Journal of Property Tax Assessment & Administration


Both assessors and fee appraisers perform taxpayer intangible asset appraisals for a variety of ad valorem property tax reasons. These reasons can relate to intangible assets that are either subject to property tax or exempt from property tax. In particular, intangible asset valuation issues can arise with properties that are assessed on a unit valuation basis. Such properties are often centrally assessed (i.e., assessed by a state assessment authority). In some jurisdictions, a centrally assessed taxpayer’s intangible assets are not subject to taxation. In these instances, the overall unit value is adjusted (i.e., reduced) by the value of the taxpayer intangible assets. There are three generally accepted approaches for intangible asset valuation: the income approach, the market approach, and the cost approach. Most assessors are familiar with income approach valuation methods, including the multiperiod excess earnings method (MEEM) and others. Most assessors are also familiar with market approach valuation methods, including the relief from royalty method and others. However, some assessors may not be as familiar with cost approach valuation methods for intangible assets. In comparison, assessors are very comfortable with the use of the cost approach to value commercial real estate and tangible personal property. In many circumstances, the cost approach can be applied to the valuation of intangible assets as well. This discussion summarizes the generally accepted intangible asset valuation approaches and the common reasons to use the cost approach. This discussion describes the application of the cost approach in intangible asset valuation, including (1) cost measurement procedures, (2) depreciation and obsolescence measurement procedures, and (3) cost approach value conclusion procedures. And, this discussion explains the processes for confirming the cost approach value indication.

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Replacement cost approach to value