Focus on Property Tax Intangible Asset Valuation AnalysesEditor for This Issue: Robert F. Reilly Intangible Asset Valuation Insights
Market Approach Methods for Intangible Asset Property Tax Valuations
Aaron M. Rotkowski and Robert F. Reilly, CPA
Many valuation analysts (and corporate taxpayers and tax counsel) immediately think of either income approach or cost approach valuation methods when it comes to the analysis of commercial intangible assets. However, experienced analysts realize that, when sufficient sale or license transactional data are available, the market approach can provide a compelling analysis of the value of a taxpayer’s intangible assets. This discussion summarizes the generally accepted methods, procedures, and data sources related to the market approach valuation of intangible assets. And, this discussion presents an illustrative example of the market approach valuation of a corporate taxpayer’s intangible asset for property tax purposes.
The Property Tax Valuation of Customer Intangible Assets
Justin M. Nielsen and Robert F. Reilly, CPA
Most industrial or commercial taxpayers own some type of customer-related intangible asset. This intangible asset could be a customer list, recurring customer relationships, customer contracts and expected contract renewals, or a customer base. This discussion summarizes the generally accepted approaches and methods related to the valuation of a taxpayer’s customer-related intangible assets. And, this discussion presents an illustrative example of a customer intangible asset valuation prepared for property tax purposes.
Property Tax Valuation of Taxpayer Intangible Assets
Robert F. Reilly, CPA
Valuation analysts are often called on to conduct valuation, intercompany transfer price, or economic damages analyses related to taxpayer intangible assets. This discussion focuses on the identification and valuation of commercial intangible assets for property tax compliance, appeal, or litigation purposes. First, this discussion describes the different types of taxpayer intangible assets (including real property interests and intangible personal property). Second, this discussion explains the elements of the valuation assignment, including the analyst’s data gathering and due diligence procedures. Third, this discussion summarizes several relevant judicial decisions related to taxpayer property tax claims. Fourth, this discussion presents the generally accepted intangible asset valuation approaches and methods. And, finally, this discussion includes an illustrative example of a cost approach, a market approach, and an income approach valuation of a taxpayer’s intangible assets.
Deducting Intangible Asset Value for Property Tax Purposes: How “Necessary Intangibles” Are Treated in Two Recent Cases
Richard G. Smith, Esq
Two recent judicial decisions provide professional guidance on when—and how—intangible asset value can be excluded from the taxpayer’s total unit value. This issue is particularly complicated when the subject intangible assets are the types of intangible assets that are “necessary” for the taxpayer to operate as a going concern business. Such right-to-dobusiness intangible assets include various types of licenses, permits, and franchises.
Issues Related to the Unit Valuation Principle
Robert P. Schweihs and Robert F. Reilly, CPA
Generally, a taxpayer’s total operating assets can be valued individually using the summation valuation principle, or the taxpayer assets can be valued collectively using the unit valuation principle. Many taxing authorities use the unit valuation principle to value industrial or commercial taxpayer assets. The tax authorities use the unit valuation principle when the taxpayer assets cross tax jurisdiction borders or when the assets are functionally and economically integrated. In such instances, the use of the unit valuation principle is believed to be more efficient than the use of the summation valuation principle. This discussion summarizes the generally accepted unit valuation approaches, methods, and procedures. And, this discussion describes and illustrates some of the application limitations associated with the use of the unit valuation principle.