97-028
Response
May 5, 1997
REQUEST
LETTER
MEMORANDUM
TO: COMMISSIONERS UTAH STATE TAX COMMISSION
FROM: NAME
Property Tax Division
DATE: APRIL 24, 1997
RE: Request for Advisory Opinion -
Intangibles Decision
The
Property Tax Division requests an advisory opinion regarding the recent
decision by the Commission on assessing centrally assessed properties.
We
request clarification regarding the following questions:
1) Are
we correct in reading the Commission's decision as saying that the Division
should continue assessing centrally assessed properties using the unitary
method of assessment?
2) Does the Commission believe that tangible assets are worth
more in the aggregate than as insular objects?
3) Is
there a percentage range that the Commission expects the Division's values to
drop as a result of its decision?
4) Does the Commission want the Division to continue using its
methodology and include a line item adjustment for intangibles, or should the
Division attempt to amend its methodology to somehow "exclude
intangibles"?
5) Should
the Division continue to prepare and consider all three approaches to value?
A. Should
the Division continue to prepare and consider a DCF model?
B. Should the
Division continue to prepare and consider a direct capitalization indicator?
C. Should
the Division continue to prepare and consider a market or stock and debt indicator?
(If yes);
Should the Division continue to
look at market data and sales transactions of centrally assessed properties.
6) How much weight should the Division
give to the cost indicator?
7) What type of cost indicator should the
Division prepare?
8) (If
replacement cost is mentioned....) Will the Commission bear the cost of hiring
an engineering firm to prepare the replacement cost studies?
9) Does the decision change the Commission's analysis or
opinion of how DFIT should be treated?
10) Does a cost indicator of value contain
any intangible value?
11) Is
the Division correct in believing that it should continue to apply Utah Code
Ann. § 59-2-201(2), which provides that the method for determining the fair
market value of productive mining property is the capitalized net revenue
method?
12) Does the Commission expect the Division to stay pending cases
to allow taxpayers to identify and value intangibles and give the Division time
to verify their existence and value?
Your
prompt response to these questions will help our Division do business in
compliance with your recent decision.
May
5, 1997
NAME
ADDRESS
CITY
STATE ZIP
Advisory
Opinion - Assessment of centrally assessed property
Dear
NAME,
In response to your request for
guidance concerning valuation of centrally assessed properties, we offer the
following:
1. The unitary method is a valid method
for determining the value of centrally assessed property, and the commission
sees no reason to discontinue its use.
2. Tangible assets are likely to be worth
more in the aggregate than as insular objects.
For instance, the value of brick and mortar in place contribute more to
the value of a building than their separately stated values as raw building
materials. The building derives its value not only from the raw construction
materials, but also from direct labor and other building costs. Building costs, then, are properly
attributable to the property.
Intangible values attributed to the business conducted within the
building, on the other hand, are subject to income tax and cannot also be
subject to property tax.
3. No.
The commission has not set a target for reduction, nor should the
changes in value due to the removal of intangibles be a factor in determining
fair market value of any particular property.
4. The value of intangibles will probably
continue to be a point of debate between the Property Tax Division and
centrally assessed taxpayers.
Therefore, it is useful to use a line item adjustment or some other
method that identifies the intangibles and their values that shows how the values associated with the intangibles
were removed from the final property value assessment.
5. The Property Tax Division should
continue to use all generally accepted appraisal practices to estimate the
value of centrally assessed property.
As with other property assessment methods, the results yielded by
various approaches are compared, reconciled and used to support the assessed
value.
6. Under past practice, the cost approach
has been given very little weight in comparison to other approaches used in the
reconciliation process used to estimate the value of some centrally assessed
properties. Since the cost approach is
one way to arrive at a value without impounding the value of intangibles, the
division should rethink how the value derived from this approach can be used to
arrive at fair market value of the tangible property. The commission has no intention of dictating a stringent
weighting formula for comparing the results from various approaches. Instead, each approach should receive
appropriate consideration in the determination of fair market value.
7. Because many centrally assessed
properties are unique, various cost approaches could be valid depending upon
the circumstances of a particular case. An estimate of reproduction cost, such
as replacement-cost-new-less-depreciation or a trended historical cost, may be
considered in some cases. Because the
appropriate choice of appraisal
techniques depends upon the facts and circumstances of each appraisal
situation, we cannot offer generalized instruction. The division should use a method that is justified under the
circumstances, that comports with generally accepted appraisal methodology, and
that produces a reasonable estimate of property value. The division is not required to resort to the most time
consuming or costly method of cost approach if another method produces
reasonable results.
8. If appraisal of a particular property is
outside the scope of the division’s expertise and requires assistance from
outside consultants, you may hire outside engineers or consultants if your
budget allows for such expenditure. If
you need additional resources, discuss that matter with the Executive Director.
9. This issue was not part of the WilTel
decision. However, in a prior decision
the division was instructed to study the issue of DFIT and to make
recommendations as to how it should be treated.
10. It is possible that a cost indicator may
capture the value of intangibles in a particular case. NAME offered testimony in the WilTel case
that may provide guidance on the question of intangible value in the cost
indicator.
11. The commission has no authority to
overrule or amend a statute. Our
decision in the WilTel appeal does not disturb the methodology prescribed by
section 59-2-201 (2). Valid administrative rules also constitute law
until amended or repealed. Until
formally amended, the statute and the administrative rules stand as the current
law regarding assessment of mining property.
12. No.
For
the Commission,
Joe
B. Pacheco,
Commissioner