1. Cross Section Of Business Personal Property Issues 2013 Advanced Personal Property Seminar September 23, 2013 Sheraton Four Seasons Hotel Greensboro, NC Presented by Dave Duty Property Valuation Specialist II North Carolina Department of Revenue

2. What does cross section mean? We will explore three situations……….. Trade Level Supplies vs. Inventory Cellular Phone Companies

3. What does trade level mean to you? Assess property at the proper level of trade based on its location & use as of the assessment date--- Appraiser must recognize that property normally increases in value as it progresses through production & distribution, then finally arriving at the consumer level--- Factors to determine the TLA are---

4. What does trade level mean to you? (Continued) Uniqueness of the equipment Infrequency of sales Lack of facts necessary to determine its marketability

5. What does trade level mean to you? (Continued) And…Stage of Production which reflects how utility is added to the asset through………….. Form Place Time Ownership

6. Computer Example – Level of Trade Which cost should be reported by the manufacturer who uses the computer?

7. What examples of trade level do we deal with every year? Tyco Electronics Pitney Bowes, Inc. G-Tech Lottery Equipment What does NCDOR provide to the counties in these circumstances?

8. What is a trade level factor? This is a Trade Level Factor!!! For example: Pitney Bowes, Inc. Gross Sales = $1,500,000 Cost of Goods Sold = $1,000,000 Gross Sales divided by Cost of Goods Sold = 1.5 Markup is 50%, Factor is 1.5

9. Ashley Furniture Company

10. Example of Trade Level Facts to consider--- ABC Co. sells furniture to Ashley-title transfers Obligated via contract to display in store just like my living room Furniture cant be sold for 3 years and then it is liquidated Furniture just like the showroom display is sold every day with sales tax & sales commission added

11. What cost should Ashley Furniture report to the county on their listing form? A – It could be like Pitney Bowes or Tyco – Apply a Trade Level Factor B – It could be like Moore Buick-Pontiac Demo Vehicles; PTC Case C – Or, it might be that the owner is treating the furniture as an asset when it should be treated as inventory

12. Conclusion???????????? Treat furniture as an asset without a trade level factor----------------

13. What does Supplies vs. Inventory mean to you? What is the difference between supplies and inventory?

14. Supplies Various items held by the business owner on the premises, that accommodate a process initiated by the owner or employee Cleaning/Janitorial items Office items: paper clips, note pads Maintenance items: oils & lubricants Fuels: consumed in fleet vehicles Medical/Dental/Doctor/Veterinarian: syringes, molds, crutches, cat litter

15. Supplies Barber/Beauty items: shaving crème, hair coloring, make-up, cologne Restaurant/Hotel items: linens, flatware, glasses, dishware, trashcans Snacks & Drinks: on hand & free for the employees and not in a vending machine? Rental items, replacement parts, & spare parts

16. Inventory Goods held for sale in the regular course of business by manufacturers, retailers & wholesalers, & construction contractors A detailed list of items in ones possession, and accounted for through a periodic survey of all goods and materials in stock at that time 105-273(8a)…the term includes packaging materials that accompany and become a part of the goods sold

17. What issues do county appraisers have with business owners concerning supplies & inventory? Taxpayers call supply items their inventory! Taxpayers dont know how to list their supplies Taxpayers dont keep up with the amounts that are on hand Taxpayer wants to exclude certain items when their business is not manufacturing, retail, wholesale, or contractor related

18. Responses to help taxpayers list correctly Educate taxpayer on statute definition of inventory, not a quantity list of items Communicate with taxpayers & teach them the proper supply items to list Offer options on how to list: Provide 12 months of invoice costs divided by 12 give a 1 month snapshot Do a physical inventory on December 31 st & give those costs to the county

19. Responses to help taxpayers list correctly (Continued) Qualify the taxpayer as either a manufacturer, retailer or wholesaler, or as a construction contractor Offer good public relations: Reduce amount of supplies during the month of December If taxpayer doesnt pay sales tax on the item, then it could be inventory Remove costs of disposed or sold rental items, broken dishes, stolen trash cans from supply costs

20. Three Prominent PTC Inventory Cases Moore Buick-Pontiac, Inc. – Rental cars are not inventory – Company lost right to possess & control; Demo cars are inventory – held for sale R.W. Moore Equip. Comp. – Leased heavy road equipment – Use of equipment disqualified it as inventory Cone Mills, Inc. – Purpose of obtaining the property is either as an asset or as inventory, but not both

21. Some Guidelines----------- Property held for both sale and rent: It is Exempt if: New property is held for sale or rental purposes, but has not been sold or rented yet. Previously rented property that has been transferred to a companys sales division as of January 1

22. Some Guidelines---------- Property held for both sale and rent: It is Taxable if: Property that is rented anytime during the year still remains in the companys rental division Any property treated as a capital asset as of January 1 where the taxpayer plans to take depreciation on the property

23. Some Guidelines------------- Property held for both sale and rent: It is Taxable if: Property is being rented or consumed rather than held for sale on January 1

24. Some Examples------------- Modular home display model on the sales lot Manufacturer of airplane tires Liquid medications for farm animals De-icing mixture for streets owned by a Home Owners Association DENR Certified equipment maintained with grease, oils, and lubricants Crucibles used in a chemical reaction to create a product

26. Power Curbers Concrete street curb making machine 2 to 3 machines are pulled from inventory to perform R & D testing Not held for sale in the regular course of business – held for testing & research Use of property changed from item to be sold to item to be consumed Inventory not typically used for manufacturers use Cone Mills, Inc. case says---------

27. What issues do we have with Cellular Phone Companies? Technology Changes How costs are listed on the abstract What schedules to apply to the various types of assets Retirement of company assets Costs related to maintaining older technology

28. Issues facing the appraiser Technology Changes: Wireless communication is rapidly changing The general public is demanding more visual data at greater speeds New assets are replacing old assets

29. Issues facing the appraiser How costs are listed on the abstract: Company provides their requested percent good valuation Some sites are shown as Decommissioned Application of requested depreciation lowers traditional values

30. Issues facing the appraiser What schedules to apply to various types of assets & the true value For example: Concrete out buildings vs. thin metal cabinets For example: Switching equipment old vs. new For example: Improvements to leased property Obsolescence & final value

33. Issues facing the appraiser Retirement & disposal of assets: Voice only capability vs. connection to internet, visual data delivery, texting, etc. Abandoned equipment left in place Ability to sell used equipment Statutory requirements-not exempt

34. Issues facing the appraiser Costs to maintain older technology: As customer usage drops, less support is required Replacements coming in while retired assets are going out

35. Wouldnt it be nice if cellular phone companies could be appraised and valued like a public service company?????????????

36. QUESTIONS??????????