Presenting a live 110 ‐ minute teleconference with interactive Q&A Economic, Functional and Physical Obsolescence: Effective Arguments for Business Personal Property Valuations THURSDAY, MAY 17, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Bob Weigel, Director, McGladrey LLP , S g , , y , t. Louis S tephen Paul, Partner, Faegre Baker Daniels , Indianapolis Todd Barron, President, Barron Corporate Tax Solutions , Wheaton, Ill. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
Conference Materials If you have not printed the conference materials for this program, please complete the following steps: • Click on the + sign next to “ Conference Materials” in the middle of the left- hand column on your screen hand column on your screen. • Click on the tab labeled “ Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon.
Continuing Education Credits FOR LIVE EVENT ONLY Attendees must listen to the audio over the telephone . Attendees can still view the presentation slides online but there is no online audio for this program. Attendees must stay on the line for at least 100 minutes in order to qualify for a full 2 credits of CPE. Attendance is monitored as required by NAS BA. Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . at 1 800 926 7926 ext. 10 .
Tips for Optimal Quality S S ound Qualit y d Q lit For this program, you must listen via the telephone by dialing 1-866-873-1442 and entering your PIN when prompted. There will be no sound over the web connection. co ect o . If you dialed in and have any difficulties during the call, press *0 for assistance. Y ou may also send us a chat or e-mail sound@ straffordpub.com immediately so we can address the problem. Viewing Qualit y To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again press the F11 key again.
E Economic, Functional and Physical i F ti l d Ph i l Obsolescence: Effective Arguments for Business Personal Property Valuations B i P l P t V l ti Seminar May 17, 2012 S tephen Paul, Faegre Baker Daniels Bob Weigel, McGladrey LLP stephen.paul@ faegrebd.com bob.weigel@ mcgladrey.com Todd Barron, Barron Corporate Tax S olutions tbarron@ barrontax.com
Today’s Program Functional And Economic Obsolescence Claims From The Field S lide 7 – S lide 21 [S t ephen Paul] Quantifying Obsolescence, Evaluating Time Needed In Analysis S lide 22 – S lide 34 [Bob Weigel] Obsolescence Cases And Common Arguments From Assessors S lide 35 – S lide 78 [Todd Barron]
Stephen Paul, Faegre Baker Daniels FUNCTIONAL AND PHYSICAL FUNCTIONAL AND PHYSICAL ECONOMIC OBSOLESCENCE CLAIMS FROM THE FIELD
Obsolescence ► In many states (such as Indiana), tax is assessed on business personal property based on an adjusted cost that takes into account the ordinary diminishment of value j y occurring because of age, technological advancements and physical wear. ► In some cases, however, a taxpayer might support additional reductions in value because of extraordinary events or circumstances affecting the value of the property. ► In such cases, adjustments for functional and/or economic (abnormal) obsolescence might be sought. ► Ahead are examples based on actual cases involving functional and economic obsolescence claims obsolescence claims. 8
Functional Obsolescence ► Adjustments that are made to costs to form the bases for assessments of business personal property tax account for normal and ordinary wear and tear, technological obsolescence, and age of the property. Most jurisdictions base personal property tax on depreciated values. ► However, some conditions might suggest the presence of additional obsolescence - functional obsolescence - and symptoms of these conditions should not be missed: Excess operating costs Excess construction or capital cost Over-capacity p y Lack of utility Inefficient or ineffective physical plant layout ► Once identified, to then quantify the obsolescence usually entails: O id tifi d t th tif th b l ll t il Calculation of the present value of the cost-savings benefit that would accrue from resolving the problems causing obsolescence Takes into account the estimated useful life of the equipment and reasonable discount T k i t t th ti t d f l lif f th i t d bl di t rate based on the taxpayer’s weighted average cost of capital and/or industry data 9
Functional Obsolescence: Large Industrial Facility ► Large industrial facility case: Facts Large Indiana industrial facility on the banks of Lake Michigan Large Indiana industrial facility on the banks of Lake Michigan Operating aged equipment Equipment purchased over period of many years, as plant outgrew its capacity many times over ti As new equipment was purchased, new real estate was developed on a landfill created after materials deposited into Lake Michigan. As a result, equipment operated in sequential manufacturing steps was installed miles apart. In order to keep certain steps in production near each other, duplicate items of machinery were purchased, with each of the duplicated items continuing to be used in production. The plant experienced some level of incompatibility among pieces of equipment p p p y g p q p purchased and installed many years apart. 10
Functional Obsolescence: Large Industrial Facility (Cont.) ► Large industrial facility case: Symptoms of obsolescence Increased production costs because of inefficient and sub-optimal plant layout Increased production costs because of inefficient and sub-optimal plant layout Inefficiencies in production cycle times because of poor layout of plant Incompatible technologies increased production costs. Increased overhead costs resulting from aging of equipment and design and layout of plant 11
Functional Obsolescence: Large Industrial Facility (Cont.) ► Large industrial facility case: Quantification of functional obsolescence Demonstrated a cost to cure the symptoms of functional obsolescence (cost to fix the Demonstrated a cost to cure the symptoms of functional obsolescence (cost to fix the plant so that excess operating costs no longer are incurred) Cost to cure inefficiencies in the plant design as to personal property was identified in larger fabrication of replacement plant (which was developed to capture value associated with functional obsolescence in the real property improvements). ► Large industrial facility case: Assessor’s arguments Taxpayer’s claimed obsolescence was incorporated into normal obsolescence already p y p y reducing the value of the business personal property. ► Normal reductions to values accounted for technological advancements, physical deterioration, incompatibility of older technologies with new, and inefficiency relative to newer equipment. However, assessor conceded that the way the plant was designed over time and its layout were inefficient and not nearly optimal. 12
Functional Obsolescence: Large Industrial Facility (Cont.) ► Large industrial facility: Resolution Functional obsolescence on the basis of plant design and upon demonstration Functional obsolescence on the basis of plant design and upon demonstration of replacement plant was less complicated with real property. Global settlement resolution was reached with the assessor, applying agreed- upon functional obsolescence percentage to all properties real and personal upon functional obsolescence percentage to all properties, real and personal. 13
Recommend
More recommend
