An appraiser can help build a case for appeal by providing depreciation curves that reflect real market transactions and research.

By: AccuVal Associates, Inc.

Domestic businesses in some U.S. states are required to pay personal property (PP) tax, which is assessed at the county level. Not all states have this tax, and those that do utilize individual rates of assessment based on a percent good factor applied to each year of capitalized fixed-asset purchases.

Typically, there's a different percent good factor range for different categories of asset class. For example, longer-life assets depreciate more slowly, and high-tech assets, such as computers or electronics, depreciate rapidly as technology improves. Percent good factors follow a similar sliding scale.

The economic downturn that began in 2008 and the resulting multitude of bankruptcies left local assessors' offices feeling the pressure of dwindling tax dollars. Likewise, those businesses still fighting to stay afloat – and to prosper as the economy recovers – have taken to the PP tax appeal process. The result: tax dollars are being scrutinized from both sides.

It's not easy to mount an appeal, and the burden of proof falls squarely on the shoulders of the taxpayer. The best means to prove an over-assessment is to have a reputable and experienced firm produce a supportable PP valuation.

The appraisal

Several levels of appraisal scope can help. The first step is to determine the applicable definition of value as it relates to state tax law. Each state uses its own criteria for valuation with most states utilizing an in-use or installed premise of value. First and foremost, the appraiser must determine the appropriate interpretation of value. The two most common are Market Value and Fair Market Value (in-use or removed).

More often than not, when an appraiser is called on to conduct a PP valuation for a property tax appeal, the appraisal will have an effective date that is retrospective, meaning that the date of valuation is prior to the date of the report. It's not rare for such appraisals to reflect a retrospective date three to four years prior. The farther back in time, the harder it is to value an asset and validate supporting documentation.

The approach

Gathering supporting figures can prove difficult depending on the asset pool. Tangible personal property assets – such as metalworking machine tools, standard plastics manufacturing equipment and construction equipment – are commonly traded during both good and bad economic times. Accordingly, comparable market sale transactions are more easily documented.

When the asset pool is comprised of more specialized or unique assets, the search for comparable sale transactions might prove fruitless. In such instances, an appraiser can default to a cost approach analysis, which might produce good results for the client, but won't necessarily convince the assessor to consider an assessment adjustment.

The results

AccuVal has proven that the most conclusive manner to facilitate the reassessment of PP tax burden is through the development of depreciation tables, generated through actual market sale transactions. The transactions serve to produce percent good factors when comparing the original cost of an asset to the selling price, at a specific date in that asset's useful life. Enough data points supported by actual sales, when plotted as percent factors, produce an impressive and truly market-derived depreciation curve. This curve can then be compared to the assessor's – hopefully with a favorable result.

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About AccuVal
AccuVal provides a broad range of valuation, advisory and asset management solutions that contribute to growth or help ensure survival. We appraise the business enterprise and shareholder equity; bonds; intangibles and intellectual property; machinery and equipment; inventory; real estate and accounts receivables in over 100 industries worldwide. Learn more at www.accuval.net.