TO ALL COUNTY AUDITORS - Bulletin No. 250
FROM: Edgar L Lindley, Tax Commissioner
DATE: January 26, 1981
RE: Validity of book reserves and claims for reduced values
This Bulletin is a review of certain options and requirements
of taxpayers when filing personal property tax returns and of
necessary actions the assessor may then be required to take
when auditing the tax returns under his jurisdiction.
The true value of tangible personal property for tax purposes
is its depreciated book value unless the assessor determines
otherwise. For fixed assets and for inventory, the
depreciated book value is considered to be book cost less
book reserves. A taxpayer may claim a lesser value to be the
true value if he does so in writing at the time of making his
return. The taxpayer must file such claims on prescribed tax
Form 902: Claim For Deduction from Book Value.
Book reserves and claims for lesser values are not to be
automatically accepted as valid without audit. They are to be
investigated for their applicability to the taxpayer's
circumstances as well as to the amount of reserve or
deduction taken. They may be excessive or immaterial in
determining true value.
Book reserves, claims for reduction below book value, and
other deductions from true value must be substantiated by the
taxpayer with factual data supporting both the reason for and
the dollar amount of the reserve or deduction. Unsupported
claims and arbitrary flat-percentage reductions from the true
value of fixed assets or inventory are not acceptable.
A method for determining the true value of depreciable
property has been prescribed for many years. This method is
commonly known as the 302 Computation. Only when special or
unusual circumstances warrant may the taxpayer deviate from
this method. Valid occasions may be: the application of
County Auditor Bulletin 239 for idle equipment; the use of
fair market value when the recent sale of a plant or facility
has occurred; or when the accounting records do not reflect
the actual costs of assets on hand. While these may be
acceptable reasons for lower values, there must be an auditor
investigation before final acceptance can be made. Some
deductions are taken for reasons which may not be acceptable.
A few are temporary idleness; less than 100% use; and
accelerated depreciation rates and methods.
Inventory valuation is also subject to certain rules. While
we begin with book values generated through generally
accepted accounting, some methods or, reserves are not
acceptable. One such reserve is the LIFO reserve. Other
acceptable methods, such as the Retail Inventory Method
described in Rule 5703-3-17, may require the filing of a
claim on Form 902. Reductions for shrinkage, obsolescence, or
slow-moving items are not acceptable unless substantiated.