Topic: A Tax to Grind, Property Tax Appeals
Thursday, 27 August 2009 by David H. LeVan
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?