Procedure for Assessing Personal Property

2/21/16 CHAPTER 8 ASSESSMENT OF PERSONAL PROPERTY

Assessable personal property falls into several major classifications (1) business and industrial property, (2) leased equipment, (3) farm property, (4) motor vehicles, and (5) boats. Each of these major classifications will be treated separately in this chapter. Some general procedures, however, apply to assessment of all types of personal property.

PROCEDURE FOR ASSESSING PERSONAL PROPERTY

Discovery

Compilation of a comprehensive list of all persons and firms who own, or may reasonably be presumed to own, taxable personal property in a town or city is the first step in assessing personal property. This checklist of owners serves the same purpose in the discovery of personal property that a tax map serves in the discovery of real property.

The sources, which may be used to compile this list, are previous tax lists, city directories, telephone directories, classified advertisements in local newspapers, probate records, lists of registrants of motor vehicles and watercraft and some records found in the office of town clerk. Lists of places of business licensed to collect the state sales tax in each town or city are available through the office of the state tax administrator. A complete record may be obtained only by making a building-to-building canvass of the entire tax district, and once made this can readily be kept up to date.

This list arranged alphabetically may be used as a record for mailing of report forms and for checking lists and reports as they are returned. An arrangement by street address is invaluable in the field in looking for changes and in checking persons who have not made returns. To keep this checklist up to date, assessors must watch for such changes as (1) persons moving out of town, (2) new businesses, (3) changes of address within the town, and (4) change of ownership in an existing business.

Where Personal Property is Assessed

1 The General Laws provide for filing a true and exact account by all persons, corporations, etc., having taxable personal property. However, the assessor should not depend entirely upon information furnished by taxpayers. Experience has shown that in many cases information is not complete, and values reported are not accurate. If an account is not filed, the assessor must assess the property on the basis of the best information obtainable.

Business personal property should be assessed at its location. A personal visit to each place of business is not only good public relations, but also is the best way for an assessor to obtain complete, accurate information about the property to be assessed. Moreover, books of account may be examined during personal visits.

Confidential Reports

The assessor should have report forms with sufficient space to enter essential information about the property to be assessed. Many towns and cities are using forms based on formulae for determining taxable values, which in turn are based on accounting records of taxpayers. These jurisdictions have learned that taxpayers welcome the use of this type of reporting.

Basis of Assessment

Rhode Island General Law (44-5-12.1) provides for the assessment of personal property at its “original purchase price including all costs such as freight and installation. Assets will be classified and depreciated as defined”. Assessors use uniform evaluating schedules, many types of these schedules have been used with a considerable degree of success. They include schedules based upon unit values, flat percentage or related values, and values revealed by books of account. An assessor cannot make personal property assessments without a working knowledge of (l) types of personal property, (2) money value which personal property brings on the market, (3) statutes pertaining to personal property assessments, and (4) basic accounting terms and principles. Once cash value has been estimated, the assessment ratio is then applied.

Sources of Value

2 There are many sources of information relative to prices paid for property classed as personal property. These prices are indicative of value. When an individual buys something for his own needs, he investigates several sources where he can find information on the price of these items. When an assessor is valuing personal property, the same sources are often useful.

Newspapers

Market prices for farm products and farm machinery, advertisements of items of machinery and office equipment and notifications of cattle auctions, boat shows, or demonstrations of any type of taxable personal property, are sources of information on personal property.

Bulletins of Commission Merchants and Dealers

Commission merchants commonly issue bulletins giving prices for farm produce. Dealers in pelts of animals issue bulletins giving prices, which are helpful in determining the value of fur-bearing animals.

Daily broadcasts of market quotations of farm produce and animals are made from many radio stations.

Catalogues and Price Lists

Catalogues and price lists are issued by jobbers and wholesalers of most manufactured goods such as office equipment, doctors' and dentists' equipment, barbershop equipment, billiard tables, cash registers, hotel furniture and equipment, linotypes and other printing equipment, farm machinery, store equipment and soft drink parlor fixtures. Catalogues of mail order houses are useful in getting approximate prices for many articles sold at retail.

Retail Dealers

Prices of articles ordinarily sold by retail dealers can be secured from the dealer selling the article. Such articles commonly include typewriters,

3 radios, 0ffice furniture and filing equipment. Prices of secondhand articles can frequently be obtained from dealers.

Income Tax Returns

The value of equipment of stores, factories, offices, doctors, dentists, barbers, movie theaters, hotels and other concerns and individuals may be secured in fairly reliable form from income tax returns filed with the Internal Revenue Service. This information can be secured from copies that are retained by taxpayers. Use of this information, however, is subject to the limitations pointed out in connection with depreciation in Chapter 5.

Taxpayers' Books of Account

Inventories and cost records appearing on the books of the taxpayers can be used as one source of value. Sales records are useful for determining the value of fixtures, supplies, equipment, motor vehicles and many other kinds of property.

Checklists of Tangible Personal Property

In order to know types of personal property subject to taxation, it is wise to establish checklists of items falling into various categories. These may be arranged according to type of business. For example, grocery stores are likely to have the following pieces of equipment -- cash registers, counters, display cases, electric fans, frozen food cabinets, scales and shelving. Three common check lists are those for leased equipment, fixtures and equipment, machinery and equipment. Personal property of electric and gas utilities would include the following items, listed according to size and capacity -- miles of transmission line; miles of distribution line; miles of underground cable; number of overhead services; number of underground services; and number of meters.

BUSINESS PERSONAL PROPERTY

There are two (2) ways of approaching the valuation of business personal property: (1) physical inventory method (use of cost schedules}, and (2) confidential report method (use of book values and pricing of inventories). From an overall point of view, certain places of business lend themselves to the listing of property by the physical inventory method and

4 the valuing of their property by the use of cost schedules. Others can be handled more readily by the listing of property on report forms based on the taxpayer's books of account.

Businesses that by their nature have more taxable items of fixtures and equipment than inventory lend themselves to the physical inventory method. The confidential report is most often used for places of business that have large inventories of goods and a considerable amount of machinery, equipment and fixtures. Businesses, which might be more easily handled by the physical inventory method include accountants' offices , amusement centers, barbershops, bars, cafes, taverns, beauty parlors, doctors ' and dentists' offices, farms, garages, gasoline stations, lawyers' offices, restaurants, shoe repair shops and small neighborhood stores. Businesses, which more readily lend themselves to use of the confidential report method include breweries, broadcasting stations, chain stores, clothing stores, dairies, department stores, fixture and equipment companies, hardware stores, hotels, jewelry stores, manufacturing plants of all kinds, newspaper plants and shoe stores.

Physical Inventory Method

The physical inventory method is preferred for the businesses listed because records of such businesses are often inadequate or completely lacking and because an accurate inventory can easily be made of all taxable items of the business. On his/her visit for inspection, the assessor should make a complete list of all taxable items such as furniture, fixtures, and equipment. Inventory should be noted but is not taxable whether it is manufacturer’s inventory or retail inventory. Individual items listed in this physical inventory can then be priced by the use of unit values as established by the assessor after study of the costs of the various types of equipment used in these businesses.

Under this method, furniture fixtures and equipment must be assessed by actual cost or estimated cost figures obtained from the taxpayer (or from his book of accounts). These may be checked by comparing the amount and value of the furniture fixtures and equipment in one establishment against the known value of furniture fixtures and equipment in another establishment of similar type and size or by the use of gross sales.

Confidential Report Method

5 While the confidential report method gives the assessor a report based on actual accounting figures, it is valueless unless the assessor has at least a basic knowledge of accounting terms and methods. If returns are not checked, the taxpayer may eventually become lax and the assessment nothing more than self-assessment.

Business accounts are computed on either an accrual basis or a cash basis. On the accrual basis, income is recorded as earned when goods are sold, regardless of time of payment, and expenses are recorded as soon as liability is incurred. On the cash basis, income is recognized only on receipt of cash, expenses are recognized only on disbursement of cash.

In any business, assets are items owned by or accruing to said business, and liabilities are those debts chargeable to the business. The most important item that the assessor should look for in examining the taxpayer's business accounts or books is the list of assets, which should include the value of inventories, fixtures and equipment.

At the close of each accounting period (usually a year), every business prepares two (2) financial statements. The balance sheet is a statement of the financial position of the business as of a given date while the statement of profit and loss (also referred to as an income and expense statement) itemizes income and expenses during that period. The assessor must be aware that figures on the balance sheet are the depreciated values of furniture and equipment. To determine the original cost of these items, reference must be made to the general ledger in which is recorded the date and amount of each transaction.

DEFINITIONS YOU SHOULD KNOW:

Balance sheet - a statement of financial condition at a given date: 1. indicates inventory on said date 2. indicates cost of all fixed assets (land, buildings, fixtures and equipment) and the amount of depreciation on each as of said date

Income and expense statement - (also called "profit and loss statement") a report of income and expenses for a given period of time, usually a year: 1. indicates beginning and ending inventories 2. indicates cost of sales

6 (a) by dividing the cost of sales by the average inventory, you can determine the stockturn (or turnover) 3. indicates gross sales (a) you can determine what percentage the average inventory is of gross sales and apply this to similar busi nesses where such information is limited.

Assets - the entire property of all sorts of a person, association, corporation, or estate applicable or subject to the payment of his or its debts .

Book value - the capital amount which property is shown on the books of -- account. It is the original (or acquisition) cost less reserves for depreciation.

Current assets - items such as cash, inventories, prepaid expenses, receivables, etc. (which have 12-month liquidity).

Fixed assets - long-term assets, such as land, buildings, machinery , equipment, etc.

Other assets - investments, such as marketable securities of a long- term nature.

Liabilities - pecuniary obligations - debts; they are usually referred to as total liabilities and stockholders equity (includes capital stock).

Current liabilities - short-term indebtedness such as accounts payable, notes payable, employee payroll payable, sales tax payable, etc.

Long-term liabilities - mortgages payable, debt to a majority stockholder, etc.

Markup - the percentage by which the cost of an article is multiplied to get the amount which, added to the cost, gives the selling price. (This differs from markon.)

Net worth or stockholders equity - the owner's interest is the excess of the assets over the liabilities of the business; capital stock and retained earnings.

7 Cost of sales - the beginning inventory, plus purchases, less ending inventory. (Also called "cost of goods sold.")

Net profit - the difference between the gross profit and the total expenses. Selling price - cost of goods sold, plus the gross profit (referred to as Net Sales). Selling price = cost_____ 100% - Markon percentage

Stockturn (or Turnover) - the number of times a year the average inventory on hand is sold and replaced. Stockturn = cost of sales average inventory

Markon - the difference between the cost of merchandise and the original retail value assigned (this differs from markup) . Markon percentage = 100% - cost retail

Gross profit - the difference between the cost of goods sold and the selling price of goods sold.

An assessor should be capable of analyzing financial reports of businesses. The balance sheet and the income and expense statement will assist the assessor in arriving at fair and equitable valuations on most taxable assets of a business. See Appendix I and J for examples of both.

PROPERTY OF MANUFACTURERS

The property of manufacturers may be divided into several groups for assessment purposes. Under RI General Law 44-3-3 Manufacturer’s machinery is exempt but their office equipment remains taxable. These include: 1. Machinery. a. Standard machinery. b. Custom-built machinery. 2. Office equipment.

Machinery. All machinery and equipment used in manufacturing plants that are not made fast or permanent by being attached to real property and all

8 tools and patterns that are essential and necessary in the operation of such manufacturing plants are included under the heading of machinery. The assessment of machinery, particularly in large industries, presents a difficult problem. One (1) approach to this problem is to segregate all machinery into two (2) main categories -- standard machinery and custom-built machinery.

Standard machinery. Some types of machinery and much business equipment are sufficiently standardized in design and construction to permit an assessment on the basis of current replacement cost. The cost of this type of equipment can usually be ascertained from catalogues and price lists that are issued by jobbers and wholesalers. To the cost listed in these catalogues should be added an allowance for transportation and installation. Reasonable allowance should also be made for physical depreciation and, in the cost of equipment no longer being produced, or where technological improvements have been made on equipment, an allowance made for obsolescence.

Equipped with replacement costs and a schedule of reasonable depreciation rates, an assessor can establish valuation schedules according to type, cost and age of machinery. Use of this type of valuation schedule makes the task easier and at the same time assures the taxpayer that he is receiving the same consideration as his competitor or others who may have similar equipment.

Custom-built machinery. The second category of machinery and equipment is either custom built or is no longer being produced and, hence, not standard. Prices for comparable items may occasionally be found, but more often information is not available. Under these conditions, the assessor must examine the books of account of the taxpayer. Here he will find the original cost, including transportation and installation costs, which should serve as a starting point for determining assessments. From this figure an allowance should be deducted for physical depreciation, and, in some instances, for obsolescence .

An understanding of elementary principles of accounting is a must if the assessor is to apply reasonably good judgment in making adjustments from reported book values. Some taxpayers may report items of machinery at what they call scrap value. Except in rare cases, this should not be allowed. As long as any property is in use or is in usable condition, regardless of its age or the fact that its cost has been complete written off the books, it actually has a value greater than that of scrap.

9 Many taxpayers do not report equipment which they have written off. This is not an attempt necessarily to avoid taxation, but an inadvertant omission due to the fact that this property is no longer carried on their books of account. The assessor should question taxpayers concerning this possibility.

Each assessor should establish minimum values for various types of personal property. These values should be based on a predetermined percentage of original cost or another base value; many assessors use 20 to 25 percent of original cost as a minimum value. Before assessors attempt to adjust book values, they should be careful to apply whatever factual information can be secured.

Manufacturers' Inventories are Exempt by Law

PROPERTY OF MERCHANTS

For assessment purposes, the report form sent to merchants should state that merchandise and stocks of goods must represent the value of the average quantity on hand for the year ending on the assessment date. The unit value should be determined on the basis of cost or cost or market, whichever is lower, plus transportation charges less an allowance for obsolescence and shrinkage.

The item of furniture, fixtures and equipment reported should represent the net value on hand on the assessment day as ascertained from the invoice cost pl us freight charges less depreciation. If the invoice cost is not ascertainable, the base taken for federal income tax purpose may be used. However, depreciation and obsolescence al lowances should not exceed a definite percentage of the invoice cost if item is in use or is in usable condition.

Merchants' Stock

Merchants' stock includes all goods, wares and merchandise belonging to and in the possession of a taxpayer whose principal occupation is buying and selling certain items of personal property. The usual method of determining the value of a merchant's stock is to determine by physical inventory the actual cost to the taxpayer of his stock of goods laid in, on the shelves,

10 or in the storeroom ready to do business. The taxpayer takes this inventory at the end of his fiscal accounting period. He does this by counting the various items on the shelves, in the bins, or in the warehouse and then multiplying the quantity of each item by i ts unit value and computing the grand total for all items.

Where inventories are taken only once a year, the average inventory requirement of the statutes can be satisfied by adding the two (2) succeeding inventories and dividing by two (2 ). If a taxpayer has inventory figures for each six (6) month period, the last three (3) inventories can be used and divided by three (3). When the business of a merchant is noticeably seasonal and few inventories are available, the assessor may be required to make certain adjustments.

Some skilled assessors establish a square foot unit cost for inventory of certain types of retail stores to be used primarily in effecting equalization between comparable businesses. This method should be used with caution and not at all by inexperienced assessors.

LEASED EQUIPMENT

Types of equipment. Just about every conceivable type of equipment and accessory is available for lease either long term or short term. The most common, of course, are data processing equipment, postage meters, motor vehicles, construction equipment, bookkeeping machines and vending machines. However, all sorts of manufacturing machinery, retail equipment -- even railroad cars and locomotives; truck and bus tires and batteries; and electric advertising signs -- you name it, and it's for lease.

Discovery and listing. It is safe to say that a large amount, if not most, of all equipment under lease escapes taxation, usually because the assessors are not aware of its existence. The biggest problem facing the local assessor, then, is the discovery of leased equipment.

The best source of information is the lessee, but he must be prompted, even prodded, into supplying the information necessary to make a proper appraisal.

In Rhode Island, it is required that each taxpayer annually file a true and exact account of all rateable property owned or possessed by him or it as of a

11 particular time or period of time; and one of the best tools in the assessing field is this report. However, its format and the rules and procedures established for its filing are very important. a. forms should be carefully designed to comply with state law and, at the same time, solicit as much information from the taxpayer as possible. b. they should be delivered to each taxpayer, either by messenger or by mail. c. failure to file should bring about some sort of penalty or review.

You may find it necessary to question the taxpayer very carefully in order to jog his memory as to types of property he is leasing . Electric signs, postage meters, tires and batteries, copying machines, cash registers and the like may be honestly and inadvertantly omitted from the report.

Once the names of the lessors have been determined, a detailed report from them should be requested, preferably on a specially designed form.

The information solicited is vitally important to the proper evaluation of the leased property:

a. model and serial number b. description c. to whom leased d. location of property e. list price -- (retail} f. date of installation g. year of manufacture h. cost or factory price i. monthly rental j. other payments by lessee such as taxes and service.

All such reports should require item by item information.

Names of leasing companies can also be found in newspaper ads, yellow pages and the like. A letter to these companies soliciting the above information will, many times, reveal taxable equipment which was not reported by the lessees.

12 Valuation methods. There are four (4) possible methods for determining the value of most leased equipment: a. replacement cost, less depreciation b. historic or original cost, trended, less depreciation c. market approach d. income approach

All of them have some validity, but all of them have their drawbacks as well.

Replacement cost and historic cost approaches are not practical in many cases because the retail prices of much leased equipment are not easily obtained. This is particularly true of data processing equipment. And without retail prices, new, it is impossible to use these methods. Also, even when retail prices are available, extreme caution must be taken to allow for adequate functional obsolescence on equipment which is not new.

The market approach is also impractical in many cases, because normally this type of equipment, once used, is liquidated at book value, which is usually quite low -- well below what would be considered actual value.

The income approach is usually the best method for most leased equipment, and there are variations which can be utilized depending on the particular situation.

The most common variation is the gross rent multiplier method; but as in the other approaches, the selling price of the particular kind of leased equipment must be determinable in order to arrive at reasonably accurate multipliers.

Example: a milling machine leases for $750 per month and similar machines sell for $60,000 - $ 60,000 $ 750 = 80 times the monthly rental

The problem arises when expenses on the same type of equipment may or may not be included in the monthly rental. a. taxes b. maintenance c. repairs d . insurance e. management

13 Net income to the lessor being equal, the monthly rental can vary substantially when the lessor pays these expenses. Therefore, when computing gross rent multipliers, be sure to adjust to such conditions.

Direct capitalization can also be utilized with good results, particularly on new equipment; but extreme caution must be taken in selecting the method of recapture, in determining the economic life of the equipment and also in computing expenses.

Example - Straight Line Method

Annual gross rent= $1,440 Rate -

Profit or return = 6.0% Recapture = 10.0% ( 10 year life) Taxes = 3.0% ($50 rate /60% ratio) Maintenance and repairs = 2.5% (estimated) Insurance = 0.1% (estimated) Management = 1.0% (estimated) Total rate = 22.6%

$1,440 ÷ 22.6% = $6,370

Using the same rent and expenses, but deducting taxes and maintenance because they are paid by the lessee, the example computes as follows:

Rate -

Profit or return = 6.0% Recapture = 10.0% Insurance = 0.1% Management = 1.0% (estimated) Total rate = 17. l %

$1,440 ÷ 17. l % = $8,420

14 Example - Inwood Annuity Method

Annual gross rent = $1,440

Rate -

Profit or return = 6.0% Recapture = 7.586% (Reciprocal 6%/10 years) Taxes = 3.0% ($50 rate/60% ratio) Maintenance and repairs = 2.5% (estimated) Insurance = 0.1% (estimated) Management = 1.0% (estimated) Total rate = 20.186%

$1,440 ÷ 20.186% = $7,130

Most experts recommend the Inwood process because it is based on a regular, uninterrupted income stream (which is true of most leased equipment), whereas the straight-line method assumes a reduction in income at a constant rate.

It is, by now, apparent that in order to utilize any of these methods with reasonable accuracy, determination of the economic life must be made; and this is probably the most difficult step in the appraisal process. Beware of estimates made by the lessor -- they usually reflect the generous write-offs allowed by I.R.S. The actual economic life will be substantially greater -- sometimes double.

Estimating depreciation. One of the most difficult problems confronting the assessor is determining the amount of depreciation to be allowed on various types of fixtures, machinery and equipment. Some accountants use the straight line method, some use the declining balance method, others use the sum of the years digits method, and many utilize al l three depending on the type and economic life of the equipment.

As explained in Chapter 5, the straight line method spreads the depreciation evenly over the economic life of the property. The rate of depreciation is determined by the following formula:

15 Rate of depreciation = 100%______Estimated Life (in years)

Example: 100% = 10% per year depreciation 10-year life

The declining balance method writes off the property over the economic life by means of a fixed percentage (150% or 200% of straight line). This percentage is subtracted annually from the cost of the property and the rate applied only to the resulting balance.

Example: 200% declining balance method

Property cost = $5,000 Economic 1ife = 10 years

Year Depreciation Depreciation Book Value Reserve New $ 0 $ 0 $5,000 1 1,000 1,000 (-20%) 4,000 2 800 1,800 (-30%) 3,200 3 640 2,440 (-49%) 2,560 4 512 2,952 (-59%) 2.048 5 410 3,362 (-67%) 1,638 6 328 3,690 (-74%) 1,310 7 262 3,952 (-79%) 1,048 8 210 4,162 (-83%) 838 9 168 4,330 (-87%) 670 10 134 4,464 (-89%) 536*

*Will never reach zero

The sum of the years digits method involves the use of fractions in determining the annual rate of depreciation, the numerator (or top figure) being the property's remaining life at the beginning of the year and the denominator (or bottom figure) being the sum of all the years' digits corresponding to the total years of life. For a ten-year life, the denominator would be 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10, or 55; and the first year 's depreciation would be 10/55, the second year would be 9/55, etc.

16 Example: Sum of the years digits method

Property cost = $5,000 Economic life = 10 years

Fraction Depreciatio Depreciation Book Value n Reserve 10/55 $ 909 $ 909 (-18%) $ 4,091 9/55 818 1,727 (-35%) 3,273 8/55 727 2,454 (-49%) 2,546 7/55 636 3,090 (-62%) 1,910 6/55 545 3,635 (-73%) 1,365 5/55 455 4,090 (-82%) 910 4/55 364 4,454 (-89%) 546 3/55 273 4,727 (-95%) 273 2/55 182 4,909 (-98%) 91 1/55 91 5,000 (-100%) 0

You will note that both the declining balance method and the sum of the years digits method apply accelerated depreciation in the early years. At the end of five (5) years, using 200% declining balance, the property has depreciated 67%, and using the sum of the years digits it has depreciated 73%.

Assessors should be familiar with these accounting methods of estimating depreciation rates and be able to discuss them with accountants or attorneys.

Remember, some types of tangible property depreciate much faster than others; or, to put it another way, some types have a longer economic life than other types. For example, certain molds have a very short life (sometimes only two (2) or three (3) years), while milling machines, with proper maintenance, can have an almost indefinite life.

FARM PERSONAL PROPERTY

Farm personal property includes (1) farm machinery and equipment, (2) farm produce, and (3) farm animals. Some farm personal property is exempt from taxation (44-5-42).

17 Farm Machinery and Equipment ($10,000 exemption, see 44-5-42) The valuation of farm machinery and equipment involves two (2) basic steps: (1) determining original cost, and (2) approximating depreciation. Of these two, it is much easier to find the original cost of pieces of machinery and equipment for there are many sources of information on original cost. The most reliable are established standard pricing publications of nationally recognized manufacturers and trade associations. These same organizations also often print data on average depreciation allowances for various types and makes of farm machinery. The figures are usually given on a monthly, active work basis or as an average value based on age.

With the use of manuals, assessors are required to obtain information on the number, make, model, age and condition of the various items owned by each taxpayer. This may be done by a physical inventory or by requiring a confidential report.

Farm Produce

Farm produce and livestock are used in the valuation of land and should be considered in the valuation of land in the Farm Forest and Open Space Program. Although many years ago the livestock and product of our farms was certainly taxable according to Rhode Island Law.

MOTOR VEHICLES

With the rise in the number of motor vehicles and motor vehicle owners, assessors are now required to use NADA pricing manuals as the basis for mass appraisals of motor vehicles. As assessors we are required to follow the values as they are set by the RI Vehicle Value Commission.

In most cases, the standards of value are based upon market prices reported by reliable publishers. Though these reports are primarily designed for dealers in motor vehicles, they can be used by an assessor if carefully studied and selected.

Classification of Motor Vehicles

18 There are several different classes of motor vehicles. Each will be treated separately because of differences in use, demand, life span and prices. These classes are (1) passenger automobiles; (2) dealers stock and equipment; (3) special models of automobiles; (4) hearses and ambulances; (5) taxicabs; (6) foreign-made automobiles; (7) mobile homes; (8) motorcycles, scooters, motorbikes, camp and utility trailers; (9) commercial vehicles; and (10) contractors' construction and industrial equipment.

Discovery of Motor Vehicles

The discovery of motor vehicles is a task that has been simplified greatly for the assessor. The General Laws require the registrar of motor vehicles to furnish assessors in each town or city a list containing the names and addresses of the owners of motor vehicles in that town or city as they appear on the records of the registry of motor vehicles. The registry does this annually, usually in late January. The form which the assessor receives annually is a computer printout or list indicating all pertinent data.

Some motor vehicles are not registered with the state of Rhode Island. Information about these may be obtained on confidential report forms and by observation during field trips.

Passenger Automobiles

Several publications supply information for passenger automobiles on: 1. Average wholesale values -- provided for dealer use upon which turn-in value can be calculated. 2. Average loan or average cash values -- represent deferred payments or mortgages which may be used against the quoted average selling price. 3. Average retail values -- the average selling prices of sales reported to the publisher for the period covered by the particular issue of a publication. 4. MSRP Advertised manufacturer suggested retail price – the list price as established in particular years in which the vehicle was manufactured.

Those items of sale which produce the average retail value are vehicles which are sold by dealers and are reconditioned to bring the highest market value. Vehicles must necessarily have a greater value than loan value. The average as is value is usually considered to be the "wholesale" price.

19 In determining the value of a new vehicle, it is assumed that after it has been purchased and used on the road it becomes a "used car. 11 It is suggested that all passenger cars be classified as being "in average condition on the road.

The active life span of a car is flexible and is governed by supply and demand and type of usage. Recent market reports indicate that the active useful life of a car is now approximately eight (8) years. However, value does not cease at the end of this period, but does drop off at an accelerated rate as long as the vehicle is in use or is in usable condition.

Dealers' Inventory

Dealers' inventory of new and used cars, carried for sale purposes, should be included in regular personal property inventories and treated under customary procedures. All vehicles owned by dealers and registered for use as equipment for business purpose should be valued as similar equipment of any other business under the adopted schedules.

CPI-Cars of particular Interest There are certain makes of cars or special models that do not maintain average market levels because of inherent design factors or lack of demand in some areas. The market for such cars is unpredictable and no predetermined standard may be set. In this case, it is suggested that a study be made of the market positions of such models in comparison to those models being handled by standard procedures.

Hearse and Ambulances

A study of the useful life of vehicles in this classification indicates that the active market for these models is limited, but apparently follows the pattern of standard passenger vehicles. The procedure used for passenger cars may be applied.

Taxicabs

The estimated active life of taxicabs is of shorter duration than that of privately operated vehicles. It is necessary, therefore, to make greater yearly allowances for depreciation by doubling the series discounts after the first year over those applied to list prices for private passenger cars.

20 Foreign Cars

It is difficult to make comparisons between various foreign makes of cars. The popularity of these products varies considerably between different areas and from year to year. Recommended prices for these cars are included in most publications.

Mobile Homes

Mobile homes registered with the Motor Vehicle Department are considered motor vehicles . Frequently, trailers which are permanently located in a trailer park are not registered. They are assessed as personal property. It is necessary for the assessor to visit each trailer in order to record the make, year and size of all those not registered. Values on most commonly used trailers may be found in price books.

Motorcycles, Scooters, Motorbikes, and Camp and Utility Trailers

A publication furnishing market prices of used motorcycles and scooters is currently issued. Experience indicates that equitable values for motorbikes and camp and utility trailers can be determined by studying market trends. Most of these categories of vehicles decreases in value at a much faster rate than automobiles and reaches a minimum value in five (5) to eight (8) years. Although some makes of motorcycles actually hold their value for as long or in some cases longer than most automobiles.

Commercial Vehicles

The problem of assessing commercial motor vehicles is complicated by the fact that, except for light service cars such as those equipped with panel, stake, express or platform bodies, the various models are listed in the available market reports without bodies and in some instances without cabs. It is necessary under such circumstances to add, for the body and bodies can vary from a basic dump to an elaborate concrete mixer or giant crane.

In order to assure accuracy, it is wise to obtain acquisition cost of such vehicles from the owners and establish depreciation schedules for the various types of equipment. In many cases, the bodies outlast the trade. This is particularly true in cases of dump, van and tank bodies.

21 Trailers are also difficult to price from the limited information supplied by the registry of motor vehicles. They range from relatively inexpensive box trailers to very expensive LNG tank trailers. The acquisition cost of these vehicles should be obtained from the owners and a fair depreciation schedule applied over their anticipated economic life down to a minimum value. Depreciation rates and lengths of economic life can vary with different types of vehicles. Be sure that the cost figures do not include a trade in or special discount.

Contractors, Construction and Industrial Equipment

All tractors, graders, bulldozers, cranes, shovels, compressors , cement mixers, welding machines, industrial trucks, forklifts, well drillers, and other equipment, when registered with the Department of Motor Vehicles for use on highways, should be placed in the motor vehicles category. New equipment should be consulted as to change and cost of equipment. Conditional bills of sale are also a source of information as to cost, though frequently they show only the cost beyond the amount granted the buyer on a turn in.

Items of this description should be treated for depreciation as any other industrial equipment that is not registered for use on the highways. The schedules will vary with each kind of article and its use, and it is impractical to set up a definite approach. Available sources of information should be consulted for list prices and rates of depreciation.

AIRCRAFT

Aircraft is exempt from taxation under Rhode Island law.

Motor boats and sailing craft as defined in RI General Law 46-22-2 are exempt from taxation. It should be noted that said exemption applies to boats used for pleasure and not those engaged in commercial enterprise.

Ships engaged in foreign commerce are to be assessed according to their net earnings for the preceding year ending December 31. The basis of these figures might well be the same standards set up for arriving at the federal income tax base (44-5-25).