Thursday, 17 June 2010 by Advantax
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?