Personal Property Tax

County Bulletin

TO: ALL COUNTY AUDITORS - Bulletin No. 124

FROM: Stanley J. Bowers, Tax Commissioner

DATE: April 8, 1958

RE: Computing True Value of Furniture, Fixtures and Equipment of Hotel, Retail. and Other Establishments.

For many years it has been common practice for persons engaged in hotel, retail and certain other businesses to maintain their records on an exhaustion method. 'This exhaustion method entails the write off of the cost and accumulated reserves for depreciation of furniture, fixtures and equipment at the time such sets become fully depreciated. Of course, such a write-off does not necessarily coincide with the actual disposal of the assets and for this reason records so maintained do not lend themselves to a true value computation (302 method) as used by this Department for many years. The accuracy of the 302 method depends upon the availability of costs of all furniture and fixtures physically on hand and in use or held for use.

Experience indicates that some portion of the assets so written off as being fully depreciated are still on hand and in use or held for use. Recognizing that there is no absolute way short of a physical appraisal or an inventory to evaluate such fully depreciated assets still on hand and in use or held for use, this Department has adopted and is using presently, the method outlined in the sample computation affixed hereto.

In summary the method proposed provides that all fully depreciated write-offs be added back at cost by year of acquisition for all years including, a ten year period preceding the year in which the twenty per cent (20%) utility value is reached on the regular 302 method. It is assumed, with respect to such add backs, that an amount equal to ten per cent (100%) of the cost thereof win disappear each year commencing with the year preceding the oldest year of acquisition appearing on the regular 302 computation until a value of zero is reached.

It is to be noted and emphasized that this revised method is only to be used, and will only be followed, in instances where book records are maintained on an exhaustion system or where book records do not include all furniture, fixtures and equipment items still on hand and in use or held for use.

This revised method for determining the true value of items of furniture, fixtures and equipment, which have been written off the book records, but which are still on hand and in use or held for use, does not, under any circumstances, penalize a person recording disposals of assets. On the other hand, it does uniformly value assets which are still on hand but written off of the taxpayers books of records by reason of becoming fully depreciated.

EXHAUSTION METHOD (Bull. 124)

The exhaustion concept assumes that items of property which have aged to the "floor" of the 10% annual allowance are disposed of, thereafter, at a uniform rate of 10% per year.

Since a 10-year "life" is indicated by both the 10% annual allowance and the Class III percentages, the assumed disposal rate is continued in1980 and subsequent returns.

Comparison:

10% Annual Allowance                                                      Class III Percentages

Acq. Year Disposals Effective Pct. Disposals Effective Pct.

1958

-100%

0

 

1959

- 90%

2

   

1960

- 80%

4

-100%

0

1961

- 70%

6

- 90%

1.9

1962

- 60%

8

- 80%

3.8

1963

- 50%

10

- 70%

5.6

1964

- 40%

12

- 60%

7.5

1965

- 30%

14

- 50%

9.4

1966

- 20%

16

- 40%

11.3

1967

- 10%

18

- 30%

13.2

1968

 

20

- 20%

15.0

1969

 

22.5

- 10%

16.9

1970

 

25

18.8

1971

 

27.5

 

24.6

1972

 

30

 

30.5

1973

 

35

 

36.3

1974

 

45

 

42.2

1975

 

55

 

51.5

1976

 

65

 

62.0

1977

 

75

 

72.4

1978

 

85

 

82.8

1979

 

95

 

93.2

Note: *Computation of assumed disposals under the cost-index method is not affected by the change to composite group-lives. The cost-index method relates only to costs and disposalS-not valuation percentages.

Department of Taxation of Ohio

EXAMPLE OF INITIAL TRUE VALUE COMPUTATION – HOTELS RETAIL ESTABLISHMENTS

DEPRECIATING BY EXHAUSTION METHOD - 10 PERCENT DEPRECIATION RATE

1957 Return

#1 #2 #3 #4 #5 #6 #7 #8

Year
Acquired

Cost at
End 12/31/55

Add Back Fully
Depreciated and Unrecorded
Disposal Write-Offs at Cost 1935-36

%

Estimated Disposal of Items in #3 During 1956 Cost (3x4)

Estimated Remaining Cost of Items in #3 12/33/56
(3--9)

Sound Value %

Sound Value $

1935

 

6,000

100

6,000

-0-

20

-0-

1936

 

67,909

90

61,118

6,791

20

1,358

1937

 

96,938

80

77,550

19,388

20

3,878

1938

 

6,891

70

4,824

2,067

20

413

1939

 

-0-

60

-0-

-0-

20

-0-

1940

 

6,721

50

3,361

3,360

20

672

1941

 

15,487

40

6,195

9,292

20

1,858

1942

 

8,978

30

2,693

6,285

20

1,257

1943

 

93,241

20

18,648

74,593

20

14,919

1944

 

6,543

10

654

5,889

20

1,178

SUBTOTAL

 

308,708

 

181,043

127,665

 

25,533

   

(A)

 

(B)

(c)

 

(D)

 

 

Cost at End of 12/31/55

Additions & Transfers in 1956

 

Disposals & Transfers Out
1956

Cost at End 12/31/56

 

 

1945

7,540

     

7,540

20

1,508

1946

7,593

     

7,593

22 ½

1,708

1947

6,754

     

6,754

25

1,689

1948

12,010

   

9,800 (g)

2,210

27 ½

608

1949

10,928

1,460 (f)

   

12,388

30

3,716

1950

89,777

     

89,777

35

31,422

1951

75,766

14,900 (e)

 

12,000 (g)

89,466

45

40,260

1952

13,758

     

13,758

55

7,567

1953

23,000

   

1,300 (g)

21,700

65

14,105

1954

17,773

     

17,773

75

13,330

1955

8,695

     

8,695

85

7,391

1956

________

96,323

 

________

96,323

95

91,507

Subtotal

273,594

112,683

 

12,300

373,977

 

214,811

Gd.Total

273,594

421,391

 

193,343

501,642

 

240,344

  1. Total Add-back of fully depreciated and unrecorded disposal write-offs at original cost.
  2. Total estimated disposals.
  3. Estimated remaining cost of (A).
  4. Sound Value of (C).
  5. Add-back of fully depreciated items with less than a 10 year life.
  6. Transfer in current year.
  7. Recorded disposals – current year.