Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-50 - Intercounty utilities and transportation companies-Assessment and taxation › Section 458-50-180 - Appraisal practices relating to valuing intangible personal property

Current through Register Vol. 24-14, July 15, 2024
(1)
Unit
			 valuation.
Unit valuation is a method of determining the market value of
			 a company, business, or property as a whole without reference to individual
			 parts or components. For example, a railroad company may have many miles of
			 track, or a pipeline company may have many miles of pipe, but if the track or
			 the pipe is not connected in a useful and interdependent way to the rest of the
			 company's system as a whole, the track or the pipe have considerably less
			 value. However, when all the interdependent assets of a company are working
			 together and functioning synergistically as a unit, the value of the company as
			 a whole is independent of the value of the component parts. Similarly, the roof
			 or the walls of a house may have value independently of the structure as a
			 whole, but the market value of the house, for purposes of taxation, is
			 determined as a unit. Market value is the value of the unit as a whole, not a
			 summation of fractional appraisals of the component parts. The unit value may
			 have enhanced taxable value above, taxable value equal to, or taxable value
			 lower than what the sum of the value of the component parts may indicate. The
			 department is specifically authorized to take into consideration, among other
			 things, "the value of the whole system as a unit," when valuing companies with
			 operating property in more than one county or more than one state.
			 (RCW
			 84.12.300;
see
			 also
RCW 84.16.050.)
(2)
Situs, allocation, and
			 apportionment.
Property taxes may only be levied upon property having
			 situs in this state, in other words, upon property located in this state. The
			 process of dividing up the unit value of a company among the states where it
			 has a presence is called allocation. The process of dividing up the allocated
			 state value among the taxing jurisdictions within a state is called
			 apportionment. Once the taxable value, meaning the total value of a company's
			 operating property in this state less the exempt value, has been determined,
			 the taxable value is apportioned as required by law.
(3)
Valuation of exempt intangible
			 personal property.
Assessing officials may use one of two methods, as
			 appropriate, to determine the value of intangible personal property that is
			 exempted from a company's unit value. The first method is the method by which
			 the true and fair value of the exempt intangible personal property is deducted
			 from the true and fair value of the operating property at the system level to
			 arrive at taxable value at the system or entity level. The second method is the
			 method by which the true and fair value of exempt intangible personal property
			 is excluded from the value of the operating property at the system level by
			 using a valuation model that approximates the value of the nonexempt assets
			 only. These two methods are explained in more detail as follows.
(a) The first method is a two-step process
			 that involves valuing the entire company operation, the unit, as the first
			 step, using any or a combination of the three traditional approaches to value.
			 Then the exempt property is separately identified, valued, and deducted from
			 the unit value. In valuing the exempt property, assessing officials use
			 generally accepted appraisal practices, including sales of similar intangible
			 personal property, capitalization rates obtained through those sales, or by
			 identifying cash flows attributable to each intangible personal property asset.
			 When using this method, the value resulting from deducting the exempt value of
			 intangible personal property from the entire company value, is the taxable
			 value at the system or entity level. From that value, the proper value must
			 then be allocated to this state and apportioned to the local taxing
			 jurisdictions by law.
(b) The
			 second method involves an appraisal process using an appraisal model that
			 intrinsically approximates the exclusion of exempt intangible value. This
			 process assumes the existence of intangible personal property in the overall
			 value of the company being valued, but does not specifically identify or value
			 individual intangible personal property assets. Although the model may not
			 actually exclude the value of exempt intangible personal property, it simulates
			 the effect of exempting intangible personal property by producing a lower
			 assessed value equivalent to the exclusion of exempt intangible
			 property.