Cash-starved localities often use ad valorem taxes on industrial and commercial properties to pump up their coffers. Sometimes, assessors improperly inflate ad valorem property tax bills by including the value of the taxpayer’s intangible assets, which are not subject to property taxes in some jurisdictions. An article in the latest issue of Insights from Willamette Management Associates talks about this and focuses on the application of the cost approach to the valuation of internally developed computer software, which may be exempt from ad valorem taxes depending on the jurisdiction. In particular, the article focuses on the replacement cost new less depreciation (RCNLD) intangible personal property valuation method, which is commonly used for this purpose.

What to do: Examine your local area to see whether the laws exempt certain intangible assets from commercial property taxes. You may have clients who have overpaid their property taxes if the value of intangibles was improperly included in the assessment.