Personal Property Appraisal and Assessment June 2007 North Carolina Department of Revenue Property Tax Division SECTION I INTRODUCTION Section 1- Page 1 Preface This edition of the personal property appraisal manual represents our continued effort to improve the quality of personal property assessment in North Carolina. It is our hope that the use of this manual will be of assistance to all county property appraisers as you undertake the difficult task of personal property valuation. It is our intention to keep this manual as current as possible, and any suggestions or comments you have will be appreciated. This edition features updated legal, listing, and machinery & equipment appraisal sections. The addition of the Statewide Abstract is also incorporated in this manual. The manual will continue to evolve with each subsequent publication as we learn more about the appraisal of personal property. We would like to recognize the contributions of our former staff members, Roger Ellis and Jim Wagner for their work on the earlier editions of the manual. In addition, we would like to thank all the support staff of our office for their efforts in preparing the manuscript. North Carolina Department of Revenue Property Tax Division David Baker-Director Kirk Boone-Property Tax Valuation Specialist II Dave Duty-Property Tax Valuation Specialist I Gregg Martin-Property Tax Valuation Specialist I June 2007 Section 1-Page 2 Introduction Appraisal of Personal Property The listing and appraisal of personal property for ad valorem tax purposes is a complex task which can create a major problem in an assessor's office if not done in a professional manner that promotes uniformity and equity among all business taxpayers. The appraisal of real property is made easier by the volume of books and trade journals published, as well as the number of courses offered by various appraisal institutes. The valuation of personal property, on the other hand, has not had the benefit of similar treatment. While the subject has not been covered as diligently, the basic rules of appraisal apply to both classes of property. Purpose of Manual and Course The main purpose of the course is to provide an overview of the listing, assessing, and processing of business personal property taxes as they are administered in the day-to-day environment and operation of the local county tax department. Another useful purpose of the business personal property course is to satisfy one of the basic education requirements for county assessors and appraisers pursuant to G.S. 105-294. This course can also help meet the continuing education requirements necessary in order to remain current as a county assessor or appraiser. The purpose of the manual is to lend written support to the business personal property tax course as it sets out to educate, equip, inform, and provide instruction on the various aspects of personal property taxation. The manual has been developed to provide broad guidance in the appraisal of personal property through the use of generally accepted techniques and procedures. It should be used as a ready resource and reference book to provide guidance in matters concerning personal property. This manual merges accounting principles and accepted appraisal practices into a sound methodology for the mass appraisal of personal property, commonly referred to as “ The accounting approach to value. “ In summary, the manual is intended to be an overall guide that deals with various classes of personal property used in connection with a business enterprise. It has been developed as a text for instructional purposes and also as a reference guide in the appraisal process. It represents a convenient tool for use by the appraiser in exercising sound appraisal judgment, but it is not intended to cover every situation that may be encountered in the appraisal process. Section 1-Page 3 Scope of Manual and Table of Contents This manual covers the following areas: Section I: Introduction Section II: Definitions and Terms Section III: Classification of Real and Personal Property Section IV: Legal Requirements in North Carolina Section V: Accounting for Appraisers Section VI: Listing and Processing Section VII: The Appraisal of Personal Property Section VIII: The Appraisal of Business Personal Property Section IX: Support Materials 2007 Cost Index And Depreciation Schedules Billboard Valuation Guide Example Letters Listing Rejection Extension Rejection Additional Information Request Notification of Audit, other audit letters Discovery Letter Examples Mobile Home Park Letters Return of Service of Civil Penalty Citation Exemption Letters Motor Vehicle Forms and letters Antique Automobile Letter and Questionnaire MVR-605A – Request for MV Info (Drivers Privacy Prot. Act) MVR-46F – Affidavit for removal of title & letter Personal Property Exemption/Exclusion Forms AV-10A – Antique Aircraft Application AV-10V – Motor Vehicle Exemption Application AV-10 – Application for Property Tax Exemption (General) Business Personal Property Exemption Forms AV-12 – Application for Business Property Tax Exemption Useful Websites Certification Requirements Property Tax Division Contact Information 2007 Property Tax Bulletin Appeal Information on Aircraft and Watercraft Standard on Valuation of Personal Property-IAAO Section 1-Page 4 SECTION II DEFINITIONS & TERMS Section 2-Page 1 GLOSSARY OF TERMS Absorption costing - A system of product costing in which all costs of production, whether variable or fixed are classed as product costs and identified with the full cost of inventory. Accumulated depreciation - The sum of all depreciation previously deducted from the historical cost of an asset. Accrual basis - An accounting method which records all income earned and expenses incurred as of the initial commitment, regardless of whether actual payment has occurred. (See "Cash Basis.") Ad valorem - Latin meaning "according to value," in common usage an ad valorem tax is a tax levied on property in proportion to the value of the property. Appraisal - The act of estimating the value of property. An estimate or opinion of value. Audit - An examination of data or materials with the intent to test and verify the accuracy of financial reports or statements or to obtain complete information necessary to form an opinion as in an appraisal. Balance sheet - A financial statement as of a specific date detailing the financial condition of a business enterprise, showing assets, liabilities, and capital. (See "Statement of Condition.") Bill of lading - A carrier's written document acknowledging receipt of goods, listing same, and contracting to deliver such goods to a specified place and party. Bond - An interest-bearing certificate of a corporation or government, usually secured, promising to pay the holder a fixed amount on a specified maturity date. Book of original entry - A journal in which business transactions are first recorded and from which ledger entries are made. (Also known as the "Journal.") Book value - An accounting "value". Usually the undepreciated balance of the historical or original cost of an asset. "Book value" usually reflects an accommodation with income tax regulations, is characterized by frequently- accelerated depreciation, usually does not reflect inflation or appreciation, and rarely bears any resemblance to fair market value. Business Personal Property - Personal property associated with a business or used in connection with the production of income. Capital - On the balance sheet or statement of condition, the owners' or stockholders' share of a business enterprise; it is the mathematical difference between assets and liabilities, and will usually be itemized as capital stock, surplus, and undivided profits ("undivided profits" may be variously labeled "undistributed earnings" or "retained earnings.") Also referred to as "owners' equity." Section 2-Page 2 Cash basis - An accounting method which records no transactions until such time as the actual cash receipt or disbursement has taken place. (See "accrual Basis.") Chattels - An article of personal or movable property, as distinguished from real property; furniture, automobiles, livestock, farm equipment, boats, etc., are chattels. Consignee - The party in whose possession is placed a consignment or consigned goods. Consigned inventory - Inventory belonging to another -- the consignor, which is held by the consignee, who will receive payment for the goods when they are sold and then himself will forward his payment to the consignor. The consignment agreement will often stipulate that as between the parties the consignee is responsible for property taxes. Consignment - A shipment of goods to an agent, with title to the goods remaining with the shipper, or consignor; when the goods are sold the agent, or consignee, forwards payment to the consignor. (See preceding definition.) Consignor - A party which ships goods to an agent (consignee), and does not relinquish title until receiving payment after the agent has sold the goods. Consolidated accounting report - A financial statement that combines the income statement and/or balance sheet of a parent company with one or more of its subsidiaries. Corporation - An artificial legal entity, chartered by the State to engage in business, and having legal powers, rights, privileges, and liabilities distinct from those of its owners and officers as individuals. Cost - The amount of consideration exchanged for the acquisition of an asset or group of assets. Cost - capitalized - An accounting term expressing