HomeMy WebLinkAbout20091835.tiffCLERK TO THE BOARD
PHONE (970) 336-7215, Ext. 4226
FAX: (970) 352-0242
P. O. BOX 758
GREELEY, COLORADO 80632
COLORADO
August 10, 2009
JBS USA LLC FKA SWIFT & COMPANY
1770 PROMONTORY CIR
GREELEY, CO 806349039
RE: THE BOARD OF EQUALIZATION, 2009, WELD COUNTY, COLORADO - DENY
PETITIONER'S APPEAL AND AFFIRM ASSESSOR'S VALUE
DESCRIPTION OF PROPERTY: ACCOUNT #: P0003960 PARCEL #: 080332303001 - BEEF
PACKING PLANT GR CP-1 CAPITAL PACK SITUS: 800 N 8 AV GREELEY 80631
Dear Petitioner:
On August 5, 2009, the Board of County Commissioners of Weld County, Colorado,
convened, and acting as the Board of Equalization, pursuant to Section 39-8-101, C.R.S., et.seq.,
considered your petition of appeal of the County Assessor's valuation of your property described
above, for the year 2009.
The Board of Equalization found that the evidence presented at the hearing clearly
supported the value placed upon your above described property by the County Assessor. Such
evidence indicated the value was reasonable, equitable, and derived according to the
methodologies, percentages, figures and formulas dictated to the Weld County Assessor by law.
The assessment and valuation of the Weld County Assessor was affirmed as follows:
ACTUAL VALUE AS
DETERMINED BY
ASSESSOR
ACTUAL VALUE AS
SET BY BOARD
$27,731,100 $27,731,100
e
2009-1835
IAS0073
Pet (cEin k ) G?� //
JBS USA LLC FKA SWIFT & COMPANY - P0003960
Page 2
A denial of a petition, in whole or in part, by the Board of Equalization may be appealed by
selecting one of the following three options; however, said appeal must be filed within 30 days of
the denial:
1. Board of Assessment Appeals: You have the right to appeal the County Board
of Equalization's (CBOE's) decision to the Board of Assessment Appeals (BAA).
Such hearing is the final hearing at which testimony, exhibits, or any other
evidence may be introduced. If the decision of the BAA is further appealed to
the Court of Appeals only the record created at the BAA hearing shall be the
basis for the Court's decision. No new evidence can be introduced at the Court
of Appeals. (Section 39-8-108(10), C.R.S.)
Appeals to the BAA must be made on forms furnished by the BAA, and such
appeals should be mailed or delivered within thirty (30) days of denial by the
CBOE to:
Board of Assessment Appeals
1313 Sherman Street, Room 315
Denver, CO 80203
Phone: 303-866-5880
Fees: A taxpayer representing himself is not charged for the first two appeals to
the Board of Assessment Appeals; however, a taxpayer being represented by an
agent or an attorney must submit a fee of $101.25 per appeal.
OR
District Court: You have the right to appeal the CBOE's decision to the District
Court of the county wherein your property is located. New testimony, exhibits or
any other evidence may be introduced at the District Court hearing. For filing
requirements, please contact your attorney or the Clerk of the District Court.
Further appeal of the District Court's decision is made to the Court of Appeals for
a review of the record. (Section 39-8-108(1), C.R.S.)
OR
3. Binding Arbitration: You have the right to submit your case to arbitration. If
you choose this option the arbitrator's decision is final and your right to appeal
your current valuation ends. (Section 39-8-108.5, C.R.S.)
Selecting the Arbitrator: In order to pursue arbitration, you must notify the
CBOE of your intent. You and the CBOE select an arbitrator from the official list
of qualified people. If you cannot agree on an arbitrator, the District Court of the
county in which the property is located will make the selection.
Arbitration Hearing Procedure: Arbitration hearings are held within sixty days
from the date the arbitrator is selected. Both you and the CBOE are entitled to
participate. The hearings are informal. The arbitrator has the authority to issue
subpoenas for witnesses, books, records, documents and other evidence. He
2009-1835
AS0073
JBS USA LLC FKA SWIFT & COMPANY - P0003960
Page 3
also has the power to administer oaths, and all questions of law and fact shall be
determined by him.
The arbitration hearing may be confidential and closed to the public, upon mutual
agreement. The arbitrator's written decision must be delivered to both parties
personally or by registered mail within ten (10) days of the hearing. Such
decision is final and not subject to review.
Fees and Expenses: The arbitrator's fees and expenses are agreed upon by
you and the OBOE. In the case of residential real property, such fees and
expenses cannot exceed $150.00 per case. The arbitrator's fees and expenses,
not including counsel fees, are to be paid as provided in the decision.
If you have questions or need additional information, please do not hesitate to contact me at
(970) 336-7215, Extension 4226.
Very truly yours,
Esther E. Gesick
Deputy Clerk to the Board
cc: Christopher Woodruff, Assessor
DUFF AND PHELPS LLC/BRUCE CARTWRIGHT
950 17TH ST STE 2000
DENVER, CO 80202
2009-1835
AS0073
Weld County
CHRISTOPHER M. WOODRUFF COUNTY
ASSESSOR
BRENDA DONES, DEPUTY ASSESSOR
VALUATION REPORT
OF
PERSONAL PROPERTY
FOR
County Board of Equalization
JBS USA LLC FKA SWIFT & COMPANY
PETITIONER
Vs.
WELD COUNTY ASSESSOR'S OFFICE
RESPONDENT
Schedule Number: P0003960
Log Number: 2548
Date: 8/5/2009
Time: 02:45 PM
Board: Board #1
PREPARED BY
APPRAISERS NAME
Sean McElroy
08/04/09
Signature Date
ASSESSOR'S OFFICE STAFF APPRAISER
CBOE_PP_010998
Page 1
026°9-a3s-
COST APPROACH
Location of the subject property is:
Business Name
Street Address
City
Beef Packing Plant
800 N 8 AV
Greeley
NARRATIVE
The value on this account was originally derived from an asset listing supplied by the petitioner with
their 2009 Personal Property Declaration. The declaration was sent to our office electronically, was
reviewed by an appraiser and then was imported into our personal property computer program. The
declaration was signed by the owner/agent declaring that the information provided on the declaratior
included a full and complete list of property and that no attempt had been made to mislead the
Assessor as to it's age, quality, quantity or value.
The procedures used for valuing the Personal Property comply with the documented procedures anc
tables in the Assessor Reference Library (ARL) published by the State Property Tax Administrator.
The State Property Tax Administrator's Assessor Reference Library manuals are binding on county
assessors per statute, 39-2-109(1)(e), and case law, Huddleston v. Grand County Bd. of Equaliz., 91
P.2d 15 (Cob. 1996).
The actual value of $28,886,562 was determined by classifying the assets reported on the
declaration, the year they were purchased and their original cost, and then applying the appropriate
tables and factors as mandated by the Colorado Department of Property Taxation.
CBOE_PP_01C
Pal
The Weld County Assessor's Office and JBS Swift have a historically established method for
measuring economic obsolescence at the JBS USA Beef Packing Plant. It is based upon the
comparison of the total production capacity for our benchmark year vs. actual production for the
current year, with the established benchmark year of 2002. This methodology was negotiated in 200
and was applied in 2006, 2007 and 2008 as follows:
2006
42%
2007
37.62%
2008
27%
2009
4%
This method established a rate of 4% economic obsolescence for 2009. This 4% was then applied tc
the current actual value to establish an actual value with economic obsolescence taken into
consideration of $27,731,100. Our office believes that this previously agreed upon way to measure
the economic obsolescence is appropriate. We do not consider that a company's profit/loss is an
indicator of economic obsolescence on an industry. The Assessor's Reference Library in chapter 5
page 3.13 outlines the causes of economic obsolescence as, adverse economic conditions, passag(
of restrictive legislation or loss of material or labor sources. There are too many other factors that ca
contribute to a company's profitability that can not be related to the causes of economic obsolescent
for an industry. With our current method the causes of economic obsolescence are taken into
account.
COST APPROACH VALUE
$27,731,100
CBOE_PP_O1I
Pe
MARKET APPROACH
Pursuant to Colorado Revised Statute the Assessor has considered the Market Approach to value of
Personal Property. Due to the insufficient information for the market of personal property, the Weld
County Assessor has not utilized the Market Approach.
INCOME APPROACH
Pursuant to Colorado Revised Statute the Assessor has considered the Income Approach to value a
Personal Property. Due to the insufficient information for the income on Personal Property, the Wek
County Assessor has not utilized the Income Approach.
CBOE_PP_O1C
Pa
CONCLUSION
The subject property has been classified as Personal Property for property tax purposes. Personal
Property values shall be determined by appropriate consideration of the Cost Approach, Market
Approach, and Income Approach to value. {39-1-103)(5)(a) CRS} The Assessor has considered the
three approaches to value for the subject property.
It is the petitioner's responsibility to provide sufficient evidence to substantiate that the Assessor's
value is incorrect.
After consideration of the three approaches, it is the Weld County Assessor's request that the value
$27,731,100 be affirmed for the tax year 2009.
FINAL VALUE
$27,731,100
CBOE_PP_O1C
Pa
REAL AND PERSONAL PROPERTY
NOTICE OF DETERMINATION
Christopher M. Woodruff
WELD Assessor
1400 N 17th Ave
GREELEY, CO 80631
Date of Notice: 7/8/2009
Telephone: (970) 353-3845
Fax: (970) 304-6433
Office Hours: 8:00 AM - 5:00 PM
A it, f1..4 k+ �.^v£.5 }.nJY
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P0003960
2009
0600
BEEF PACKING PLANT GR CP-1 CAPITAL
PACK SITUS: 800 N 8 AV GREELEY 80631
800 N 8 AV
GREELEY, CO 80631
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JBS USA LLC FKA SWIFT & COMPANY
1770 PROMONTORY CIR
GREELEY, CO 806349039
PROPERTY
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PERSONAL PROP
28,886,562
27,731,100
1• IOTA
$28,886,562
$27,731,100
The Assessor has carefully studied all available information, giving particular attention to the
specifics included on your protest. The Assessor's determination of value after review is
based on the following:
PP07 - Your personal property account has been adjusted for 2009.
If you disagree with the Assessor's decision, you have the right to appeal to the
County Board of Equalization for further consideration, § 39-8-106(1)(a), C.R.S.
The deadline for filing real property appeals is July 15.
The deadline for filing personal property appeals is July 20.
The Assessor establishes property values. The local taxing authorities (county, school
district, city, fire protection, and other special districts) set mill levies. The mill levy
requested by each taxing authority is based on a projected budget and the property tax
revenue required to adequately fund the services it provides to its taxpayers. The local
taxing authorities hold budget hearings in the fall. If you are concerned about mill levies, we
recommend that you attend these budget hearings. Please refer to last year's tax bill or ask
your Assessor for a listing of the local taxing authorities.
Please refer to the reverse side of this notice for additional information.
2009-1835
;Tri
WIDC
COLORADO
July 27, 2009
JBS USA LLC FKA SWIFT & COMPANY
1770 PROMONTORY CIR
GREELEY, CO 806349039
CLERK TO THE BOARD
PHONE (970) 356-4000 EXT 4226
FAX: (970) 352-0242
WEBSITE: www.co.weld.co.us
915 10TH STREET
P.O. BOX 758
GREELEY, COLORADO 80632
Parcel No.: 080332303001 Account No.: P0003960
Dear Petitioner(s):
The Weld County Board of Equalization has set a date of August 5, 2009, at or about the hour of
2:45 PM, to hold a hearing on your valuation for assessment. This hearing will be held at the Weld
County Centennial Center, First Floor Hearing Room, 915 10th Street, Greeley, Colorado.
You have a right to attend this hearing and present evidence in support of your petition. The Weld
County Assessor or his designee will be present. The Board will make its decision on the basis of
the record made at the aforementioned hearing, as well as your petition, so it would be in your
interest to have a representative present. If you plan to be represented by an agent or an attorney
at your hearing, prior to the hearing you shall provide, in writing to the Clerk to the Board's Office, an
authorization for the agent or attorney to represent you. If you do not choose to attend this hearing,
a decision will still be made by the Board by the close of business on August 5, 2009, and mailed to
you on or before August 12, 2009.
Because of the volume of cases before the Board of Equalization, all cases shall be limited to 15
minutes. Also due to volume, cases cannot be rescheduled. It is imperative that you provide
evidence to support your position. This may include evidence that similar homes in your area are
valued less than yours or you are being assessed on improvements you do not have. Please note:
The fact that your valuation has increased cannot be your sole basis of appeal. Without
documented evidence as indicated above, the Board will have no choice but to deny your appeal.
If you wish to obtain the data supporting the Assessor's valuation of your property, please submit a
written request directly to the Assessor's Office by fax (970) 304-6433, or if you have questions, call
(970) 353-3845. Upon receipt of your written request, the Assessor will notify you of the estimated
cost of providing such information. Payment must be made prior to the Assessor providing such
information, at which time the Assessor will make the data available within three (3) working days,
subject to any confidentiality requirements.
JBS USA LLC FICA SWIFT & COMPANY - P0003960
Page 2
Please advise me if you decide not to keep your appointment as scheduled. If you need any
additional information, please call me at your convenience.
Very truly yours,
BOARD OF EQUALIZATION
/),2
Esther E. Gesick
Deputy Clerk to the Board
cc: Christopher Woodruff, Assessor
DUFF AND PHELPS LLC/BRUCE CARTWRIGHT
950 17TH ST STE 2000
DENVER, CO 80202
IxnI &PIILI I'S u.c • 950 I— S1RII I.scut2000 • DINVIR.LT) 802202 . it t 30"i9900I • }'y303'499011
LAUREN THOMAS
Vice President
TEL 303-749-9024 OR 720-891-3318
l auren.thnmas@duffandphelpj corn
DUFF &PHELPS
July 20, 2009
Weld County Board of Equalization
950 10th Street
P.O. Box 758
Greeley, CO 80631
Subject: Personal Property Appeal for JBS USA, LLC for Accounts P0003960, P0006428,
P0009835, P0015713, P0905210, P2344902
Dear Members of the Board:
As duly authorized agent of JBS USA, LLC, Duff & Phelps, LLC hereby submits the following business
personal property appeal for accounts P0003960, P0006428, P0009835, P0015713, P0905210, and
P2344902. Duff & Phelps, LLC provides the following reasons for the appeal:
JBS has been experiencing a significant decline in the profitability of their operations since 2002.
Despite their increased utilization for 2008, their net loss per head of cattle was ($12). We believe
an economic obsolescence adjustment not less than 30% is warranted for account P0003960. The
financials for the lamb operations will be further examined.
Duff & Phelps, LLC disagrees with the current Department of Property Tax personal property trend
schedules to establish values for JBS USA LLC's accounts and believes adjustments to the trend
schedule are necessary to develop appropriate values.
The estimates of value for the above listed accounts are attached. If you have any questions regarding
this statement, please feel free to contact me at 303-749-9024 or Bruce Cartwright at 303-749-9003.
Sincerely,
Lauren Thomas,
Duff & Phelps
Encl.
ce President
www.duffandphelps.com
JBS USA, LLC
2009 Personal Property Appeal
Account
P0003960
P0006428
P0009835
P0015713
P2344902
P0905210
Description
Beef Plant
By Products
Old HQ
Lamb Plant
HQ -Promontory Circle
New - Miller Bros Exec
2009 NOD
27,731,100
430,428
19,065
2,172, 531
3,107,027
C 71,028
Total 33,531,179
2009
Petitioner's
Opinion of
Value
14,859,490
308,823
14,174
1,757,937
2,217,918
65,510
19,223,852
Appointment of Agency for Property Tax Matters
Duff & Phelps LLC is authorized to represent JBS USA LLC and its subsidiaries
on personal property tax matters in Weld County Colorado. Duff & Phelps LLC is
authorized to act on our behalf in obtaining and providing information,
negotiating, settling and assessing for all personal property matters related to the
property owned, possessed, or controlled by the undersigned at the above -
referenced address. This agent is delegated full authority to handle all matters
relative to assessments and to represent us, with the assistance of legal counsel,
if necessary, in the appeal process.
This appointment of agency remains in effect for tax years 2007, 2008 and 2009
or until revoked in writing by JBS USA LLC or Duff & Phelps LLC.
All correspondence should be directed to the following:
NAME: Bruce Cartwright
Duff & Phelps LLC
ADDRESS: 950 17th Street, Suite 2000
Denver, Colorado 80202
303-749-9003
SIGNED:
NAME/TITLE:
Cindy Garland, T Director
Tax Director
DATE EFFECTIVE: cola9loq
NOTARIZATION:
State of Colorado
County of Weld /� 1
The foregoing instrument was duly acknowledged before me by Cl nr�� C r �anC for the uses and purposes
therein expressed. U
r _
Witness my and Notarial Seal, this a9121 day of June 20 O9 .
Notary Public
My commission expiresCtp a9 /2O69
RACHELLE DURHAM
Notary Public
State of Colorado
My CommlUlon Expires April 29, 201 3
CERTIFIED MAIL
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JBS USA, LLC
2009 Personal Property Appeal
Account
P0003960
P0006428
P0009835
P0015713
P0905210
P2344902
Description
Beef Plant
By Products
Old HQ
Lamb Plant
New - Miller Bros Exec. Office
HQ -Promontory Circle
Total
Weld County
NOD 2009 Value
27,731,100
430,428
19,065
2,172,531
71,028
3,107,027
D&P 2009
Requested
Value
10,613,922
308,823
14,174
1,757,937
65,510
2,217,918
33,531,179 14,978,284
If
Co
o
O
N
1,302,243
Co
Vwr
D
a
CD
I 1,635,446,558 I
(16,271,732)1
wN
N
2007
976,042
1,352,871,876 I
1,180,461,457
aO
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0
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V
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1 1,076,604,1131
1 923,434,478
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2005 I
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1,268,422,050
r
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N
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(15,735,908)1
N
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2004 I
a
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1,531,143,751 I
1,352,825,004
o
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1,056
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2003 I
M
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1,302,832,228
1,116,808,012
Co
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N
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2002 I
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1,172,834,022
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Total Head
Net Sales
Material Costs'
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Economic Obsolescence Factors Previously Determined
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JBS USA LLC
2008 Income Summary and Comparison
Capacity
Actual Headcount
Net Sales
Material Costs
Meat Margin
Storage Expenses
Freight Expenses
Packaging Costs
Variable Cost
Hourly Labor
Supplies
Internal Transportation
Total Variable Cost
Fixed Cost
Salary Labor
Contract Services
Utilities
Repair and Maintenance
Hourly Insurance
Taxes (Other than income)
Lease and Rent Expense
Insurance, Employee Relations, Travel
other
Other Expenses
Total Fixed Cost
Gross Margin
Depreciation Expense
Net Operating Income Before Tax
Income Taxes
NOI After Tar
Total PP&E
Return on PP&E
Gross Margin/Gross Sales
NOIAT/Grass Sales
Actual Value - Personal Property
D&P Actual Value with Trend &
Depreciation Corrections
Requested Value - Personal Property
Greeley, CO
Per
Head
Grand Island,
NE
Per
Head
Parent Company
1,715,500
1,898,000
1,302,243
1,448,167
1,891,541,643
1,453
2,115,474,710
1,461
8,928,224,764
1,635,446,558
1,256
1,802,083,702
1,244
7,260,914,236
256.095, 085
197
313.391, 008
216
1, 667, 310, 528
4,147,916
3
3,948,066
3
62,238,345
48
66,296,982
46
23,398,279
18
23,779,073
16
89,802,029
69
84,078,808
58
9,342,172
7
7,907,276
5
1,255,287
1
1,190,583
1
100.399,488
77
93,176,667
64
29,484,967
23
26,679,355
18
16,326,265
13
15,462,761
11
15,749,561
12
20,198,557
14
10,665,801
8
10,919,457
8
5,367,784
4
4,305,893
3
1,906,202
I
1,110,602
1
1,238,642
I
4,335,173
3
2,447,570
2
3,869,185
3
(1,004,002)
(I)
(1,154,027)
(I)
82,18Z790
63
85.726, 956
59
(16,271,732)
(12)
40,463,264
28
700.564,996
(8,085,913)
(6)
(5,192,635)
(4)
(130,549,257)
570,015,738
(24,357,645)
(19)
35,270,629
24
9,377,693
7
(13.579,192)
(9)
(31,989,219)
(14,979,952)
(12)
21,691,437
15
538,026,519
30, 702, 429
-48.79%
-0.86%
-0.79%
NA
NA
1.91%
1.03%
/3,550,865,045
3.97%
7.85%
6.03%
27, 731,100
21,227,843
10,613.922 50% Obsolescence Factor applied to D&P Value
JBS USA LLC
Challenge of DPT Schedules
Age
1995 14
1996 13
1997 12
1998 11
1999 10
2000 9
2001 8
2002 7
2003 6
2004 5
2005 4
2006 3
2007 2
2008 1
Trend Index
CPI -U Denver,
DPT Cost Boulder,
Index 2 Greeley
1.41
1.39
1.37
1.36
1.36
1.33
1.32
1.31
1.29
1.25
1.17
1.12
1.07
1.00
1.42
1.37
1.33
1.30
1.26
1.21
1.16
1.14
1.12
1.12
1.10
1.06
1.04
1.00
Depreciation
Current DPT
Proposed % % Good
Good (7% (12.5%
Return) Return)
15
19
22
26
33
39
45
52
59
66
73
80
87
94
15
24
27
32
40
46
52
59
66
72
79
84
90
95
y
3.15
If, after physically inspecting the property, the assessor determines that the condition of the
subject property is worse than average, an adjustment reducing the percent good applied to
the property is made to account for this additional physical obsolescence. If the assessor
determines that the condition of the subject property is better than average, an adjustment
increasing the percent good applied to the property is made to account for this additional
physical utility. The specific adjustment is based upon evidence from the market and should
be documented on the appraisal record.
Measure Curable Depreciation & Functional Obsolescence
Curable physical depreciation and curable functional obsolescence are generally measured
using the cost to cure method, i.e. the cost of curing or repairing the additional depreciation
or obsolescence. Keep in mind that curable depreciation and obsolescence must be
economically practical to cure. The cost to cure the deficiency is subtracted from the
RCNLD estimate as a loss in addition to incurable physical depreciation.
Measure Incurable Functional and Economic Obsolescence
Incurable functional and economic obsolescence are estimated by either capitalizing the loss
of income due to whatever causes exist at the time of the appraisal or by estimating that loss
using direct sales comparison in the market.
The analysis and verification of increased operating costs, reduced economic income, or
reduction in market value of a property provide the assessor with indicators that depreciation
or obsolescence, over and above that published in age -life depreciation tables, may be
warranted.
The court ruled in Colorado & Utah Coal Co. v. Rorex, 149 Colo. 502, 369 P.2d 796 (1962),
that if economic obsolescence exists, it must be acknowledged and deducted.
Measuring Overall Depreciation Through Capitalization of Loss:
The assessor, in some cases, may be able to estimate the typical net income producing
capabilities of the personal property being appraised. Then the actual diminished net
income, from all causes of depreciation, is measured.
This difference in net income is capitalized using an overall capitalization rate (OAR), if
possible. Even if the capitalization rate is developed using the band of investment or
summation techniques as described in published appraisal texts and in ARL Volume 3,
LAND VALUATION MANUAL, Chapter 4, Valuation of Vacant Land Present Worth,
it must include return of investment, return on investment, and an effective tax rate.
The resulting capitalized value of the income loss from all causes of depreciation is
subtracted from the estimate of the capitalized value of the income determined for a
comparable property when new. This approach can only be applied when income can
accurately be attributed to a single piece of equipment, as with a mobile hot dog stand.
When income must be allocated to various pieces of equipment, this approach loses
credibility and generally is not appropriate.
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APPLICATION OF THE APPROACHES
In §§ 39-1-103(5) and 104(12.3)(a)(I), C.R.S., the assessor is required to consider the cost,
sales comparison (market), and income approaches to appraisal when determining the actual
value of personal property.
For Colorado personal property assessment purposes, the actual value is the value in use, as
installed. Colorado statutes require that personal property be valued inclusive of all costs
incurred in acquisition and installation of the property. The costs of acquisition, installation,
sales/use tax, and freight to the point of use must be considered in the personal property
valuation. The inclusion of these costs requires that personal property be valued in use.
Therefore, the actual value of personal property is based on its value in use.
The most current valuation information available must be gathered and analyzed. It is
Division policy that sales comparison (market) and income information used to determine the
current actual value of all types of personal property should be gathered and analyzed from
the twelve month period immediately preceding the current assessment date, i.e. the prior
calendar year. Analysis of data from this period insures that adequate current market and
income information is used in the valuation of personal property.
Assessors must document the physical condition of personal property as of the assessment
date. Assessors also must consider current economic conditions when appraising personal
property and must document the reasons for functional and economic obsolescence as of the
assessment date.
COST APPROACH
The cost approach is based upon the principle that the value of a property equals the cost of
acquiring an equally desirable substitute property. It is essentially an estimate of the cost of
replacing the subject property with a new property that is equivalent in function and utility.
However, the subject property is usually worth less than its cost of replacement because of
depreciation.
Depreciation can be defined, in simple terms, as the loss in value due to any and all causes.
However, cost tables only reflect depreciation due to ordinary use of the equipment and some
functional obsolescence, and do not reflect depreciation due to extraordinary functional or
any economic obsolescence which must be separately estimated. Refer to Calculate
Depreciation (Percent Good) later in this chapter.
Colorado statutes provide that the cost approach shall establish the maximum value of
personal property when the owner of the property has timely filed a declaration which
contains full and complete disclosure of all costs incurred in the acquisition and installation
of the property as required by § 39-1-103(13)(a), C.R.S.
As paraphrased from § 39-1-103(I3)(c), C.R.S., the assessor must consider the cost approach
in good faith and shall not deny its use except for just cause that the owner has not made full
and complete disclosure, or has not filed a declaration by the statutory deadline. Also, an
assessor who wrongly denies the use of the cost approach can be held personally liable for all
costs incurred by the taxpayer in protesting an assessment based on such denial.
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• Marshall and Swift Publication Co.
P.O. Box 26307 RCN Factors
Los Angeles, CA 90026
• R.S. Means Company, Inc.
100 Construction Plaza RCN For Specific Equipment
Kingston, MA 02364
Many of the companies charge a fee for the information contained in replacement cost
manuals. However, payment of the fees usually entitles the purchaser to all updates or
factors used in the manual. The manuals provide a valuable crosscheck to estimates of RCN.
Do not factor the prices listed in the replacement cost manuals using the cost trending factors
found in Chapter 4, Personal Property Tables. Trending factors are furnished with the
replacement cost manual by the publisher in order to trend manual RCN's to the current
assessment date. Since these trending factors are specifically intended for use with the
particular manual do not apply these factors to other manuals or to original costs declared by
the taxpayer.
Determine Accrued Depreciation:
Accrued depreciation is the difference between the current replacement cost new and the
present value of the equipment as of the date of the appraisal. Depreciation may be defined
as follows.
Depreciation is "Loss in value of an object, relative to its replacement cost, reproduction
cost, or original cost, whatever the cause of the loss in value..." according to Property
Appraisal and Assessment Administration, IAAO, 1990, page 641.
The causes of accrued depreciation are divided into three categories:
1. Physical Depreciation (deterioration)
a. Wear and tear from use or from the elements
b. Negligent care or inadequate maintenance
c. Damage from moisture, breakage, or fire
2. Functional Obsolescence
a. Poor plan, design, or style
b. Mechanical inadequacy or superadequacy
c. Functional inadequacy or superadequacy due to size, style, age
d. Technological innovation
e. Changes in manufacturing techniques
f Changes in consumer tastes
3. Economic Obsolescence
a. Adverse economic conditions
b. Passage of restrictive legislation
c. Loss of material or labor sources
Physical depreciation and functional obsolescence relate to deficiencies within the property
itself. Deficiencies may be classified as either curable or incurable. The deficiencies are
curable if the cost to repair, replace, or correct them is economically feasible. This cost to
cure is economically feasible if the cost is equal to or less than the additional income which
would be generated by the property after the deficiencies have been cured. The deficiencies
are incurable if they are physically or economically impractical to repair, replace, or correct.
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Economic obsolescence is due to negative forces outside the property. This type of
depreciation is seldom curable and is generally classified as incurable.
Losses in value due to functional or economic causes are not related to the actual age of the
property, but rather to changing market forces that affect the property. Physical depreciation
is related more to its economic life, i.e. its full life assuming normal maintenance, rather than
the actual physical age of the equipment. Therefore accrued depreciation is based upon
economic life rather than physical life.
Depreciation, as used in appraisal, differs from depreciation as used in accounting.
Accountants are interested in income tax deduction justification or allocation of the
investment made in the personal property to various income producing activities (sometimes
referred to as profit centers). In contrast, the assessor attempts to estimate the actual value of
the personal property as of the date of the appraisal.
The assessor must consider and document all elements of physical depreciation and
functional and economic obsolescence as of January 1 each year before placing a value on
personal property.
Measure Incurable Physical Depreciation:
Physical depreciation which is due to ordinary use of the property is incurable because it is
economically impractical to bring the property to its original condition when new each year.
In order to measure incurable physical depreciation, the assessor determines the total
economic life, the effective age, the remaining economic life, and the appropriate
depreciation amount to apply to the subject property. Remaining economic life is the number
of years remaining in the economic life of the personal property as of the date of appraisal.
To make a supportable estimate of incurable physical depreciation, the assessor first
determines the correct total economic life of the equipment being appraised.
Total economic life is the total period of time over which it is anticipated that equipment can
be profitably used. It is described as the sum of the effective age and the remaining
economic life. Total economic life is usually less than the physical life of the property. The
Economic Life Estimates in Chapter 4, Personal Property Tables, are provided to assist in
the estimation of total economic life.
Analysis of field data may indicate that the original estimate of economic life should be
revised. The economic lives in this manual are generally accurate but there may be
exceptions. The estimate of economic life of the property must be defensible, reasonable,
and supported by documented evidence.
The following are characteristics of equipment that have long, average, and short term
economic lives. They are provided as descriptions of the economic lives found in Chapter
4, Personal Property Tables.
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Determine Remaining Economic Life
Remaining economic life expresses the period of time remaining over which the subject
property will provide a net return to the owner. In other words, it is the period of time from
the date of the appraisal to the time when the property only has salvage value or is scrapped.
Remaining economic life is calculated by subtracting the effective age from the total
economic life estimate.
Calculate Incurable Physical Depreciation to Arrive at % Good
The amount of incurable physical depreciation is calculated using the percent good table
found in Chapter 4, Personal PropertyTables. The percentage allowed for incurable
physical depreciation plus the percent good equals 100%.
The percent good table measures the remaining value of property at given points in time
during the total economic life of the property. The table found in Chapter 4, Personal
Property Tables, generally measures loss in value attributable to typical physical
depreciation, and functional/technological obsolescence. The table is not reliable in
estimating losses in value due to atypical or extraordinary physical or
functional/technological obsolescence or any economic obsolescence that may exist.
Measurements of extraordinary functional loss in value or any economic loss in value are
made separately, frequently using the income or sales comparison (market) approaches to
value.
The percent good table is based upon composites derived from the experience of industries
and studies by governmental agencies. The table is based on economic life and applies to
equipment in average working condition for its effective age.
The equipment percent good table is designed to assist the assessor in estimating replacement
cost new less normal depreciation (RCNLD). The column headings represent the typical
economic life expectancy of the equipment under consideration. Each column shows the
normal or typical percent good factor for each year of effective age of the equipment.
The procedure for using the percent good table is as follows:
1. Estimate total economic life.
2. Estimate effective age.
3. Multiply RCN by the percent good listed in the table that corresponds to the effective
age of the personal property and its total economic life.
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