debt percentages as developed from market
information for comparable carriers in the airline industry group. The total
capital structure of the typical company must be derived from using market
information from the selected sample of carrier calculations.
6.  The annual average of high-low yields to
maturity compiled by Moody’s Investors Service (Public Utility and
Transportation) or another acceptable service, approved by the Executive
Director of the Department, will be used for the assignment of a cost to the
long-term bonded indebtedness component of the total capital structure.
7.  The assignment of cost to preferred stock
will be determined in a manner consistent with subsection 6.
8.  The assignment of cost to that portion of
the total capital structure which represents equity for the typical company in
each airline industry group will be determined in the following manner:
(a) The Department shall develop an equity rate for
each airline industry group based on one or more of the following models:
(1) Discounted cash-flow method.
(2) Capital asset-pricing.
(3) Risk premium analysis.
(b) The Department shall also consider the results
of cost of equity studies provided by a carrier of the airline industry group
based on the models set forth in paragraph (a).
(c) When considered applicable, the cost of equity
capital established for the airline industry group may be determined by using
additional models, including, without limitation, direct capitalization,
accepted in the appraisal and financial communities and approved by the
Executive Director of the Department.
9.  The capitalization rate of the typical
company for the airline industry group will be calculated by using a weighted
method (band-of-investment) which is the total capital structure percentage
times the component rate percentage. The weighted values are then totaled and
rounded to four decimal places to get the capitalization rate.
EXAMPLE:
MEDIAN
CAPITAL
WEIGHTED
TYPICAL COMPANY
STRUCTURE
X
RATE =
RETURN
Common Equity
42.50%
11.20%
4.76000%
Preferred Equity
9.25%
9.35%
.86488%
Long-Term Debt
48.25%
9.45%
4.55963%
Capitalization Rate
for Industry Group
10.1845%
10.  The determination of the income value
indicator requires the capitalization of the adjusted net operating income at
the current capitalization rate. Financial data for selected carriers in each
airline industry group as presented in the latest annual reports by Moody’s
Investors Service (Public Utility and Transportation) or another accepted
service, approved by the Executive Director of the Department, will be used in
the compilation of the capitalization rate of the typical company.
[Tax Comm’n, Property Tax Reg. part No. 15D, eff. 10-30-79;
A 10-15-81]—(NAC A 10-10-83; 9-30-88; R026-99, 1-27-2000)