Cross Section Of Business Cross Section Of Business Personal Property IssuesPersonal Property Issues

2013 Advanced Personal Property SeminarSeptember 23, 2013

Sheraton Four Seasons HotelGreensboro, NC

Presented by Dave DutyProperty Valuation Specialist II

North Carolina Department of Revenue

What does “cross section” mean?What does “cross section” mean?

We will explore three situations………..

Trade Level

Supplies vs. Inventory

Cellular Phone Companies

What does “trade level” What does “trade level” mean to you?mean to you?

Assess property at the proper level of trade based on its location & use as of the assessment date---

Appraiser must recognize that property normally increases in value as it progresses through production & distribution, then finally arriving at the consumer level---

Factors to determine the TLA are---

What does “trade level” What does “trade level” mean to you? (Continued)mean to you? (Continued)

Uniqueness of the equipment

Infrequency of sales

Lack of facts necessary to determine its marketability

What does “trade level” What does “trade level” mean to you? (Continued)mean to you? (Continued)

And…Stage of Production which reflects how utility is added to the asset through…………..

Form

Place

Time

Ownership

Cost Markup Price to Next Level

Consumer $2,250

Retailer $2,000 12.5% profit =$250 $2,250and costs

Wholesaler $1,500 33% profit = $500 $2,000and costs

Manufacturer $1,000 50% profit = $500 $1,500

Computer Example – Level of Computer Example – Level of TradeTrade

Which cost should be reported by the manufacturer who uses the computer?

What examples of trade level What examples of trade level do we deal with every year?do we deal with every year?

Tyco Electronics

Pitney Bowes, Inc.

G-Tech Lottery Equipment

What does NCDOR provide to the counties in

these circumstances?

What is a trade level What is a trade level factor?factor?

This is a Trade Level Factor!!!

For example: Pitney Bowes, Inc.Gross Sales = $1,500,000Cost of Goods Sold = $1,000,000Gross Sales divided by Cost of

GoodsSold = 1.5Markup is 50%, Factor is 1.5

Ashley Furniture CompanyAshley Furniture Company

Example of Trade LevelExample of Trade LevelFacts to consider---ABC Co. sells furniture to Ashley-

title transfersObligated via contract to display in

store just like my living roomFurniture can’t be sold for 3 years

and then it is liquidatedFurniture just like the showroom

display is sold every day with sales tax & sales commission added

What cost should Ashley What cost should Ashley Furniture report to the Furniture report to the

county on their listing form?county on their listing form?

A – It could be like Pitney Bowes or Tyco – Apply a Trade Level Factor

B – It could be like Moore Buick-Pontiac Demo Vehicles; PTC Case

C – Or, it might be that the owner is treating the furniture as an asset when it should be treated as inventory

Conclusion????????????Conclusion????????????

Treat furniture as an asset without a trade level factor----------------

What does Supplies vs. What does Supplies vs. Inventory mean to you?Inventory mean to you?

What is the difference between supplies and inventory?

SuppliesSuppliesVarious items held by the business

owner on the premises, that accommodate a process initiated by the owner or employee

Cleaning/Janitorial itemsOffice items: paper clips, note padsMaintenance items: oils & lubricantsFuels: consumed in fleet vehiclesMedical/Dental/Doctor/Veterinarian: syringes, molds, crutches, cat litter

SuppliesSupplies

Barber/Beauty items: shaving crème, hair coloring, make-up, cologne

Restaurant/Hotel items: linens, flatware, glasses, dishware, trashcans

Snacks & Drinks: on hand & free for the employees and not in a vending machine?

Rental items, replacement parts, & spare parts

InventoryInventoryGoods held for sale in the regular

course of business by manufacturers, retailers & wholesalers, & construction contractors

A detailed list of items in one’s possession, and accounted for through a periodic survey of all goods and materials in stock at that time

105-273(8a)…the term includes packaging materials that accompany and become a part of the goods sold

What issues do county What issues do county appraisers have with appraisers have with

business owners concerning business owners concerning supplies & inventory?supplies & inventory?

Taxpayers call supply items their inventory!

Taxpayers don’t know how to list their supplies

Taxpayers don’t keep up with the amounts that are on hand

Taxpayer wants to exclude certain items when their business is not manufacturing, retail, wholesale, or contractor related

Responses to help taxpayers Responses to help taxpayers list correctlylist correctly

Educate taxpayer on statute definition of inventory, not a quantity list of items

Communicate with taxpayers & teach them the proper supply items to list

Offer options on how to list:Provide 12 months of invoice costs

divided by 12 give a 1 month snapshotDo a physical inventory on December

31st & give those costs to the county

Responses to help taxpayers Responses to help taxpayers list correctly (Continued)list correctly (Continued)

Qualify the taxpayer as either a manufacturer, retailer or wholesaler, or as a construction contractor

Offer good public relations:Reduce amount of supplies during

the month of DecemberIf taxpayer doesn’t pay sales tax on

the item, then it could be inventoryRemove costs of disposed or sold

rental items, broken dishes, stolen trash cans from supply costs

Three Prominent PTCThree Prominent PTCInventory CasesInventory Cases

Moore Buick-Pontiac, Inc. – Rental cars are not inventory – Company lost right to possess & control; Demo cars are inventory – held for sale

R.W. Moore Equip. Comp. – Leased heavy road equipment – Use of equipment disqualified it as inventory

Cone Mills, Inc. – Purpose of obtaining the property is either as an asset or as inventory, but not both

Some Guidelines-----------Some Guidelines-----------

Property held for both sale and rent:It is Exempt if:

• New property is held for sale or rental purposes, but has not been sold or rented yet.

• Previously rented property that has been transferred to a company’s sales division as of January 1

Some Guidelines----------Some Guidelines----------

Property held for both sale and rent:It is Taxable if:

• Property that is rented anytime during the year still remains in

the company’s rental division• Any property treated as a capital

asset as of January 1 where the taxpayer plans to take depreciation on the property

Some Guidelines-------------Some Guidelines-------------

Property held for both sale and rent:

It is Taxable if:

Property is being rented or consumed rather than held for sale on January 1

Some Examples-------------Some Examples-------------Modular home display model on the

sales lotManufacturer of airplane tiresLiquid medications for farm animalsDe-icing mixture for streets owned

by a Home Owners AssociationDENR Certified equipment

maintained with grease, oils, and lubricants

Crucibles used in a chemical reaction to create a product

Power CurbersPower CurbersConcrete street curb making

machine2 to 3 machines are pulled from

inventory to perform R & D testingNot “held” for sale in the regular

course of business – “held” for testing & research

Use of property changed from item to be sold to item to be consumed

Inventory not typically used for manufacturer’s use

Cone Mills, Inc. case says---------

What issues do we have with What issues do we have with Cellular Phone Companies?Cellular Phone Companies?

Technology ChangesHow costs are listed on the

abstractWhat schedules to apply to the

various types of assetsRetirement of company assetsCosts related to maintaining

older technology

Issues facing the Issues facing the appraiserappraiser

Technology Changes:

Wireless communication is rapidly changing

The general public is demanding more visual data at greater speeds

New assets are replacing old assets

Issues facing the Issues facing the appraiserappraiser

How costs are listed on the abstract:

Company provides their requested percent good valuation

Some sites are shown as “Decommissioned”

Application of requested depreciation lowers traditional values

Issues facing the Issues facing the appraiserappraiser

What schedules to apply to various types of assets & the true value

For example: Concrete out buildings vs. thin metal cabinets

For example: Switching equipment old vs. new

For example: Improvements to leased property

Obsolescence & final value

Issues facing the Issues facing the appraiserappraiser

Retirement & disposal of assets:

Voice only capability vs. connection to internet, visual data delivery, texting, etc.

Abandoned equipment left in place

Ability to sell used equipmentStatutory requirements-not

exempt

Issues facing the Issues facing the appraiserappraiserCosts to maintain older

technology:

As customer usage drops, less support is required

Replacements coming in while retired assets are going out

Wouldn’t it be nice if Wouldn’t it be nice if cellular phone companies cellular phone companies could be appraised and could be appraised and

valued like a public valued like a public service service

company?????????????company?????????????

QUESTIONS??????????QUESTIONS??????????