Continuing Education (CE) Credit:

Participants desiring CE credit for attending this session should sign the document at the back of the room and indicate the session name on the back of the Uniform Request for Recertification Credit form. The sign-in sheet will not be available once you leave the room.

Housekeeping Note: Please turn off cell phones

4

Durham, North Carolina

1. Personal Property Improperly Categorized as Real Estate

• Tanks, Signs, Security Systems, Back-up Power, Generators

• Process Electrical, Piping, Heating Ventilation & Air Conditioning (HVAC)

• Cost Segregation-is the process of identifying PP assets that are grouped with real property assets and separating out personal assets for federal tax reporting

Process related piping, electrical, tanks, & concrete

Gas Pump Upgrade

Process piping from tank to pump

9

Concord, North Carolina

2. Leasehold Improvements

• Leasehold improvements are upgrades made to leased property by the lessee (tenant). LHI’s include acoustic ceilings, installing partitions, and flooring.

• Tenant allowance - Monetary allowance given to a prospective retail or office tenant in recognition of the tenant’s individual needs to acquire, build or move walls, partitions, and light fixtures; usually expressed in dollars per square foot.

• Caveats: Shopping Center real property appraisal versus the appraisal of free standing locations

Shopping Center Shell

Shopping Center before build-out

Shopping Center after build-out

Trade Fixtures or Leasehold Improvements?

15

Façade assessed or not assessed?

16

Durham, North Carolina

3. Taxpayer errors & inadvertent omissions

• Taxpayer omitted $3,949,627 of M&E purchased in 2000 on their 2002 & 2003 tax returns

• The total under-reported amount on the 2003 tax return was $12,459,720=($22,314,636-($9,854, 916))

• IAAO Course 500 states, “The primary tool for discovering personal property…is the personal property return”

19

Several jurisdictions

• The best discovery tool since sliced bread—the EDA-database with estimated fair market value – MapQuest-determine jurisdiction, ensure integrity

of findings, eliminate potential double taxation

• Secretary of State-identify contact information, DBA, entity structure – 5.2M Discovery

4. Unreported Businesses

20

21

22

23

Asheville, North Carolina

5. Spare parts and supplies inventories

• Manufacturing Plants – Spare parts sanity test: 3%-5% of total M&E

• Golf Courses-irrigation parts and granular inventory – 321K spare parts, granular & small-wares discovery

• Bottling Plant Dunnage Supply inventory – Spare parts for truck and trailer fleet

• Apartment communities-spare parts HVAC & appliances

Golf Course Granular Inventory

Product Bags Pounds Price Per Bag Extended0-0-30 51 2550 $25.37 1,293.87 Hymag 15 750 $35.00 525.00 Pro-Mag 9 450 $59.50 535.50 18-3-16 12 600 $56.00 672.00 13-0-46 10 500 $55.00 550.00 Ammonium Sulfate 40 2000 $15.00 600.00 Verde Cal 6 300 $22.00 132.00 Calrite 20 1000 $22.00 440.00 Humates 35 1750 $24.52 858.20 Gypsum 40 2000 $10.50 420.00 Charcoal 55 2750 $45.50 2,502.50 Snapshot 60 3000 $102.00 6,120.00 Ronstar G 1.5 75 $88.00 132.00 21-7-4 w/Ronstar 2 100 $20.00 40.00 Dylox 60 3000 $29.70 1,782.00 18-4-26 85 3750 $20.30 1,725.50 Woodace 18-5-10 75 3750 $25.00 1,875.00 10-20-20 60 3000 $36.85 2,211.00 Dylox 1.5 75 $29.70 44.55 18-4-26 2 100 $26.50 53.00 Rye Grass Seed 9 450 $57.50 517.50 Bluegrass Seed 6 300 $162.50 975.00 Fine Fescue Seed 10 500 $98.00 980.00 Sand (bagged) 60 $4.95 297.00

Tons Price per TonSand (loose) 72 $29.00 2,088.00

27,369.62

Plastic Bottle Manufacturing Plant

Dunnage

30

Seventh Inning Stretch

31

32

Gold Hill, North Carolina

6. Inventories of consumable fuels & gases

• Manufacturer utilized coal to heat aggregate. Other common fuels include diesel and propane. Common gases used in business include Nitrogen, Oxygen, and Hydrogen.

– 880k coal inventory discovered at a Rotary Kiln plant that makes lightweight aggregate—utilized to make lighter, durable, and stronger concrete

Rotary Kiln

Bridge built with lightweight aggregate

Gases:

37

Salisbury, North Carolina

• Trailers tagged outside the State of Situs. It is common to see a N.C. based trailer tagged in Oklahoma or Maine. – Tractor trailer leasing companies, Big Box Retailers, and

multi-state carriers commonly register their vehicles outside the State where the property is situated

– $2.5 M Discovery of Value

• Towing businesses utilizing dealer plates on their tow vehicles

• Car Dealers-utilizing dealer plate on personal cars

7. Motor Vehicles & Rolling Stock

38

Retail distribution facility Salisbury, N.C.

Semi-trailer situated in South Carolina

40

S.C. truck with Oklahoma license plate

41

42

43

Salisbury, North Carolina

• Over-reported cost of exempt pollution abatement M&E

• Unreported M&E that is not exempt from taxation – 16.6M cost of dry low NOx combustion system – $57M total discovery of value

8. Pollution Abatement Equipment

44

525 MW Combined Cycle Power Island

45

General Electric 7F Turbine Generator

Low NOx Combustion Equipment

48

Cleveland, North Carolina

• Definition-A device used for cutting out, forming, or stamping material

• Often these assets are consigned at a third party manufacturer

• Often have significant value even after cessation of product (i.e. aftermarket parts)

• Manufacturer will make molds and invoice customer – 20M discovery of molds consigned by truck

manufacturer at a supplier’s plastic injection molding plant

9. Molds, Tools, Jigs, or Dies

49

Plastic Injection Mold, Press with Bending Die & a Cutting Tool

50

51

Burgaw, North Carolina

• Cable Companies-calculating RCN and disposing of any assets above their RCN

• Cell Tower-unreported foundations, site prep work, acquisition cost in lieu of historical cost, excluding process back-up generators, kiosks, etc.

10. Telecommunications Equipment

52

Conclusions

• A tax gap is inevitable – every discernible taxing entity in history, suffers some lost percentage. 1

• We can all agree that over-assessments need to be avoided, however to shrink the tax gap and assure equity we must insure that all property subject to taxation is assessed once.

1 Florida Tax Watch, 2012.

The Finish Line!

54

Discussion & Questions

55

M&E Resources

• American Society of Appraisers, “Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets” (Second Edition, 2005).

• IAAO, Workshop 551 Valuation of Machinery & Equipment Advanced Concepts.

• RSMeans, “The Practice of Cost Segregation Analysis.”

• Institute for Professionals in Taxation, “Property Taxation” (Third Edition, 2004).