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3. Leasehold improvements, also known as tenant improvements, include changes to walls, floors, ceilings, lighting, plumbing, etc to meet the needs of a new or existing tenant. 3

4. 4  Ownership of improvements  Double Taxation ( Real & Personal)  Improvements not taxed or being taxed incorrectly

5.  Inconsistency with Schedule of Values between counties to establish what is considered real v. personal property.  Large variations between counties in base value rate for the same type of property.  Income approach not being used to value these properties 5

6.  Are the improvements: › Real property, or › Personal property?  Who is the owner of the property? 6

7.  G.S. 105-273 (13) Real property, real estate, or land. – Any of the following: a. The land itself. b. Buildings, structures, improvements, or permanent fixtures on land. c. All rights and privileges belonging or in any way appertaining to the property. 7

8.  G.S. 105-273 (14) Tangible personal property. – All personal property that is not intangible and that is not permanently affixed to real property. 8

9.  G.S. 105-302  (a) Taxable real property shall be listed in the name of the owner, and it shall be the owner's duty to list it unless the board of county commissioners shall have adopted a permanent listing system as provided in G.S. 105 ‑ 303(b). 9

10.  G.S. 105-306  (a) Taxable personal property shall be listed in the name of the owner on the day as of which property is to be listed for taxation, and it shall be the duty of the owner to list the property. 10

11.  Real estate ‑ The land and appurtenances, including all things not movable in nature and more or less permanently affixed to the land.  Real property ‑ The "bundle of rights" that go with physical ownership of real estate, including the interests, benefits, and rights inherent in same. 11

12.  Personal property ‑ All tangible property other than real estate. Generally includes movable items, that is, those not permanently attached or affixed to the real estate. In determining whether an item is personal or real, there can be considered the manner in which it is affixed to the real property as well as the intention of the owner with regard to the removal of the asset at the end of a lease period.... If the item can be removed without serious injury to the building or to the item itself, then it could safely be termed as tangible personal property. 12

13.  Leasehold improvements ‑ Real estate improvements to leased property contracted for, installed, and paid for by the lessee; and which may well remain with the real estate, thereby becoming an integral part of the leased fee real estate upon expiration or termination of the current lease, but which are the property of, and should be charged to, the current lessee who installs same. 13

14. Examples of items that may appear to be realty but should be considered personal property in certain situations are: l. Wiring 2. Venting 3. Flooring (continued...) 14

15. 4.Special climate control (Heating and air conditioning systems associated with particular equipment or product) 5. Conveyors 6. Sprinkler system (product or people) 7. Shelving and displays 8. Leasehold improvements (owned by lessee) 15

16.  There are no absolutes in making the determination of whether assets should be classified as real or personal property.  Consider and Review the following: › Examine leases and other documents to determine the intent of the owner of the property. › How the property is affixed to the realty? › Is there for the benefit of the process or for the benefit of the employees or the building? 16

17.  All taxable property be assessed only once as either real or personal,  Property is classified as either real or personal uniformly throughout each county.  However property is classified, the assessor must ensure that all taxable property is uniformly assessed. 17

18. 1. Schedule of Values should include information that clearly defines the classification of what your county considers as real or personal property. 2. Personal Property appraiser, should be familiar with your county’s Schedule of Values and discuss real vs. personal property issues with your real property appraisal department. 18

19. 3. Property used as part of a process, or in place for the equipment is generally considered personal property. Special wiring, foundations, and process piping are examples of this and are typically not appraised as real property in the Schedule of Values. 4. Property used for the building, or for the comfort of employees is generally considered real property. 19

20. 5. The owner’s intent is important to consider. If the owner intends property to be permanently attached to the real estate, then that should be taken into account. 6. It can only be appraised once as real OR personal, but not both. 20

21.  Number of current appeals related to Leasehold Improvements  Schedule of Values not clearly defined  Counties unable to identify what is included in the real property  Significant Difference in Base rate across the state on real property  Same Asset being taxed as Real in some counties and personal in others 21

22.  Difficulty in working appeals due to inconsistency  Taxpayers who file listings in multiple counties have difficulty filing. 22

23.  Better defined Real & Personal in Schedule of Values  Statewide Standards on Schedule of Values  Statewide Real vs. Personal classification  Counties Utilize Income approach on Real Property 23

24.  Improvements to leased real property › Improvements made by or for a business to real property lease › or Used by the business › See memo on DOR website: http://www.dornc.com/taxes/property/memos/ilp_12-23-11.pdf › continued 24

25.  1.) Express Agreement  2.) Character of the Annexation  3.) Relationship of the Annexor  4.) Nature & Purpose of the Annextation 25

26.  “…..The law allows a tenant who places chattels on leased realty to remove whatever he as affixed to the premises for trade purposes.  These chattels are called “trade fixtures” and remain personalty of the tenant.” 26

27.  Listing of Property for Taxation-Businesses should list improvements made by or for the business to real property or used by the business  Schedules of Values- Developed in a way that everyone involved can readily determine which assets are considered real and which assets are considered personal 27

28.  Any determination to place an absolute meaning on the term “real fixtures” must be done realizing that the facts and circumstances of each particular case must be carefully examined  DOR Memo “Assessment of Improvements to Leased Property” December 23, 2011 28

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