When reliable data on equipment leases is available, the income approach can provide reliable estimates of fair market value. Depreciation is a loss in value due to physical deterioration through use, functional obsolescence through design or utility, and economic obsolescence due to outside market forces. Costs used in the cost approach can be original, acquisition, replacement, or reproduction costs, although often only original or acquisition costs are readily available. Original cost is the cost of acquisition of a property. Reproduction cost is the cost of reproducing an exact replica of a property.
Replacement cost is the cost of replacing a property with one of like utility.
The cost approach may be most consistently applied to machinery, equipment, furniture, fixtures, and leasehold improvements because of the availability of reliable data such as the original or acquisition cost. The State Tax Commission trends the original or acquisition cost to today's replacement cost and depreciates the replacement cost, based on age and condition, to estimate a property's current market value. This process is recommended by the International Association of Assessing Officers' Standards on the Valuation of Personal Property. The Tax Commissioner uses the Marshall Valuation Service, an appraisal guide, as the source of information for the trend and depreciation tables and provides this information to all fifty-five counties as a guide for the appraisal of personal property. The Marshall Valuation Service is compiled, published and updated quarterly by Marshall and Swift of Los Angeles, California.