What would YOU pay for used tangible property?

A few years ago, there was litigation in Florida involving the tangible personal property of a major taxpayer. The taxpayer lost the dispute, but was the outcome appropriate? See what you think:

The assets were shelving, high quality, only about one year old. The taxpayer's expert testified that the "market value" of the shelving, for assessment purposes, was about half of the original price paid.

Early in the case, the state asked, how can that be?

This shelving is close to being brand new, is top of the line, and look at what the taxpayer paid! AND, the state won the case. In part because the chief attorney for the state led off with a presentation of the price paid and the new high quality of the shelving - and by taking control of the presenttation left the taxpayer in a defensive position. And the taxpayer did not recover.

YET - there are some shades of gray involved. First, Florida is a "value in exchange" state. That translates into "what would a buyer pay" for the property if offered to the market on the date of the assessment in an arms length transaction. Arms length transaction means, in part, that the buyer has other choices.

To buyers, the shelving was NOT new. It was used. If you ever look at the price of a car as it changes value after driven out of a showroom, you might understand that the price paid by the seller may have nothing to do with the price someone else will pay for used merchandise. And, someone else probably would pay no more for this used shelving than any other used shelving.

So, IF what a buyer would pay is the test, then the state's argument would appear to be based upon "value in use" which is NOT the test for tangible personal property. There are only three types of property in Florida which should be assessed through "value in use" - and tangible personal property is not one of those three.

Then, there is the question of method. The state and the courts give discretion to the property appraiser to select the method most applicable to the appropriate assessment of assets. Tangible property usually is assessed using the cost approach. The resulting value, based upon the cost approach, typically will be higher, if the cost is based upon "replacement cost new" for it is assumed that you begin with an "in the box" status, then depreciate.

But, there are court decisions affecting tangible personal property which say the best way to assess tangible personal property is to use "market data". And market data, in the case of the used shelving, would be found in the secondary market.

Would the secondary market pay more than 50% of the "cost new" for used shelving?

Would you?

Do you want to lower your property taxes? Ad valorem taxes are based upon valuation methods, modified by state laws and regulations. CPS knows due process procedures and value applications should be applied to your real and tangible taxes. If you have a question, or need professional services, contact CPS at 1-305-372-9200. or email us at cps1@flash.net