The Assessment Appeals Commission ("AAC") of the Tennessee State Board of Equalization has reversed a 2011 administrative law judge decision, holding that intangible costs (such as freight, installation, engineering costs and transaction taxes) incurred by a manufacturer to place equipment and machinery into service should be included in the personal property tax base. In re Signal Mountain Cement Company, Assessment Appeals Commission (Jan. 8, 2013). Despite the AAC's conclusion on the legal issue, the taxpayer still was able to obtain a significantly reduced valuation through a nonstandard valuation that was supported by an appraisal. Accordingly, it seems unlikely that the taxpayer will pursue a further appeal.
The administrative law judge previously had concluded that the intangible costs (freight, installation, engineering and transaction taxes) should be excluded from the tax base. In re Signal Mountain Cement Company, Hamilton County, Appeal Nos. 62119, 62120, 64218, 7114 (Oct. 7, 2011). For a discussion of the administrative law judge decision, see previous article, "Recent Decision Holds that 'Acquisition Cost' Does Not Include Tangible Costs."
On appeal, the assessor argued that "capitalized indirect costs [should] be included in the cost approach to value," citing In re Memphis CATV, Assessment Appeals Commission (July 25, 2007) and other authority. The AAC concluded that "capitalized cost" was the standard for determining costs under the applicable personal property valuation statutes relying on Memphis CATV. Specifically, the AAC found that "capitalized cost" should include freight, installation, engineering costs and transaction taxes that were at issue because those costs become a part of the capitalized cost of the machinery and equipment as installed. Although the AAC reaffirmed its 2007 decision in Memphis CATV, this issue has never been pursued through judicial review.
In this case, the taxpayer also offered expert appraisal testimony as the basis for a nonstandard valuation, and that proof was unrebutted by the Assessor. On appeal to the AAC, the Assessor again chose not to present rebuttal testimony regarding the value of the machinery and equipment. Accordingly, the AAC affirmed the nonstandard valuations claimed by the taxpayer, the practical effect of which was to offset the original back assessment for the 2008-2010 tax years and to establish the value of the property for 2011.
While the deadline to appeal this decision in court has not yet passed, it is expected that the taxpayer will accept the reduced valuations and will not appeal this issue further.
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