— Appeal from an order of the Supreme Court at Trial Term (Kepner, Jr., J.), entered April 26, 1983 in Madison County, which dismissed petitioner’s application, in a proceeding pursuant to article 7 of the Real Property Tax Law, to review petitioner’s real property tax assessment for the 1981-1982 tax year.
Petitioner, Tenneco, Inc.-Tennessee Gas Pipeline Division (Tenneco), transmits natural gas through 13,546 miles of pipeline running from the Gulf of Mexico into New England. A 4.62-mile portion thereof lies underground in a 50-foot wide easement in the Town of Cazenovia, Madison County. This segment traverses private land. Thus, the real property involved was valued locally rather than centrally by the State Board of Equalization and Assessment, as in the case of special franchises (Real Property Tax Law, art 6). The property was assessed for the 1981-1982 tax year by the town at $715,800 for the *512improvements since the landowners were assessed for the value of the land. Petitioner protested the assessment. The Board of Assessment Review of the Town of Cazenovia upheld the assessment. Petitioner then timely commenced this proceeding pursuant to article 7 of the Real Property Tax Law.
At trial, each side produced an appraisal and the testimony of expert witnesses on value. Petitioner’s appraisal expert was Robert H. McSwain; respondents’ appraisal expert was John F. Havemeyer, III. They arrived at different value figures through application of different methods of valuation. By written decision, the trial court concluded that the pipeline was a specialty, warranting use of the local reproduction cost new less depreciation (RCNLD) method to determine value. The court accepted Havemeyer’s physical depreciation calculation of $180,000 and rejected McSwain’s theory of economic obsolescence. Accepting Havemeyer’s appraisal of $1,620,000 for the improvements, the trial court confirmed the valuation of $715,800 placed upon the property by respondents (see Matter of Shubert Organization v Tax Comm., 60 NY2d 93, 97). This appeal by petitioner followed.
The first issue presented is whether the trial court properly adopted the RCNLD approach to determine value. We conclude that it did.
Initially, it should be noted that the instant proceeding involves a real property tax assessment as opposed to a special franchise tax assessment. A valuation for special franchise tax purposes encompasses valuation of the tangible real property as well as of an intangible component, the franchise to use the property in the public way (Real Property Tax Law, § 102, subd 17). The RCNLD method is the accepted method to determine the value of a specialty (Matter of Onondaga County Water Dist. v Board of Assessors, 39 NY2d 601, 605). In this case, the trial court properly found petitioner’s pipeline property to be a specialty. 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).
Petitioner’s reliance upon cases applying the net earnings rule to value special franchises for the proposition that income *513capitalization 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.
The second issue presented for our review is whether the trial court properly accepted Havemeyer’s application of the RCNLD method with respect to determining physical depreciation and economic obsolescence. We conclude that the trial court erroneously accepted Havemeyer’s physical depreciation calculation of $180,000 and, since a proper calculation cannot be made from the existing record, a reversal and remittal for further proceedings to determine the proper amount of depreciation to be used in appraising the pipeline segment is required.
The parties stipulated the reproduction cost new of the pipeline in the town to be $1,800,000. However, the experts disagreed substantially on the amount of depreciation to be allowed. Depreciation includes physical depreciation, functional obsolescence and economic obsolescence (Matter of Putnam Theat. Corp. v Gingold, 16 AD2d 413, 417). Neither expert made an allowance for functional obsolescence. Therefore, we are concerned with physical depreciation and economic obsolescence.
Physical depreciation is described as “wear and tear occasioned by use and the elements” (id.). There was testimony from respondents’ expert, a chemical engineer specializing in metallurgy, that the 30-year-old pipeline segment, which was cathodically protected, had an indefinite useful life and had experienced less than 10% physical deterioration. Havemeyer used this percentage and reached a value of $1,620,000 for the subject property. It was improper, however, to use the concept of an indefinite useful life. The matter should be remitted for the purpose of determining the allowance for physical depreciation by dividing the value of the tangible property by the number of years of its estimated physical life (see People ex rel. Manhattan Ry. Co. v Woodbury, 203 NY 231, 236).
Economic obsolescence is defined as “loss of value brought about by conditions that environ a structure, such as a declining location or the downgrading of a neighborhood resulting in reduced business volume” (Matter of Putnam Theat. Corp. v Gingold, supra, p 417). McSwain made an allocation of 76.32%, or $274,752, for economic obsolescence. He calculated this percentage by adjusting the reproduction cost of the entire system to a level which, considering his projected level of net utility *514operating income of $127,000,000, would result in a market rate of return of 13%. He attributed the resulting 76.32% reduction to economic obsolescence. It appears then that McSwain’s concept of economic obsolescence is nothing more than an attempt to convert the RCNLD approach into an income capitalization approach. This is not permissible. The income approach determines the taxpayer’s business interest in the property, not necessarily the value of the property. While an allowance for economic obsolescence may be made when the property is not worth the reproduction cost, depending upon the earning capacity after reproduction (People ex rel. Delaware, Lackawanna & Western R.R. Co. v Clapp, 152 NY 490, 494), it cannot be made in these circumstances where petitioner is profitable and the property would be reproduced.
That petitioner is a regulated utility does not alter this conclusion. Petitioner argues that since its income is based in part on the original cost of the pipeline less depreciation, the pipeline cannot have a fair market value derived by using a reproduction cost which is more than three times the original cost. Petitioner’s income, while regulated, is not fixed; if for some reason, petitioner were required to replace the pipeline at today’s costs, its rate base would increase and its rates would be allowed to increase to generate the necessary income to provide the approved rate of return. Thus, the value of the pipeline should not be limited by petitioner’s current income.
Order reversed, on the law, without costs, and matter remitted to Special Term for further proceedings to determine the proper amount of depreciation to be used in appraising the subject property. Mahoney, P. J., Casey, Weiss and Mikoll, JJ., concur.