Property Taxes: The Exemption for Intangibles describes the property tax exemption for intangible property and the controversies surrounding it, particularly in the context of assessments of complex commercial properties. Controversies arise primarily because of the close relationship between the taxable tangible property in a complex commercial enterprise and the intangible property with which the tangible property is used. Written by Thomas H. Steele, Esq., Morrison & Foerster, and Amy Silverstein, Esq., Silverstein & Pomerantz, LLP, this Portfolio examines the effect that intangible property has on the value of the tangible property (frequently referred to as the enhancement effect) and discusses how the effect is to be accounted for in property tax assessments. It describes why issues involving intangibles have moved to the forefront of virtually all types of tax controversies and explores how changes in technology and in business practices have caused intangibles to play an increasingly vital role in businesses.
Property Taxes: The Exemption for Intangibles also examines the history of the constitutional and statutory enactment of California's exemption and turns to the interpretation of the exemption by the courts, continuing to the present. The discussion considers the “enhancement doctrine,” developed by California courts to deal with the exemption for intangibles, the related concept of “economic rent,” and the peculiar problems associated with assessment of possessory interests.
Although this Portfolio focuses on California law, which is more clearly developed than the law in other states, it also catalogs important developments regarding the property tax exemption in certain other representative states.
In addition, this Portfolio provides a brief overview of property tax valuation methods—i.e., sales, income, and cost—with a particular view toward the features of those methods that contribute to the controversy regarding intangibles. Those methods are considered in the context of the unit valuation and summation methods for valuing complex properties. The going concern and highest and best-use principles also are discussed.
Property Taxes: The Exemption for Intangibles allows you to benefit from:
This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.
Detailed Analysis
1640.01. INTRODUCTION
1640.02. THE RISE OF INTANGIBLES
A. Intangibles and the New Business Environment
B. Intangibles and the Tax Environment
1640.03. OVERVIEW OF VALUATION CONCEPTS AND METHODS
Introductory Material
A. Fair Market Value or Full Cash Value
B. Highest and Best Use
C. Valuation Methods
1. Sales Approach
2. Income Approach
3. Cost Approach
D. Summation and Unit Methods
1640.04. RATIONALE FOR THE EXEMPTION FOR INTANGIBLES
1640.05. CALIFORNIA'S EXEMPTION FOR INTANGIBLE PROPERTY
A. The Controversy
B. History of California's Exemption for Intangible Property
C. Legal Basis for California's Exemption for Intangible Property
D. Limitation of the Exemption to Intangible Property
E. The Enhancement Doctrine
F. The Enhancement Doctrine Today
G. Economic Rent
H. The Special Case of Possessory Interests
I. Valuation Methods Which Have Been Approved As Effectively Accounting for the Exemption for Intangibles
1. Summation
2. Removing the Intangible from the Unit
3. Rule 8(e)
4. Balancing Different Valuation Methods
5. Reflection on the Valuation Methods Described Above
1640.06. STATE-BY-STATE ANALYSIS
A. In General
B. Specific States
1. Alabama
2. California
3. Colorado
a. Statutes
b. Case Law
(1) Non-Public Utilities
(2) Public Utilities
4. Connecticut
b. Case Law: Video Cassette Recordings, Computer Software and Movie Reels
5. Florida
6. Idaho
7. Indiana
8. Iowa
9. Kansas
10. Kentucky
11. Massachusetts
12. Michigan
13. Montana
14. New Jersey
15. New York
b. Case Law: Valuing Special Franchises
c. Case Law: Deduction for Taxes Paid on Account of Special Franchises
16. North Carolina
17. Ohio
18. Oklahoma
19. Oregon
20. Rhode Island
21. Texas
22. Utah
23. Virginia
24. Washington
25. West Virginia
26. Wisconsin
27. Wyoming
Working Papers
Item Description Sheet
Worksheet 1 Imposition of Real Property, and Personal Property Taxes
Worksheet 2 Imposition of Property Taxes on Intangibles and Exemptions for Intangibles
Worksheet 3 County of Orange v.Orange County Assessment Appeals Board No. 1
Opinion
Worksheet 4 Emil G. Shubat, As Assessor, etc., v. Sutter County Assessment Appeals Board No. 1
Bibliography