Tangible Personal Property Something to Get a Hold of

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Tangible Personal PropertySomething to Get a
Hold of

• Patriot Properties, Inc.

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What usually happens

• The taxpayers reported cost and date of
  acquisition (often of groups of asset types) is
  utilized as the basis.
•  
• The trending factor is applied to get an
  indicated Replacement Cost New (RCN).
•  
• The depreciation is applied based on the
  economic life of the asset and the date of
  acquisition to get the depreciated replacement
  cost new (RCNLD).
•  
• Compare the return received this year to the
  reported assets from last year.

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Some States

•  (FL is typical)
• Require an on site visit and a detailed listing
  of assets using replacement cost new from manuals
  disregarding the taxpayers cost (in most
  circumstances)
•  
• Tax inventory based on monthly averages/12
•  
• Have free trade zones (or similar), usually on
  Mexican and Canadian borders or near air,
  freight, or sea ports. These Do not tax inventory
  IF is is not present for longer than a prescribed
  time (30 days, 90 days)
•  
• In Tennessee the lessee is responsible for taxes
•  
• Boston tracks aircraft at the airport and
  prorates time the aircraft is in the Boston
  airspace to tax the airlines.
•  
• Do not tax personal property at all!

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What is Supposed to Happen

• Get a List of the Assets
•  
• The appraiser should systematically inspect the
  property(1)
•  
• List the description, manufacturer, model, age
  and general condition of each asset.(2)
•  
• For leased equipment (record) the name and
  address of the owner/lessor, a description of the
  equipment including name of manufacturer, date of
  manufacture, model number, serial number, list
  price, and original cost if available, lease
  number, terms of the lease and whether its a
  capital lease (a purchase) or operating lease
  (rental agreement). If possible, a copy of the
  lease should be obtained (3)
•  
• Each year, perform a field review to verify the
  business exists (4)
•  
• Compare the return for the current year to the
  previous year.
•  
• For a new account, compare the tax return with
  other returns filed by similar business.. (5)

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• Determine the Replacement Cost
•  
• Trend Historical Costs
• The replacement cost can be determined by
  applying the trending or index factor to the
  purchase price if the purchase price represented
  market value at the time and the item was
  purchased new. This approach is flawed if either
  of the above is not true. There is a perfectly
  valid way to get the replacement cost if the
  purchase price represents market value and the
  age of the assets is known even though the assets
  were not new at time of purchase. This will be
  explained in the What Can Happen Section.
  Efforts should be undertaken to ensure that the
  reported purchase price is representative of
  market value. (6)
•  
• Get Costs from Manuals
• It is possible to get replacement costs for
  thousands of assets from a variety of manuals and
  services as well as catalogues and newsletters.
  There are millions of varieties of assets so this
  is not always going to provide a reliable source.
•  
• Get Costs From Comparable Sales
• If there are sales of similar businesses or asset
  types, these can be used as the basis for
  replacement costs. While it may appear there are
  few comparable sales from which to get this
  information, there are in fact many sales to use
  since each acquisition cost that is reported is a
  sale from which important comparable information
  may be garnered.

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• Determine the Appreciation/Depreciation
•  
• Remaining economic life and effective age are a
  function of actual age and condition as well as
  the total economic life. So one must make a
  judgment of what the effective age or
  condition/actual age should be. Keep in mind, not
  all items depreciate. Paintings, antiques,
  collectables may get more valuable. It may be
  argued that this is not appreciation but
  replacement cost trending. Either way, suitable
  adjustments should be made for assets of this
  type.
•  
• Apply the Untrended Depreciation Schedule
  provided by the DOR or comparable schedule to the
  asset along with the condition/age or effective
  age judgment made above to get the depreciation
  percent.
•  
• The Property Appraiser should make additional
  adjustments for unusual physical depreciation of
  property when justified. Some of the conditions
  for which adjustments may be necessary are
  ..prolonged exposure to corrosive materials, poor
  maintenance, excessive use.. Such adjustments
  should be made on an individual basis and only
  after physical inspection of the equipment and
  examination of the maintenance records (7)

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• Determine the Just Value
•  
• ..the property appraiser should consider for use
  at least one of the following approaches to value
  as may be appropriate for the property being
  valued. (8)
•  
• Comparable Sales
• This may be appropriate for a comparison of
  entire business sales or individual assets. The
  best sales are purchases of assets new because
  sales of used assets may have other factors
  involved in the sale such as the sellers duress
  and related costs of removal and reinstallation.
  The costs reported in the similar tax returns are
  a good source but are really more tied to the
  Cost Approach since depreciation can vary and by
  using the trending schedules we can infer a RCN.
•  
• Cost Approach
• Once a replacement cost has been determined from
  above, apply the depreciation determined from
  above to get an indicated value.
•  
• The Income Approach
• This involves determining a gross income
  attributable to an asset and deducting relevant
  expenses to get an net income. This is then
  capitalized using a rate that considers the yield
  to the investor, recapture, interest on the
  investment, risk and other factors. This may be
  appropriate for leased assets where you have a
  known rent and lease term. It can be validated
  against known costs but if you have known costs,
  use them rather than the indication shown through
  the income approach.

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• What Can Happen
•  
• There are lots of shoulds in the above. Of
  course one should systematically inspect the
  properties and should visit each account every
  year and should track assets individually and in
  great detail and examine the three approaches to
  value in deciding on the final value of each
  asset. But this is unrealistic because taxpayers
  often report groups of assets together such as x
  dollars of equipment in 2002 so now individual
  breakdown is possible without further information
  from the taxpayer and because it would require a
  great deal more manpower and/or cost and/or time
  (unless you can afford a giant staff or have only
  a few accounts to deal with).
•  
• You can however make improvements by better using
  your existing information and by possibly adding
  a few new fields to your asset data.
•  
• Lets focus on the answers to these few questions
•  
• How can I get a reasonable value indication for
  non-reporting accounts? Or how can I check to see
  what accounts may not be reporting accurately?
•  
• How can I get an indication of RCN from other
  accounts?
•  
• How can I determine the proper trend factors and
  depreciation factors when the taxpayer has
  purchased used assets?

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Add or Utilize the Year Installed AND the Year New
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Add or Utilize the Square Footage
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Used Assets
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To Check Reasonableness of Total Values for
Accounts

•  
• Group by Business Type (Use Code)
•  
• If you have the square footage, divide the value
  of each account by the square footage occupied
  and get the average /s.f. Multiply this time the
  square footage of the subject and compare to its
  value.
•  
• If you dont have the size, just get the average
  value by Use Code and compare this to your
  subject.
•  
• This can be done on a mass basis without too much
  effort if you have a reasonably open system and
  can get at the data. You can generate these
  predicted average values and list only those
  accounts that vary by, say, more than 50.

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To Generate Assets on Non-Reporting Accounts,
Build and Apply Models
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Use Your DataGet data from your friends

• Models can be built by using common sense and
  experience or by taking a particular use code and
  reversing out the depreciation to get the RCN.
  This can be done by taking the value of the asset
  and dividing by the percent good used from your
  depreciation. See what asset types are generally
  applicable to this use code and make a model for
  this use code containing the set of assets along
  with the average RCN per square foot (or just the
  average RCN if size is not available).
• Pool your information with other counties and
  build a bigger database for your models!

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Just How Much Do You Need To Know About An Asset?

• Tax Year
• Account ID
• Unique ID
• Line Number
• Asset Type
• Dimension 1
• Dimension 2
• Dimension 3
• Year New
• Year Acquired
• Date Disposed
• Source of info
• Reported Cost
• Override Value
• System Derived RCN
• RCN from table
• Taxpayer Value
• Method
• Quality

• Override Trend Factor
• Scheduled Depreciation Schedule
• Override Depreciation Schedule
• Previous Value
• Value Inclusion
• Exclusion Percent
• Associated TPP Account
• Make
• Model
• Serial Number
• Park/Complex ID
• Registration Number
• Lease from date
• Lease end date
• Lease amount per month
• Associated Real Property ID
• Notes
• District Code
•