Assessors' Handbook Section 504 - State of California

1 ASSESSORS' Handbook Section 504 ASSESSMENT OF PERSONAL PROPERTY AND FIXTURES OCTOBER 2002 REPRINTED JANUARY 2015 California State BOARD OF EQUALIZATION SEN. GEORGE RUNNER (RET.), LANCASTER FIRST DISTRICT FIONA MA, CPA, SAN FRANCISCO SECOND DISTRICT JEROME E. HORTON, LOS ANGELES COUNTY THIRD DISTRICT DIANE L. HARKEY, ORANGE COUNTY FOURTH DISTRICT BETTY T. YEE, SACRAMENTO State CONTROLLER CYNTHIA BRIDGES, EXECUTIVE DIRECTOR FOREWORD Assessors' Handbook Section 504 (AH 504), Assessment of Personal Property and Fixtures, is a complete rewrite and compilation of three original manuals no longer in circulation: Assessors' Handbook Section 571 (AH 571), Appraisal of Equipment, Inventory, and Supplies, Section 221 (AH 221), Tax Situs of Property, and Section 572 (AH 572), General Audit Guidelines. AH 504 includes some text from the original manuals and material concerning subjects not previously covered in the three prior Handbook sections.

2 This manual is a complete reorganization of topics. The rewrite was undertaken by staff members of the Assessment Policy and Standards Division (APSD) in conjunction with the staff of the Property Taxes Section of the Legal Department of the State Board of Equalization and is the product of staff writing at the direction of the Board. The objective of this manual is to give property tax appraisers, auditor-appraisers, and other interested parties an understanding of issues concerning personal property and fixtures for assessment purposes. The manual builds on the basic knowledge of generally accepted accounting principles and appraisal concepts. It should serve as a guide for the appraisal and assessment of personal property and fixtures. If there is an inconsistency resulting from the absence of technical data in this manual and a more advanced, specific manual is available, the more specific manual controls.

3 Moreover, in the interest of accuracy and thoroughness, appraisers, auditor-appraisers, and other interested parties are advised to consult with qualified experts and other authoritative sources regarding the technical aspects of valuing any complex property. As part of the process of producing this manual, meetings were held with assessors, industry representatives, and other interested parties. Conflicts regarding the content of the manual were identified, and most were resolved. Those issues not resolved were voted on by Members of the Board of Equalization after hearing testimony from interested parties and Board staff. The results of the voting are reflected as Board positions on issues in the manual. The Board originally approved this manual on December 10, 1998 and the Board approved an update on June 15, 2000. This second update of the manual was approved by the Board on October 3, 2002.

4 Under Government Code sections 15606 et seq., the Board is charged with the duty of administratively enforcing and interpreting the statutes governing the local assessment function. AH 504 i October 2002 While regulations adopted by the State Board of Equalization are binding as law, Board-adopted manuals are advisory only. Nevertheless, courts have held that they may be properly considered as evidence in the adjudicatory The citations and law references in this publication were current as of the writing of the manual. David J. Gau Deputy Director Property and Special Taxes Department 1 Coca-Cola Co. v. State Board of Equalization (1945) 25 918; Prudential Ins. Co. v. City and County of San Francisco (1987) 191 1142; Hunt Wesson Foods, Inc. v. County of Alameda (1974) 41 163. AH 504 ii October 2002 TABLE OF CONTENTS CHAPTER 1: WHAT IS TAXABLE.

5 1 WHAT IS TAXABLE PERSONAL PROPERTY ..1 GENERAL OVERVIEW OF THE SEVEN FACTORS OF AN ASSESSMENT ..3 Assessability of Taxable Property v. Exempt 3 Statute of Lien Assessee of Owner, One Who is in Possession or Joint Unknown Situs of Description of Classification of Property ..7 Security of Property ..8 Secured Property Unsecured Property Securing Personal Value of Property ..9 CHAPTER 2: CLASSIFICATION .. 11 IMPORTANCE OF CLASSIFICATION ..11 GENERAL CLASSIFICATION TYPES AS REQUIRED BY Improvements ..12 Personal CLASSIFICATION FOR VALUATION PURPOSES ..12 Improvements (Structure v. Fixture) ..13 Structure Three Tests for Determining Whether an Article is a Importance of Classification as Structure versus Fixture .. 17 Classification Special Classification Classification of ATM' Classification of Telephone Classification of Service Station Classification of Classification of Liquefied Petroleum Gas Classification of Wind Machines.

6 20 Tangible Personal Property (General Categories)..20 Business Inventory Questions and Answers Regarding Classification of Supplies Versus Inventory ..22 Vehicles, Vessels, Aircraft, and Manufactured Homes ..28 Vehicles ..28 AH 504 iii October 2002 Vessels, Aircraft, and Manufactured CHAPTER 3: SITUS OF PERSONAL WHAT IS TAX SITUS: PERMANENT VERSUS TEMPORARY SITUS ..30 DETERMINING SITUS OF MOVABLE General Situs Rules (Rule 205)..31 Over Six Months Prior to the Lien Less Than Six Months Prior to the Lien Movable Property Situs Other Than at Habitual Presence or Substantial Average Rule ..32 Habitual Situs at More Than One Location in Habitual Situs Both in California and in Another State or Example: Situs of Movable Situs of Leased or Rented Property (Rule 204)..36 Single Assessment for Leased Personal Situs of Property In-Transit (Rule 203)..37 Property Moving in Interstate or Foreign Commencement of Transit.

7 37 Termination of Interruption of Transit ..38 Property Moving in Intrastate Situs of Property Being Transported by an Situs of Property Being Transported to a Interruption of 39 OTHER SPECIAL SITUS Aircraft ..39 Definitions ..39 General Certificated Air Taxi ..39 Situs of Aircraft ..40 General Aircraft and Unscheduled Air Certificated Aircraft and Scheduled Air Aircraft Repair and Replacement Parts ..41 Vessels ..41 Definition of Documented and Nondocumented Situs of Documented Situs of Nondocumented 43 Situs of Intercounty Situs of Seagoing Vessels / Home Port Application of Situs Determination .. 46 Situs of Linen Situs of Vending Equipment/Games ..47 Situs of Containers ..47 Returnable Semi-Permanent Situs of Artificial Situs of Situs of Personal Property Owned by Members of the Armed AH 504 iv October 2002 CHAPTER 4: VALUATION OF PERSONAL PROPERTY ..49 REVIEW OF THE VALUE APPROACHES TO Cost Reproduction Cost Replacement Cost Historical Cost Variations of the Cost Valid Cost Direct and Indirect Costs.

8 53 Trade Depreciation of Machinery & Types of Depreciation Methods of Estimating Depreciation and Limitations of the Cost 81 Comparative Sales Income Approach ..85 Processing the Income Stream ..87 Vacancy (Idle Time) and Collection Valuation Summary of the Income RECONCILIATION AND VALUE CHAPTER 5: ASSESSMENT OF IMPROVEMENTS RELATED TO BUSINESS PROPERTY .. 91 DEFINITIONS OF RELEVANT Improvements ..91 Building Improvements ..91 Landlord Improvements ..92 Leasehold (or Tenant) Structure Items ..92 Fixtures ..93 Types of Fixtures ..93 Trade Fixed Machinery and Equipment ..94 CLASSIFICATION ..95 Classification on the Property Why Classification is Fixtures are a Separate Appraisal Unit When Measuring Declines in Value ..95 Fixtures may be a Separate Appraisal Unit for Supplemental Roll Fixture Value Included in Value Criterion for Mandatory APPRAISAL OF IMPROVEMENTS RELATED TO BUSINESS Some Valuation New Construction.

9 99 Valuation of Abandoned Leasehold Valuation of Fixtures Under Decline in Value ..101 DETERMINATION OF ..103 COORDINATION IN THE ASSESSMENT OF LANDLORD IMPROVEMENTS AND LEASEHOLD IMPROVEMENTS AH 504 v October 2002 Establish a Comprehensive Set of Written Procedures Regarding Assessment of Landlord and Leasehold Clearly Identify Landlord and Leasehold Improvements on Appraisal Coordination of Landlord and Leasehold Improvement CHAPTER 6: SPECIAL VALUATION OF OTHER TYPES OF PERSONAL Leased Assessability ..105 Assessee ..105 Leasing with Exempt Situs ..110 Description: Types of Short-Term Extended-Term 111 True Conditional Sales Contracts or Financing Leases ..112 Valuation of Leased 114 Supplies ..114 Construction in Progress ..115 Computer and Related Equipment .. 116 General Storage Media for Computer SPECIAL Idle, Unused, or Obsolete Equipment .. 118 Equipment Purchased Vehicles.

10 121 Expensed Liquefied Petroleum Gas Tanks ..124 Oak Animals and Migratory Livestock ..125 Special Value Allowances ..125 Works of Art ..125 Motion Business One-Way Paging Biopharmaceutical Industry Equipment and Fixtures ..127 Possessory Interests ..128 Pawn VALUATION OF AIRCRAFT AND VESSELS ..128 Assessee of a Business in Bankruptcy Protection ..129 Special Valuation Issues Surrounding Bankrupt AH 504 vi October 2002 CHAPTER 7: PROPERTY STATEMENTS ..132 DISCOVERING ASSESSABLE PERSONAL OBTAINING Filing Direct PROCESSING PROPERTY Preliminary Review: Required Information ..138 Contents of Statement ..138 Description of Tax Authorized Signature ..140 Specific Sections of The Property Statement .. 140 Part I: General Information ..141 Part II: Declaration of Property Belonging to You ..142 Supplies ..142 Construction-In-Progress (CIP).. 143 Schedule A ..143 Schedule B: Proper Classification of Fixture and Structure Items (Schedule B).