97-034

Response May 2, 1997

REQUEST LETTER

May 19, 1997

RE: Request for an advisory opinion

Dear Commissioners,

In your Wiltel, Inc. decision, you concluded that "intangible value" would not be taxable under Utah law. Should I, as the County Assessor, treat the intangibles identified at 59-2-102 (13) as non-taxable?

Further, what other intangible values do you see existing in locally assessed properties that would also not be taxable under Utah law? For instance, does the use of income capitalization for "rented" property such as storage units, apartments, rented commercial space, etc. capture any intangibles that should not be taxed?

I respectfully await your reply.

Regards,

County Assessor

RESPONSE LETTER

May 2, 1997

NAME

ADDRESS

CITY STATE ZIP

Advisory Opinion - Intangibles

Dear NAME,

We have received your request for an opinion regarding intangibles and we offer the following guidance:

Section 59-2-102 (8) states that “fair market value” is an amount that represents the value of the property adjusted for “intangible values under Sections 59-2-304 and 59-2-201. . . .”

The legislature defined the term “intangible value” in 59-2-102 (13), but the term relates only to

sections 59-2-201 and 59-2-304. The term “intangible value” as used in 59-2-102 (13) has no application outside of the provisions of 59-2-201 and 59-2-304. The provisions of sections

59-2-201 and 59-2-304 expired on December 31, 1993. Therefore, you need not make an adjustment for closing costs, fees and brokerage commissions in assessments made beginning in 1994. In fact, to do so would be to violate the legislative directive that such adjustments be discontinued after December 31, 1993.

Under section 59-2-1101 (2) (g), intangible property is exempt from ad valorem tax. The legislature has not provided a detailed list of intangibles except by exclusion in section 59-2-102 (19), which states that for property tax purposes, property does not include “moneys, credits, bonds, stocks, representative property, franchises, goodwill, copyrights, patents or other intangibles.” In a recent decision the Utah Supreme Court also found that custom software is intangible, and, therefore, not subject to property tax. See Cache County v. Utah State Tax Comm'n, 922 P.2d 758, 763 (Utah 1996). Finally, in our WilTel decision we offered a list of items that should be considered intangible property.

With regard to locally assessed commercial properties, it is our experience that assessors are not impounding intangibles in their values and need not make an adjustment. Traditionally assessors have used market rents in applying the income approach to locally assessed commercial property and have not used the income of the business which is renting the property. To the extent that assessors have used methodology which impounds "intangibles," such as direct capitalization using business income, in the value of the property, the value of intangibles should be removed. If you are not using such a method, the burden is on the taxpayer to identify intangibles that are eligible for exemption. If a taxpayer asserts that intangibles are being taxed the assessor should consider the evidence on a case by case basis.

This opinion is a general statement of our position on this issue. It does not address any specific assessment issues pending on appeal. Please let us know if you have other questions.

For the Commission,

Joe B. Pacheco,

Commissioner