Indiana Administrative Code › Title 50 - DEPARTMENT OF LOCAL GOVERNMENT FINANCE › Article 4.2 - ASSESSMENT OF TANGIBLE PERSONAL PROPERTY › Rule 4 - Valuation of Depreciable Tangible Personal Property › Section 4-8 - Adjustment for obsolescence

Current through July 10, 2024
Authority: IC 6-1.1-31-1
Affected: IC 6-1.1-3
Sec. 8.
(a) A
				taxpayer may claim an adjustment for abnormal obsolescence as defined in
				50
				IAC 4.2-9-3, on business personal property provided
				that such taxpayer follows the procedures and meets the requirements regarding
				an adjustment for abnormal obsolescence contained in
				50 IAC
				4.2-9. It includes the impairment of desirability and
				usefulness brought about by new inventions and improved processes for
				production, or the impairment of functional capacity or efficiency if the
				inadequacy or overadequacy causes a loss in value and has made the property
				incapable of continued use for a prolonged period during the assessment
				year.
(b) No adjustment will be
				allowed for normal obsolescence as defined in
				50 IAC
				4.2-9. The table to determine true tax value, as
				provided in section 7(b) of this rule, automatically makes allowance for this
				type of obsolescence. The values arrived at as a result of this table reflect
				the application of the double declining balance depreciation method to the
				point where straight line depreciation would be more beneficial to the
				taxpayer. This accelerated depreciation, and use of a short useful life and
				historical cost reflect any physical, functional, or economic obsolescence
				except to the extent that these items qualify for abnormal obsolescence as
				defined.
(c) The term "abnormal
				obsolescence" will be strictly construed and be limited to a situation where
				unforeseen changes in market values, exceptional technological obsolescence, or
				destruction by catastrophe occurs, providing that such events have a direct
				effect upon the valuation of the depreciable personal property of the taxpayer
				on a going concern basis at the tax situs in question.
(d) The dollar amount of the adjustment for
				the depreciable personal property pursuant to this section in no event can
				exceed the tentative true tax value as computed in section 7 of this rule, for
				the specific unit or units of depreciable personal property on which the
				taxpayer claims the adjustment. If the property has been incapable of continued
				use for a prolonged period during the assessment year, for a reason identified
				as qualifying for abnormal obsolescence, it will be eligible for an adjustment
				to be computed as follows:
(1) If the
				cost-to-cure the cause of the abnormal obsolescence is equal to or less than
				the anticipated increase in utility, and hence value, it is economically
				feasible to repair or replace the impaired item and is thus deemed curable. The
				dollar amount of the cost-to-cure shall be the basis for determining the amount
				of abnormal obsolescence.
(2) If
				the cause of the impairment cannot be corrected, or the cost-to-cure the cause
				of abnormal obsolescence is in excess of its contribution to the value of the
				property, it shall be deemed to be incurable. The amount of adjustment
				therefore shall be based upon the scrap or salvage value of the affected item
				and shall be limited to the true tax value before adjustment for abnormal
				obsolescence of the affected item itself.
EXAMPLE 1
Taxpayer ABC has depreciable personal property qualifying
				  for an adjustment for abnormal obsolescence. The cost-to-cure the cause of the
				  abnormal obsolescence is eight hundred thousand dollars ($800,000) and is less
				  than the anticipated benefits to be obtained from the use of the affected
				  asset. The depreciable asset has an adjusted basis of six million five hundred
				  thousand dollars ($6,500,000) and an acquisition date and depreciable life that
				  result in a true tax value factor of twenty percent (20%) (the total true tax
				  value, of all of ABC's depreciable personal property in this taxing district,
				  computed by the application of the prescribed pool percentages is greater than
				  thirty percent (30%) of the total adjusted cost). The taxpayer should compute
				  the abnormal obsolescence adjustment as follows:
Reported basis of asset qualifying for abnormal
						  obsolescence adjustment
$6,500,000
Prescribed true tax valuation factor
x 20%
True tax value of item prior to adjustment for abnormal
						  obsolescence
$1,300,000
Less: cost-to-cure cause of abnormal obsolescence
$800,000
Prescribed true tax valuation factor
x 20%
Allowable adjustment for abnormal obsolescence-to Line
						  61, Schedule A, Form 103
- $160,000
True tax value of item
$1,140,000
In no instance may the adjustment for abnormal obsolescence
				  exceed the true tax value of the affected item prior to such adjustment or
				  result in a true tax value less than the scrap or net realizable value of the
				  affected asset.
EXAMPLE 2
Taxpayer XYZ has depreciable personal property qualifying
				  for an adjustment for abnormal obsolescence. The cost-to-cure the cause of the
				  abnormal obsolescence is four hundred sixty thousand dollars ($460,000) and
				  exceeds the benefits expected from any further use of the affected asset. The
				  depreciable asset has an adjusted basis of two million three hundred thousand
				  dollars ($2,300,000) and an acquisition date and depreciable life that result
				  in a tentative true tax value factor of twelve percent (12%) (the total true
				  tax value, of all of XYZ's depreciable personal property in this taxing
				  district, computed by the application of the prescribed pool percentages is
				  less than thirty percent (30%) of the total adjusted cost). The taxpayer is
				  able to demonstrate that the salvage value of the affected item is seventy-two
				  thousand dollars ($72,000). The taxpayer should compute the adjustment as
				  follows:
Reported basis of asset qualifying for abnormal
						  obsolescence adjustment
$2,300,000
Prescribed true tax valuation factor
x 30%
True tax value of item prior to adjustment for abnormal
						  obsolescence
$690,000
Less: documented net realizable value
- 72,000
Allowable adjustment for abnormal obsolescence
$618,000