Unless you happen to moonlight as a nuclear physicist, you probably were not aware that Cobalt can be a form of nuclear waste. Make that taxable nuclear waste. We had the opportunity to work with a company who use radioactive Cobalt to sterilize their products. Because they pay millions of dollars to purchase this Cobalt, the assessor assumed it had a large value and thus was taxing them significantly. Our first task was to determine if this in-house stockpile of “nuclear waste” had any real value, and then consider if the assessor’s methodology and ensuing $22 million valuation were appropriate.

Unswerving in our commitment to grasp the underlying process, we boldly entered the company’s Cobalt Chamber, a virtual crypt with 6-feet concrete walls surrounding a deep pool housing the mysterious, glowing Cobalt. We discovered that Cobalt, being radioactive, is handled only by licensed suppliers and distributed under the strictest of standards. To our relief, none of us came out of the chamber glowing. To better understand the characteristics of Cobalt, we went to a reliable source: A friendly, neighborhood Ph.D. in nuclear physics. (Who says those science classes wouldn’t be useful in a property tax career?)

To find the market value of used Cobalt, we first had to consider whether a market existed at all. Surprisingly (or not), we discovered there was no viable market for used Cobalt.  Cobalt can only be sold to licensed suppliers. Even if the company could find a licensed supplier willing to purchase the Cobalt (which is highly unlikely), the Cobalt would then have to be removed by the company’s supplier and transported to the supplier’s facilities (which in this case is in Canada) for testing, before being transferred to the purchaser. There is no way to know how the Cobalt was previously handled, which increases the potential for leaks or other problems. And problem resolution is expensive.

It was clear that no company in its right mind would purchase used Cobalt. Therefore, no active market existed. The assessor’s office, while willing to concede that cost doesn’t equal value, was not keen on the concept that the millions of dollars spent on Cobalt equaled a zero value.  The value of the Cobalt was, in effect, being considered on an “in-use” basis. After several rounds of negotiations on the appropriate factors, the assessor’s value was reduced from $22 million to $12 million (a 40% reduction). The company gladly accepted the significant value reduction and subsequent tax savings of over $200,000.

There is really no market value for Cobalt. It is, in fact, nuclear waste. If the company were to shut down its plant today, it would incur significant costs just to have the Cobalt removed. Still, the company continues to buy this non-value nuclear waste for millions of dollars each year, which begs the question… How much would you pay for nuclear waste?

How far would you go to be a hero and lower property taxes? According to legend, Lady Godiva answered that question in the 11th century with a nude ride through the streets of Coventry, England. You may be wondering what a naked woman on a horse has to do with property taxes. Trust me, they’re related.

Coventry was burdened by heavy property taxes imposed by Godiva’s husband, Leofric, whose job description included assessing and collecting property taxes. Wanting to provide relief to the people, Godiva begged Leofric to lower the property taxes. Leofric did not want to lose the revenue he gained from the taxes so he responded with a bet that he thought would never be taken. The terms of the bet were that if Lady Godiva would ride through the town completely naked he would lower the taxes.

Upon taking the bet, Lady Godiva sent out a herald requesting that the people of Coventry go indoors and close their shutters at midday. Legend has it that all the people obeyed her request, except one man. His name was Tom the tailor, but you may know him as “Peeping Tom”. He went inside, but peeped through his shutters and was the only one who saw her naked body that day.  

At the completion of the ride, Leofric begrudgingly honored the bet and lowered the property taxes. How about this as a way to become a property tax hero? Thank goodness these days we have forms to use instead.

When it’s time to measure depreciation for ad valorem tax purposes, obsolescence is typically nowhere to be found.  Understandably, obsolescence is much more difficult to measure than physical depreciation, but that doesn’t mean it shouldn’t be accounted for.  More often than not, functional and external obsolescence are not listed on a property record card.  What’s wrong with this picture?

Typically, assessor’s market value is based on the cost approach and doesn’t include obsolescence.  In many instances, however, we find the assessor’s market value to be greater than the potential sale price of a property.  If only physical depreciation is accounted for, then the difference may be attributable to obsolescence. 

To determine obsolescence, you can look for a superadequacy or a design deficiency and the cost to fix it.  Or you can identify external forces, such as government restrictions, that may negatively affect your property.  The best way to get started is to ask the following question:  If you were to build your facility new today, what changes would you make?

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When it’s time to measure depreciation for ad valorem tax purposes, obsolescence is typically nowhere to be found.  Understandably, obsolescence is much more difficult to measure than physical depreciation, but that doesn’t mean it shouldn’t be accounted for. More often than not, functional and external obsolescence are not listed on a property record card.  What’s wrong with this picture? 

Typically, assessor’s market value is based on the cost approach and doesn’t include obsolescence.  In many instances, however, we find the assessor’s market value to be greater than the potential sale price of a property.  If only physical depreciation is accounted for, then the difference may be attributable to obsolescence. 

To determine obsolescence, you can look for a superadequacy or a design deficiency and the cost to fix it.  Or you can identify external forces, such as government restrictions, that may negatively affect your property.  The best way to get started is to ask the following question:  If you were to build your facility new today, what changes would you make?

Now if I were a salesman by trade (and aren’t we all, really?), I would say that contracting a property tax consultant is making an investment.  And like most investments, deciphering the fine print can be maddening, especially when you’re dealing with fee structures.  But it doesn’t have to be.

To make your venture easier, you need to know what you’re in the market for.   Start out by making a shopping list of the services you want.  Don’t make the mistake of limiting your decision to “finding someone who can lower my taxes.”  Some of the things you may want to add to your shopping list of deliverables might include detailed documentation, audit representation, project management, physical inspections, disposed assets listings for fixed asset write-off, savings reports, calendar reports, accrual estimates—the list goes on.

Many of these additional service elements can make your job of managing property taxes easier and more fun (Okay, at least it will be easier).  Once you have a clear idea what you want to invest in, the next question is not merely how much, but “how”?

Consider the number of available fee structures: contingency, flat fee, hourly, pro bono, or a combination of any of the above.  Your best choice may depend on how much you think might be saved at the location to be reviewed. The more certain you are, the better it is to move toward a flat fee because the one factor most people forget when reviewing fee structures is the selling of the risk factor. The higher the risk of no savings, the greater need for a contingency fee structure.