Can a county assessor deviate from Utah's standard personal property depreciation schedules -- or use an income-approach impairment charge for real property -- when a taxpayer presents evidence of reduced value?

Plain-English summary

A county assessor -- not a private taxpayer -- wrote to the Commission after a personal property appeal in which the county had allowed a market-value adjustment based on the taxpayer's reliance on a federal accounting standard. The assessor didn't appeal that particular decision but wanted general guidance, asking two connected questions in a follow-up letter: (1) whether an assessor can allow a downward adjustment to personal property value using the Financial Accounting Standards Board's SFAS No. 121 (governing impairment of long-lived assets) as grounds for "abnormal obsolescence" under Utah Admin. Code R884-24P-33(B)(3), and (2) whether a similar "impairment" charge can be used to lower a real property valuation using the income approach.

Personal property. The Commission said a taxpayer generally cannot use income information to challenge the standard depreciation schedules in Rule R884-24P-33 -- those schedules should generally govern personal property valuation. But Subsection B.3 of that rule does let a county assessor deviate from the schedules for a specific item when warranted by conditions unique to that item -- deviating for an entire class of property requires the Commission's written approval. On the specific SFAS 121 question, the Commission didn't give a categorical yes or no: it found it conceivable that an SFAS 121-based impairment calculation could produce a more accurate fair market value estimate for a particular item than the standard depreciation schedule, but whether the Commission would accept it in any given case depends entirely on the facts and evidence submitted to support that calculation.

Real property. The income approach is a generally recognized valuation method an assessor may use to determine real property's fair market value. Whether an impairment charge should be a factor within that income-approach calculation again depends on the facts of the specific property and the evidence submitted -- without that evidence in front of it, the Commission said it couldn't decide the general question.

What this means for you

County assessors

Standard depreciation schedules remain the default for personal property valuation, and deviating from them -- even with a recognized accounting standard like SFAS 121 behind you -- requires item-specific evidence, not a general policy shift. Applying such a deviation across an entire class of property needs the Commission's written approval first.

Property owners seeking a lower valuation based on impairment/obsolescence

An accounting-standard-based impairment argument isn't automatically accepted or automatically rejected -- expect the outcome to turn on the specific facts and evidence you present for your particular item or property, not on a general rule either way.

Accountants and appraisers working with property tax valuations

This ruling is a useful example of the Commission declining to give a bright-line answer on using SFAS 121 (or similar accounting-standard impairment concepts) in a property tax valuation context, instead keeping the analysis fact- and evidence-driven on both the personal property and real property sides.

Common questions

Q: Can a taxpayer generally use income information to override Utah's standard personal property depreciation schedules?
A: No, not generally -- the schedules should govern in most cases, with deviation reserved for specific conditions unique to an item, not a general substitute method.

Q: Can an SFAS 121 impairment calculation ever justify a lower personal property value?
A: Possibly, for a specific item, if it's supported by sufficient facts and evidence -- but the Commission wouldn't commit to a blanket rule either way.

Q: Is the income approach an acceptable way to value real property in Utah?
A: Yes, it's a generally recognized valuation method. Whether an impairment charge factors into that calculation depends on the specific facts and evidence for the property in question.

Q: Does this ruling apply to my property or my county's assessment practices?
A: No. It binds the Commission only for the requesting assessor and the facts described. Another taxpayer or assessor can't rely on it as binding, though it may carry some persuasive weight in a dispute with closely similar facts.

Citations and references

Rules:

• Utah Admin. Code R884-24P-33, Subsection B.3 (deviation from depreciation schedules for specific conditions)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-054.htm

Original ruling text

98-054

Response
August 4, 1998

REQUEST
LETTER

RE.
Advisory Opinion

Dear
Honorable Commissioners:

During a recent personal property
appeal an adjustment to market value
for taxation purposes was allowed by the COUNTY based upon the petitioner's reliance
on a federal accounting standard.

I have not chosen to go forward with
an appeal to you concerning this matter. However, I

am
seeking clarification concerning the specific application of the standard used.
I also have a

general
question as to whether the use of an income approach is an acceptable method
for use

in
determination of market value for taxable personal property.

Specifically, can I as an Assessor
allow an adjustment pursuant to the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No.121. Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets disposed of
("SFAS No.121"), as a basis for granting abnormal obsolescence under Tax Commission Administrative Rule
884-24p-33(B)(3)?

Further, if it were to be found that
an adjustment can be made downward should I not

then
be asking all taxpayers for income information in order to see if an increase
in value of

taxable
personal property were warranted?

If I need to clarify any of this
please feel free to call. My direct line is #####. I apologize that I do not have a copy of "SFAS No.121".

Cordially,

NAME

NAME

August 21, 1998

Utah State Tax Commission

Attn: Commissioners

210 North 1950 West

Salt Lake City, Utah 84134

Re: Request for Advisory
Opinion

of
August 4, 1998

Dear Honorable
Commissioners:

I would like to append my
request of August 4th with an additional question.

Is it appropriate for an impairment
charge to be used to justify a lower valuation for real estate or improvements
of this matter.

Cordially,

NAME

September
29, 1998

NAME

RE: Obsolescence
for Personal Property Using the Income Approach

Dear NAME,

We
have received your request for an advisory opinion concerning the use of
personal property depreciation schedules as found in Utah Admin. Code
R884-24P-33 and whether a taxpayer may present income information to support a
value lower than that reached by these schedules. We have also received your second request asking if a similar
�impairment� charge can be used as evidence to lower real property values. Let us address these issues separately.

Personal
Property. You have asked if a
taxpayer can generally use income information to challenge the depreciation
schedules of Rule R884-24P-33? The
answer is no. The personal property depreciation schedules should generally be
used to value and tax personal property in Utah. Nevertheless, Subsection B.3. of that rule does allow the county
assessor to �deviate from the schedules when warranted by specific conditions
affecting an item of personal property.�
The rule further states that deviations from a schedule for an entire
class of property is not allowed without written approval of the Utah State Tax
Commission (�Commission�). From this,
the Commission believes it is the exception where a valuation method other than
applying the depreciation schedules should be used to value personal property,
yet also believes that exceptions do exist depending upon the particular
circumstances surrounding an item of personal property.

Specifically,
you ask if an assessor may deviate from the depreciation schedules and
recognize an impairment adjustment determined using the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.121 (�SFAS
121"), which accounts for the impairment of long-lived assets? The answer depends upon the factual situation
that surrounds an item of personal property and any evidence submitted to
support the calculation of the impairment adjustment. While the Commission believes that deviation from the
depreciation schedules should be the exception, it also finds it conceivable
that an impairment adjustment determined using SFAS 121 may produce a more
accurate estimation of fair market value for a particular item than the
standard depreciation schedule. How
the Commission would decide in an individual case would depend upon the
evidence submitted.

Real
Property. You
next ask if it is appropriate to use an impairment charge to lower the

NAME ADVISORY OPINION

SEPTMEBER 29, 1998

PAGE TWO

valuation for real estate or
improvements. It is generally
recognized that the income approach is one of the valuation methods an assessor
may use to determine the fair market value of real property. Whether the impairment charge is one of the
factors the assessor should use in the income approach calculation would again
depend upon the
factual situation that surrounds the real property and any evidence submitted
to support the calculation of the impairment adjustment. Without receiving evidence concerning these
facts, the Commission cannot determine if the impairment charge should be used
to adjust the real property value.

Please
contact us if you have any other questions.

For
the Commission,

Joe
B. Pacheco, CPA

Commissioner

^^