Journal of Property Tax Assessment & Administration


Scott Sampson


A difficulty that assessment officials, lenders, and valuation analysts face with complex properties is disentangling the income streams, risks, and values associated with the multiple types of assets in use. A hole in the existing research literature is that measurement error caused by tangible property resource rent appropriation has not been corrected and the incremental cash flows attributable to the intangible assets have not been isolated leading to an incomplete understanding of the intangible assets’ cash flow volume and volatility. This study directly estimates intangible assets’ cost of capital and expected returns for the domestic airline industry. Using Monte Carlo simulations the study reveals that four of the 10 airlines are unlikely to produce positive returns on their intangible assets in the long run. Five of the airlines have expected returns on their intangible assets that exceed their intangibles cost of capital and create value. The study has implications for assessors and lenders of complex properties. For assessors, the study’s findings suggest the need to consider the impact of resource holders’ rent appropriation when assessing taxable property value. More nuanced valuation approaches that explicitly model expected cash flows, returns, and values associated with intangible assets as a residual may be required. For lenders, the findings indicate that rent appropriation skews profitability ratios and cash flows. Some borrowers may have intangible assets that are unlikely to generate positive returns in the long run. This information could be relevant when evaluating the creditworthiness of borrowers and assessing the risk associated with lending to them.


Intangible property; Airlines