
    In the Matter of Brooklyn Union Gas Company, Respondent, v State Board of Equalization and Assessment, Appellant, and City of New York, Intervenor-Appellant. In the Matter of National Fuel Gas Distribution Corporation et al., Respondents, v State Board of Equalization and Assessment, Appellant, and Niagara-Wheatfield Central School District, Intervenor. (And Nine Other Proceedings.)
    Argued June 4, 1985;
    decided July 9, 1985
    
      POINTS OF COUNSEL
    
      Robert Abrams, Attorney-General (Peter H. Schiff, Robert Hermann and Maurice K. Peaslee of counsel), for appellant in the first above-entitled proceeding.
    I. The proper method of valuing tangible special franchise property is reproduction-cost-new-less-depreciation. (People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417, 199 US 1; People ex rel. Delaware, Lackawanna & W. R. R. Co. v Clapp, 152 NY 490; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; People ex rel. Manhattan Ry. Co. v Woodbury, 203 NY 231; People ex rel. New York Cent. & Hudson Riv. R. R. Co. v Woodbury, 167 App Div 428, 218 NY 635; Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601; Long Is. Light. Co. v State of New York, 28 AD2d 1014.) II. Capitalization of net income is not a proper method of valuing tangible special franchise property. (People ex rel. Delaware, Lackawanna & W. R. R. Co. v Clapp, 152 NY 490; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Matter of Barnum v Srogi, 54 NY2d 896; Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d .236; Matter of County of Nassau [Colony Beach Club], 43 AD2d 45; Mid-Town Tennis Club v Wagner, 57 AD2d 1066; People ex rel. New York, Ontario & W. Ry. Co. v Rosenshein, 300 NY 74; People ex rel. Lyford v Allen, 286 App Div 621; People ex rel. Brooklyn Union Gas Co. v Chambers, 7 Misc 2d 601; Matter 
      
      of Food, Fair v Board of Assessment Review, 78 AD2d 335.) III. Original cost less depreciation is not a proper method of valuing tangible special franchise property. (Matter of Staten Is. Edison Corp. v Moore, 6 AD2d 369, 15 AD2d 983, 12 NY2d 846; People ex rel. Brooklyn Union Gas Co. v Chambers, 7 Misc 2d 601; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Matter of Port Auth. Trans-Hudson Corp. [Hudson Rapid Tubes Corp.], 20 NY2d 457, 390 US 1002; Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601.) IV. Some value must be assigned to the intangible portion of petitioner’s special franchises. (Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; People ex rel. Barron v Knapp, 208 App Div 127, 239 NY 581; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Staten Is. Edison Corp. v Moore, 6 AD2d 369.) V. The methods of appraisal used by petitioner’s appraisers were improperly employed. There is no proper evidence in the record to support a reduction of the SBEA’s assessed value of petitioner’s special franchises. (Matter of Long Is. Land Dev. Corp. v Tax Commn., 49 AD2d 765; Matter of Gladlee Estates v Tax Commn., 42 AD2d 606; People ex rel. Central Hudson Gas & Elec. Co. v State Tax Commn., 218 App Div 44, 219 App Div 227, 247 NY 281; Matter of Onondaga County Water Dist. v Board of Assessors, 67 Misc 2d 797, 45 AD2d 258, 47 AD2d 707, 39 NY2d 601; People ex rel. City of New York v Keeler, 205 App Div 467, 237 NY 332; Barber & Bennett v State of New York, 34 AD2d 303, 27 NY2d 738; Congregation of Sons of Israel v State of New York, 54 AD2d 794; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511.)
    
      Frederick A. O. Schwarz, Jr., Corporation Counsel (John P. MacArthur, Edith I. Spivack and Gary Schuller of counsel), for intervenor-appellant in the first above-entitled proceeding.
    I. Petitioner’s property is specialty property and the tangible component must accordingly be valued by reproduction-cost-new-less-depreciation. (People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417, 199 US 1; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; People ex rel. Brooklyn Hgts. R. R. Co. v State Bd. of Tax Commrs., 146 App Div 372, 204 NY 648; People ex rel. Manhattan Ry. Co. v Woodbury, 203 NY 231; People ex rel. Third Ave. R. R. Co. v State Bd. of Tax Commrs., 212 NY 472; Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601; Matter of Semple School for Girls v Boyland, 308 NY 382; 
      Consolidated Edison Co. v State Bd. of Equalization & Assessment, 101 Misc 2d 910; Matter of County of Suffolk [C.J. Van Bourgondien, Inc.], 47 NY2d 507; People ex rel. New York Cent. R. R. Co. v State Tax Commn., 206 App Div 558; People ex rel. Central Hudson Gas & Elec. Co. v State Tax Commn., 247 NY 281.) II. Assuming, arguendo, that income capitalization is at all relevant, the evidence offered by petitioner was defective and failed to satisfy its burden of proof. Moreover, by accepting this evidence, the court below adopted a hybrid capitalization method which ignores the unique characteristics of petitioner’s special franchise property and the different criteria of value relevant for tax and rate-making purposes. (People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Gladlee Estates v Tax Commn., 42 AD2d 606; Matter of Long Is. Land Dev. Corp. v Tax Commn., 49 AD2d 765; People ex rel. Third Ave. R. R. Co. v State Bd. of Tax Commrs., 212 NY 472; People ex rel. Wallington Apts. v Miller, 288 NY 31; People ex rel. Westchester Fire Ins. Co. v Davenport, 91 NY 574.)
    
      F. Peter O’Hara, Lewis Orgel and Herman Meltzer for respondent in the first above-entitled proceeding.
    I. Petitioner’s proof was the only credible evidence to aid the trial court in determining value. The trial court’s findings and the court below’s unanimous affirmance are fully supported by the evidence and were arrived at by the application of well-established and correct principles of law. (Montana Power Co. v Federal Energy Regulatory Commn., 599 F2d 295; Matter of Port Auth. Trans-Hudson Corp. [Hudson Rapid Tubes Corp.], 20 NY2d 457; United States v Brooklyn Union Gas Co., 168 F2d 391; United States v City of New York, 168 F2d 387; Matter of Food Fair v Board of Assessment Review, 78 AD2d 335; Matter of Niagara Mohawk Power Corp. v Public Serv. Commn., 52 AD2d 388, 40 NY2d 844; People ex rel. Delaware, Lackawanna & W. R. R. Co. v Clapp, 152 NY 490; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Adams Express Co. v Ohio State Auditor, 166 US 185; Atchison, Topeka & Santa Fe Ry. Co. v Collins, 267 US 609.) II. The reproduction or replacement cost appraisal is not the sole method to determine market value and properly used it must reflect all elements of depreciation. Moreover, the trial and the court below correctly rejected such an approach because there was no possibility — legal, economic or engineering — of reproducing the property in its existing form. (Matter of Merrick Holding Corp. v Board of Assessors, 45 NY2d 538; G.R.F., Inc. v Board of Assessors, 41 NY2d 512; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Staten Is. Edison Corp. v Moore, 6 AD2d 369; 
      Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236; People ex rel. New York, Ontario & W. Ry. Co. v Rosenshein, 300 NY 74; People ex rel. Lehigh Val. Ry. Co. v Harris, 168 Misc 685, 257 App Div 912, 281 NY 786; Power Commn. v Hope Gas Co., 320 US 591; Spitzer v Stichman, 278 F2d 402.) III. The courts below properly refused to give any weight to appellant’s appraisal. (Matter of Semple School for Girls v Boyland, 308 NY 382; McCardle v Indianapolis Water Co., 272 US 400; Coates v Peterson & Sons, 48 AD2d 890; Felt v Olson, 74 AD2d 772, 51 NY2d 977; United States v 6,162.78 Acres of Land, 680 F2d 396; United States v 7, 216.50 Acres of Land, 507 F Supp 228.) IV. The fears of opposing amici that the decisions below will necessarily adversely affect them are ill-founded. V. Appellants have failed to provide a jurisdictional base for consideration of this appeal and none exists. (Patrician Plastic Corp. v Bernadel Realty Corp., 25 NY2d 599; Matter of City of New York [Coogan], 20 NY2d 618; People ex rel. Parklin Operating Corp. v Miller, 287 NY 126; Grant Co. v Srogi, 52 NY2d 496.)
    
      Melvin H. Osterman, Jr., Michael Whiteman and Jonathan P. Nye for the New York State School Boards Association, amicus curiae in the first above-entitled proceeding.
    This court should not abandon the traditional rule that special franchise property is specialty property, to be valued by reproduction-cost-new-less-depreciation. (People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417, 199 US 1; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Onondaga County Water Dist. v Board of Assessors, 45 AD2d 258, 47 AD2d 707, 39 NY2d 601; Long Is. Light. Co. v State of New York, 28 AD2d 1014; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Matter of Staten Is. Edison Corp. v Moore, 6 Misc 2d 1031, 6 AD2d 369, 37 Misc 2d 198,15 AD2d 983, 12 NY2d 846; Matter of Consolidated Edison Co. v State Bd. of Equalization & Assessment, 83 AD2d 355, 58 NY2d 710; Matter of County of Suffolk [C. J. Van Bourgondien, Inc.], 47 NY2d 507; Levittown Union Free School Dist. v Nyquist, 57 NY2d 27,459 US 1139; Matter of Hellerstein v Assessor of Town of Islip, 37 NY2d 1.)
    
      David E. Blabey and Lawrence G. Malone for the New York State Public Service Commission, amicus curiae in the first above-entitled proceeding.
    I. For rate-making purposes, the most objective and least controversial method for valuating utility plant is original cost, less depreciation. (Bluefield Co. v Public Serv. Commn., 262 US 679; Driscoll v Edison Co., 307 US 104; Matter of St. Lawrence Gas Co. v Public Serv. Commn., 42 NY2d 461.) II. The commission would flow through to ratepayers the lion’s share of any tax refunds received by Brooklyn Union. (Matter of Orange & Rockland Utils. v Public Serv. Commn., 86 AD2d 912; Matter of Rochester Tel. Corp. v Public Serv. Commn., 58 NY2d 874.)
    
      Henry J. Logan, County Attorney (Edwin G. Michaelian, Kenneth E. Powell and Andrea L. McArdle of counsel), for Westchester County, amicus curiae in the first above-entitled proceeding.
    The court below erred in formulating a valuation rule of potentially broad applicability on the basis of the limited record below. (Matter of County of Suffolk [C.J. Van Bourgondien, Inc.], 47 NY2d 507; Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601; People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417, 199 US 1; Matter of Xerox Corp. v Ross, 71 AD2d 84, 49 NY2d 702; Consolidated Edison Co. v State Bd. of Equalization & Assessment, 101 Misc 2d 910, 83 AD2d 355, 58 NY2d 710; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Public Affairs Press v Rickover, 369 US 111; Minnick v California Dept. of Corrections, 452 US 105; Kleppe v New Mexico, 426 US 529; Rescue Army v Municipal Ct., 331 US 549.)
    
      Edward G. McCabe, County Attorney (Robert T. Bloom of counsel), for Nassau County, amicus curiae in the first above-entitled proceeding.
    I. The averaging of a cost approach and a business income approach fails, as a matter of law, to produce the full combined value of the tangible and intangible property subject to special franchise assessment. (People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 128 App Div 13, 196 NY 39; People ex rel. Third Ave. R. R. Co. v State Bd. of Tax Commrs., 136 App Div 155, 198 NY 608; People ex rel. Hudson & Manhattan R. R. Co. v State Bd. of Tax Commrs., 203 NY 119; People ex rel. Manhattan Ry. Co. v Woodbury, 203 NY 231; People ex rel. Third Ave. R. R. Co. v State Bd. of Tax Commrs., 157 App Div 731, 212 NY 472; People ex rel. Central Hudson Gas & Elec. Co. v State Tax Commn., 218 App Div 44, 247 NY 281; Matter of Staten Is. Edison Corp. v Moore, 6 Misc 2d 1031, 6 AD2d 369, 15 AD2d 983, 12 NY2d 846; Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601.) II. The averaging or addition of business related elements fails to account for the full real estate value of the tangible special franchise assessment component. (Matter of Staten Is. Edison Corp. v Moore, 6 Misc 2d 1031, 6 AD2d 369, 15 AD2d 983, 12 NY2d 846; People ex rel. Hotel Paramount Corp. v Chambers, 
      298 NY 372; Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601; Westbury Drive-In v Board of Assessors, 70 Misc 2d 1077.) III. The court-adopted appraisal methodology is not supported by the condition of the tangible component or the cases cited by the courts below. (People ex rel. Jamaica Water Supply v State Bd. of Tax Commrs., 128 App Div 13,196 NY 39; Matter of Food Fair v Board of Assessment Review, 78 AD2d 335; Matter of Niagara Mohawk Power Corp. v Public Serv. Commn., 52 AD2d 388; People ex rel. Central Hudson Gas & Elec. Co. v State Tax Commn., 218 App Div 44, 247 NY 281; Barber & Bennett v State of New York, 34 AD2d 303; Matter of County of Suffolk [C. J. Van Bourgondien, Inc.], 47 NY2d 507; Matter of County of Nassau [Colony Beach Club], 43 AD2d 45, 39 NY2d 958.) IV. The court-adopted appraisal methodology, if upheld, should only be applied prospectively to post Brooklyn Union Gas case special franchise assessments. (Matter of Hellerstein v Assessor of Town of Islip, 37 NY2d 1; C. H. O. B. Assoc. v Board of Assessors, 45 Misc 2d 184, 22 AD2d 1015, 16 NY2d 779.)
    
      Melvin H. Osterman, Jr., Michael Whiteman and Jonathan P. Nye for Westchester Municipalities, amicus curiae in the first above-entitled proceeding.
    I. Petitioner has the burden to establish conclusively that the methodology and assessment determined by the State Board were incorrect. (People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Consolidated Edison Co. v State Bd. of Equalization & Assessment, 83 AD2d 355, 58 NY2d 710.) II. The decisions of the Appellate Division in Brooklyn Union Gas, National Fuel Gas and Tenneco cannot be reconciled. (Matter of County of Suffolk [C.J. Van Bourgondien, Inc.], 47 NY2d 507; Colonie Hill v Boncore, 87 AD2d 581, 57 NY2d 608; Chiloway Charcoal v State of New York, 33 AD2d 712, 28 NY2d 914; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39.) III. A special franchise is a specialty to be valued by RCNLD. (People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417,199 US 1; Matter of Consolidated Edison Co. v State Bd. of Equalization & Assessment, 103 AD2d 453; Matter of Hellerstein v Assessor of Town of Islip, 37 NY2d 1; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Matter of Onondaga Water Dist. v Board of Assessors, 45 AD2d 258, 47 AD2d 707, 39 NY2d 601; Long Is. Light. Co. v State of New York, 28 AD2d 1014; Matter of Staten Is. Edison Corp. v Moore, 6 Misc 2d 1031, 6 AD2d 369, 37 Misc 2d 198, 15 AD2d 983,12 NY2d 846; Onondaga County Water Auth. v New York Water Serv. Corp., 285 App Div 655; New York Yankees v 
      
      Tax Commn., 74 Misc 2d 752; People ex rel. Hotel Paramount Corp. v Chambers, 298 NY 372.)
    
      Robert Abrams, Attorney-General (Peter H. Schiff, Robert Hermann and Maurice K. Peaslee of counsel), for appellant in the second above-entitled proceeding.
    I. The proper method of valuing tangible special franchise property is reproduction-cost-new-less-depreciation. (Matter of City of New York [Atlantic Improvement Corp.], 28 NY2d 465; Matter of Farone & Son v Srogi, 96 AD2d 711, 60 NY2d 556; Matter of Metropolitan Life Ins. Co. v Tax Commn., 85 AD2d 525, 57 NY2d 964; Matter of Xerox Corp. v Ross, 71 AD2d 84, 49 NY2d 702; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417,199 US 1; People ex rel. Delaware, Lackawanna & W. R. R. Co. v Clapp, 152 NY 490; People ex rel. Manhattan Ry. Co. v Woodbury, 203 NY 231; People ex rel. New York Cent. & Hudson Riv. R. R. Co. v Woodbury, 167 App Div 428,218 NY 635; Matter of Staten Is. Edison Corp. v Moore, 6 Misc 2d 1031, 6 AD2d 369, 15 AD2d 983, 12 NY2d 846.) II. Capitalization of net income is not a proper method of valuing tangible special franchise property. (People ex rel. Delaware, Lackawanna & W. R. R. Co. v Clapp, 152 NY 490; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Matter of Barnum v Srogi, 54 NY2d 896; Matter of Great Alt. & Pac. Tea Co. v Kiernan, 42 NY2d 236; Matter of County of Nassau [Colony Beach Club], 43 AD2d 45; Mid-Town Tennis Club v Wagner, 57 AD2d 1066; People ex rel. New York, Ontario & W. Ry. Co. v Rosenshein, 300 NY 74; People ex rel. Lyford v Allen, 286 App Div 621; People ex rel. Brooklyn Union Gas Co. v Chambers, 7 Misc 2d 601; Matter of Food Fair v Board of Assessment Review, 78 AD2d 335.) III. All methods of appraisal used by petitioners’ appraisers were improper methods for valuing special franchises and/or were improperly applied by the appraisers. Since petitioners failed to overcome the presumption of validity of the SBEA’s assessments, the Supreme Court judgment dismissing their petitions should be reinstated. (Matter of Xerox Corp. v Ross, 71 AD2d 84; Matter of Long Is. Land Dev. Corp. v Tax Commn., 49 AD2d 765; Matter of Gladlee Estates v Tax Commn., 42 AD2d 606; Matter of Staten Is. Edison Corp. v Moore, 6 AD2d 369, 15 AD2d 983, 12 NY2d 846; People ex rel. Brooklyn Union Gas Co. v Chambers, 7 Misc 2d 601; Matter of Port Auth. Trans-Hudson Corp. [Hudson Rapid Tubes Corp.], 20 NY2d 457, 390 US 1002; Barber & Bennett v State of New York, 34 AD2d 303; Congregation of Sons of Israel v State of New York, 54 AD2d 794; 
      Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511.)
    
      David M. Lascell, G. Robert Witmer, Jr., and Allan E. Floro for respondents in the second above-entitled proceeding.
    I. SBEA’s contention that the law requires application of only its own illogical and unreasonable appraisal methodology must be rejected. (People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417, 199 US 1; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Consolidated Edison Co. v State Bd. of Equalization & Assessment, 101 Misc 2d 910, 83 AD2d 355, 58 NY2d 710; Matter of County of Suffolk [C.J. Bourgondien, Inc.], 47 NY2d 507; Chiloway Charcoal v State of New York, 33 AD2d 712, 28 NY2d 914; Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236; G.R.F, Inc. v Board of Assessors, 41 NY2d 512; Matter of Merrick Holding Corp. v Board of Assessors, 45 NY2d 538; Matter of Food Fair v Board of Assessment Review, 78 AD2d 335.) II. Petitioners overcame any presumption of validity accorded SBEA’s assessments and carried their burden of proving that SBEA’s assessments were erroneous. (People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Consolidated Edison Co. v State Bd. of Equalization & Assessment, 83 AD2d 355; Matter of Metropolitan Life Ins. Co. v Tax Commn., 85 AD2d 525, 57 NY2d 964; Matter of General Motors Corp. v Finance Administrator, 70 AD2d 843; People ex rel. Beardsley v Barber, 266 App Div 371, 293 NY 706; People ex rel. WallingtonApts. v Miller, 288 NY 31; Matter of Property Portfolio, 182 Corp. v Tax Commn., 58 AD2d 650; Matter of Katz Buffalo Realty v Anderson, 25 AD2d 809; People ex rel. City of New York v Keeler, 237 NY 332; Matter of Xerox Corp. v Ross, 71 AD2d 84.) III. Upon annulling SBEA’s assessments, as a matter of law, the court below should have determined the full value of petitioners’ special franchises. (People ex rel. Wallington Apts. v Miller, 288 NY 31; Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236; Lawyers Co-op. Pub. Co. v State of New York, 47 AD2d 122, 39 NY2d 760; Clearwater v State of New York, 30 AD2d 883, 23 NY2d 1006; Matter of Xerox Corp. v Ross, 71 AD2d 84, 49 NY2d 702.)
    
      Melvin H. Osterman, Jr., Michael Whiteman and Jonathan P. Nye for Westchester Municipalities, amicus curiae in the second above-entitled proceeding.
    I. Petitioners have not met their burden to establish conclusively that the methodology and assessment determined by the State Board were incorrect. (People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Consolidated Edison Co. v State Bd. of 
      
      Equalization & Assessment, 83 AD2d 355, 58 NY2d 710.) II. A special franchise is a specialty to be valued by RCNLD. (People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417,199 US 1; Matter of Consolidated Edison Co. v State Bd. of Equalization & Assessment, 103 AD2d 453; Matter of Hellerstein v Assessor of Town of Islip, 37 NY2d 1; Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511; Matter of Onondaga County Water Dist. v Board of Assessors, 45 AD2d 258, 47 AD2d 707, 39 NY2d 601; Long Is. Light. Co. v State of New York, 28 AD2d 1014; Matter of Staten Is. Edison Corp. v Moore, 6 Misc 2d 1031, 6 AD2d 369, 37 Misc 2d 198, 15 AD2d 983, 12 NY2d 846; Matter of County of Suffolk [C. J. Bourgondien, Inc.], 47 NY2d 507; Onondaga County Water Auth. v New York Water Serv. Co., 285 App Div 655; Colonie Hill v Boncore, 87 AD2d 581, 57 NY2d 608.)
   OPINION OF THE COURT

Alexander, J.

The issue presented on these appeals is whether the special franchise properties of the Brooklyn Union Gas Company, and those of National Fuel Gas Distribution Corporation and National Fuel Gas Supply Corporation, are specialty property, to be valued for special franchise assessment and taxation purposes by the reproduction-cost-new-less-depreciation (RCNLD) method, or whether a capitalization-of-income method of valuation is an acceptable method of valuation of such property. The Appellate Division, in both cases, has held that the petitioners’ special franchise properties are not “specialty properties” and therefore that the capitalization-of-income method is an acceptable method of assessing the value of special franchise property in New York State. We disagree and therefore reverse the Appellate Division orders áppealed from.

I

Brooklyn Union Gas Company (Brooklyn Union) is a distributor of natural gas, servicing customers in Kings County, Queens County and half of Richmond County. It operates its gas distribution business through a system of underground mains, services and related measuring and regulatory equipment that is placed in public streets and thoroughfares. This property, by statutory definition, constitutes a “special franchise”.

Brooklyn Union’s distribution system of mains is primarily located under public streets, and is composed of 63% cast iron mains with joints that operate at 15 pounds of pressure and require frequent repair. No new cast iron pipes have been installed since the mid-1950’s, and none can now be installed because of the prohibitions of Public Service Commission rules. The mains are also composed of steel (34.25%) and plastic (.75%) and 2% of the system of mains belongs to New York Facilities, a joint operation of Brooklyn Union, Consolidated Edison and Long Island Lighting Company. Special Term found that the system would not be reproduced today in its present form.

Distribution’s pipelines in New York are composed 9% plastic, 25% coated steel, 63% bare steel and 4% cast iron. Special Term found that Distribution’s system would not be exactly reproduced in its present form, but would be reasonably expected to be replaced.

Special franchise property is defined as real property by Real Property Tax Law (RPTL) § 102 (12). It is subject to annual assessment by the State Board of Equalization and Assessment (RPTL 600) and all taxes and special ad valorem levies for county, city, town, village, school or special district purposes are imposed on the final assessment of each special franchise (RPTL 622). Both the tangible real property and the intangible right to use the streets and thoroughfares (the intangible franchise) are components of a special franchise, and the values of each must be added to determine the value of the entire special franchise.

In April 1980, the State Board of Equalization and Assessment (SBEA) made tentative equalized valuations for the 1980-1981 tax year of the special franchise properties belonging to Brooklyn Union, Distribution and Supply. Each challenged the tentative assessment, contending that it was erroneous by reason of overvaluation, inequality and illegality. Distribution and Supply’s challenge was rejected and they instituted proceedings against SBEA pursuant to RPTL article 7 contesting these final valuations.

Brooklyn Union’s challenge to its valuation was also rejected by SBEA and instead of being reduced its final equalized valuation was increased because of a revised city-wide equalization rate. Brooklyn Union also instituted an article 7 proceeding against SBEA charging overvaluation, illegality and inequality.

At the trial of the Brooklyn Union proceeding, SBEA did not file an appraisal report or offer any testimony through its personnel as to the valuation method employed. Rather, it relied on the appraisal report and testimony of an expert employed by the City of New York (the city had been granted leave to intervene). The trial court rejected his testimony, finding that he lacked sufficient background and experience to qualify as an expert appraiser of special franchise property. The court also rejected his appraisal report because it failed to comply with the rules of the Appellate Division as to form and content. The court concluded that the record was barren of any evidence of the appraisal method employed by SBEA in arriving at its valuations. The court noted that the city’s expert used the RCNLD method, but that the value he arrived at was more than $100,000,000 higher than that arrived at by SBEA. The court concluded that he did not perform the assessments for SBEA.

The court accepted the expert opinions of the petitioner’s witnesses and their valuation of the special franchise property, which appraisals and valuations were arrived at through capitalization-of-income and original-cost-less-depreciation (rate base) appraisal methods. The court accepted the capitalization-of-income method of valuation as “a legitimate method for valuing a special franchise * * * especially when the only evidence in the record is that the system, if reproduced, would not be reproduced in its present form.” The court determined the final equalized values of Brooklyn Union’s special franchise property, located in Kings, Queens and Richmond Counties, for the tax year 1980-1981, to be $83,336,183, $45,511,625 and $25,990,355 respectively. These valuations were significantly lower than the final assessments of SBEA.

The Appellate Division affirmed, concluding that the “capitalization of income method used [by petitioner’s experts] herein provides the most accurate method of determining value”, and that rejection of the RCNLD method of appraisal was proper since “the system would never be reproduced in its present form but would be replaced with a new completely modern system”. The court found that, in the parlance of an expert real estate appraiser, “[Reproduction means replacement with an exact model” which “[i]n this case * * * is totally unrealistic”. Thus, the court held that Brooklyn Union’s franchise property “could not be considered a specialty since it is unreasonable to conclude that the facility could be replaced on an economic basis.” The court noted, moreover, that it would “reach the same result even if the facility were considered a specialty” (101 AD2d 414, 416-417).

National Fuel Gas Distribution Corporation (Distribution) and National Fuel Gas Supply Corporation (Supply) are subsidiaries of National Fuel Gas Company. Distribution is a multistate retailer of natural gas serving customers in New York, Pennsylvania and Ohio. Supply accumulates and sells natural gas at the wholesale level, serving essentially the same geographic area as Distribution. The area served by Distribution and Supply in New York State comprises 12 counties in western New York. They operate this portion of their systems through pipes, mains, conduits and other tangible personal property located in public streets and thoroughfares. This property too is a “special franchise.”

Distribution and Supply commenced 10 separate proceedings challenging the SBEA assessments alleging overvaluation, inequality and illegality. The proceedings were consolidated for trial and Niagara-Wheatfield Central School District was permitted to intervene. SBEA appraisal reports, received in evidence, showed that Distribution and Supply’s special franchises for 1980 were assessed by computing the reconstruction cost new of all their tangible special franchise property in New York and deducting appropriate figures for depreciation from all causes. SBEA added 5% of the value of the tangible property as the value of the intangible franchises. The total full value assessments for Distribution and Supply were then allocated to the individual taxing jurisdictions by applying a ratio of surviving original cost in each jurisdiction to total surviving original cost for each company. Appropriate equalization rates were applied. These computations produced final total equalized special franchise assessments of $65,071,328 for Distribution and $813,694 for Supply.

Petitioners’ experts arrived at full market values of the special franchise properties of Distribution and Supply by using capitalization-of-income under the “unit” method of accounting, with petitioners’ operating multistate systems as the “unit”. They allocated a proportionate value to those portions of the “unit” located within New York State. They also used the original-cost-less-depreciation method, apparently taking as original cost figures and depreciation rates those used in determining petitioners’ “rate bases” by the Public Service Commission and the Federal Energy Regulatory Commission.

Trial Term rejected the valuations of petitioners’ experts, finding that capitalization-of-income was an inappropriate method for determining the value of a special franchise such as that under consideration here because, inter alia “[t]he basic premise of the income method is that property is worth a certain capitalization of the income it produces. While this system is a complex system with each part necessarily relying upon other parts, the uniform allocation of earning power based upon original cost is risky, at best. Some parts of the system may very well throw off earnings at a greater percentage of cost than a corresponding and physically equal part.”

Trial Term concluded, as a matter of law, that “[t]he subject special franchise property is specialty property within the definition set forth in [.Matter of County of ] Suffolk (Van Bourgondieri) [47 NY2d 507]”, and that “[petitioners failed to demonstrate that the method by which [SBEA] arrived at the 1980 assessments was incorrect.” Accordingly, the petitions were dismissed.

The Appellate Division reversed, granted the petitions to the extent of annulling the final 1980 assessments and remitted the matter to SBEA for “reconsideration in light of the fact that the capitalization of income method is an acceptable method for assessing the value of the property at issue” (103 AD2d 187, 189). Citing Brooklyn Union, where it had held that property similar to that which is the subject of these appeals is not specialty property and that the capitalization-of-income method would therefore be permissible as a means of valuation, the court concluded that this record “demonstrates no reason to treat the property involved here differently * * * for the purpose of determining that it is not specialty property” (id.).

II

The courts of this State have uniformly held that the appropriate method of valuing the tangible component of special franchise property is by the reproduction-cost-new-less-depreciation method (People ex rel. Delaware, Lackawanna & W. R. R. Co. v Clapp, 152 NY 490; People ex rel. Jamaica Water Supply Co. v State Bd. of Tax Commrs., 196 NY 39; Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601; Matter of Consolidated Edison Co. v State Bd. of Equalization & Assessment, 101 Misc 2d 910, mod on other grounds 83 AD2d 355, affd 58 NY2d 710). This is because such property is considered to be “specialty property” property designed for “unique” purposes or is “uniquely adapted” to the business conducted upon it or use made of it, for which there is no market, and which cannot be converted to other uses without the expenditure of substantial sums of money (Consolidated Edison, 101 Misc 2d, at pp 913-914, supra).

In Matter of County of Suffolk (C.J. Van Bourgondien, Inc.) (47 NY2d 507, 512), we reaffirmed that a property is a “specialty” when it meets the four criteria enunciated by the Appellate Division in Matter of County of Nassau (Colony Beach Club) (43 AD2d 45, affd 39 NY2d 958): “(a) [t]he improvement must be unique and must be specially built for the specific purpose for which it is designed; (b) [t]here must be a special use for which the improvement is designed and the improvement must be so specially used; (c) [t]here must be no market for the type of property * * * and no sales of property for such use; and (d) [t]he improvement must be an appropriate improvement at the time of the taking and its use must be economically feasible and reasonably expected to be replaced” (43 AD2d, at p 49 [emphasis in original]).

There can be no doubt that the special franchise properties of Brooklyn Union, Distribution and Supply fully satisfy the first three criteria for “specialty property” set forth above.

The evidence in both cases establishes conclusively that the underground mains, pipes, services and related measuring and regulatory equipment that comprise the tangible special franchise property placed in the public streets and thoroughfares for the transmission of natural gas are “unique” and “specially built for the specific purpose for which [they were] designed”. This equipment was designed for the “special use” of distribution of natural gas and is being “specially used” for that purpose. It is “uniquely adapted to the business conducted upon it or use made of it and cannot be converted to other uses without the expenditure of substantial sums of money” (Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236, 240). Clearly, there is no market for this specially designed property, nor is there any evidence that there have been any sales of similar such property for such use.

Nonetheless, the trial court in Brooklyn Union found that the system “would not be reproduced in its present form”. The Appellate Division agreed and held that because it is “unreasonable to conclude that the facility could be replaced on an economic basis”, the property “c[an] not be considered a specialty.” This view misperceives the meaning of the requirement that in order for a property to qualify as “specialty” property “the improvement must be an appropriate improvement — and its use must be economically feasible and reasonably expected to be replaced”. This requirement relates to the use or function of the property and means that use or function must reasonably expected to be replaced. As we pointed out in Matter of County of Suffolk (C. J. Van Bourgondien, Inc.) (supra), “[t]he last requirement is that at the time of the taking the improvement be appropriate both physically and economically * * * Economic appropriateness means simply that the use must be economically feasible and reasonably expected to be replaced” (id., at p 513 [emphasis added]). It is manifest that the use or function to which the tangible special franchise property of these utilities is put would be replaced or reproduced. Indeed, in Brooklyn Union, the Appellate Division found that “the system * * * would be replaced with a new completely modern system” (101 AD2d, at p 416). However, it is not necessary in order for a property to qualify as a “specialty” that the material of which it is originally composed be available or replicated. Significantly, while both courts in Brooklyn Union found that the system would not reasonably be expected to be replaced, the trial court in Distribution and Supply concluded just the opposite. Yet without discussion or explanation, the Appellate Division in the latter case apparently deemed its decision in Brooklyn Union to be controlling, and thus rejected the RCNLD valuation. Nonetheless, the Appellate Division observed in Matter of Tenneco, Inc.-Tennessee Gas Pipeline Div. v Town of Cazenovia, 104 AD2d 511), decided the same day as Distribution and Supply and likewise involving the assessment of natural gas transmission lines, that the trial court in that case properly found the pipeline property to be a specialty. The Tenneco court stated that: “The subject property meets the requirements for such treatment set forth by the Court of Appeals in Matter of County of Suffolk (C. J. Van Bourgondien, Inc.) (47 NY2d 507, 512). The pipeline is unique and specially built for the purpose of transporting natural gas and is used for that purpose. There is no market for the type of property and there are no sales of property for such use. It could not be converted without substantial expenditures and it is an appropriate improvement, which if destroyed, would be reasonably expected to be replaced or reproduced (cf. Matter of Brooklyn Union Gas Co. v State Bd., 101 AD2d 414).” (104 AD2d 511, 512, supra) The Tenneco court further observed that, “[petitioner’s reliance upon cases applying the net earnings rule to value special franchises for the proposition that income capitalization based on earnings is an appropriate method is misplaced. The leading case of People ex rel. Jamaica Water Supply Co. v State Bd. (196 NY 39) illustrates that the net earnings method, which capitalizes the net earnings of the taxpayer, is used to value the intangible franchise for special franchise tax purposes. There the value of the tangible real property was determined on a cost basis” (id., at pp 512-513).

So too, in these cases, the value of the tangible property properly should be determined on a cost basis. Although there is a difference between valuing property by means of the reproduction cost as opposed to using the replacement cost, this fact does not deny to special franchise property the status of “specialty” property, to be valued as such where replacement cost is used rather than reproduction cost, nor does it warrant utilizing the capitalization-of-income method of valuation with respect to petitioners’ tangible property.

We hold, therefore, that the special franchise properties of Brooklyn Union, Distribution and Supply are “specialty properties” and that the proper method of valuing their tangible property is by RCNLD, to which should be added, in order to determine the full value, the value of the intangible franchise (the right to use the public streets and thoroughfares for the placement of their tangible property), arrived at by capitalization-of-income, where there exists excess income, or by adding 5% of the value of the tangible real property where there is no excess income.

Accordingly, the order of the Appellate Division in Matter of National Fuel Gas Distrib. Corp. should be reversed and the judgments of the Supreme Court dismissing the petitions reinstated. The order of the Appellate Division in Brooklyn Union Gas Co. should be reversed, the petition dismissed and SBEA’s determination reinstated.

Chief Judge Wachtler and Judges Jasen, Meyer, Simons, Kaye and Titone concur.

In Matter of Brooklyn Union Gas Co. v State Bd.: Order reversed, with costs, petition dismissed, and the determination of the State Board of Equalization and Assessment reinstated.

In Matter of National Fuel Gas Distrib. Corp. v State Bd.: Order reversed, with costs, and the judgments of Supreme Court, Albany County, reinstated. 
      
      . Real Property Tax Law § 102 (17) provides: “ ‘Special franchise’ means the franchise, right, authority or permission to construct, maintain or operate in, under, above, upon or through any public street, highway, water or other public place mains, pipes, tanks, conduits, wires or transformers, with their appurtenances, for conducting water, steam, light, power, electricity, gas or other substance. For purposes of assessment and taxation a special franchise shall include the value of the tangible property situated in, under, above, upon or through any public street, highway, water or other public place in connection therewith.”
     
      
      
        . The court noted in Tenneco, without elucidation as to the relevant distinction, that the “instant proceeding involves a real property tax assessment as opposed to a special franchise tax assessment.” That to attain the full value of a special franchise, the intangible component must be valued and added to the value of the tangible property does not preclude the tangible property component being considered a “specialty” to be valuated by RCNLD, especially since a special franchise, is by definition, considered to be “real property” (RPTL 102 [17]).
     