REBUTTAL TO THE PERSONAL PROPERTY COMMITTEE OF THE LOUISIANA ASSESSORS ASSOCIATION PROPOSED CHANGES TO CHAPTER 25 FOR THE 2007 REAL/PERSONAL PROPERTY RULES AND REGULATIONS OF THE LOUISIANA TAX COMMISSION Presented by Conrad T. Comeaux Lafayette Parish Assessor July 10, 2006
REBUTTAL TO THE PERSONAL PROPERTY COMMITTEE OF THE LOUISIANA ASSESSORS ASSOCIATION PROPOSED CHANGES TO LTC RULES AND REGULATIONS The Personal Property Committee of the Louisiana Assessors Association submitted proposed changes to the list of equipment and business activities located in Table 2503.A., Suggested Guidelines For Ascertaining Lives of Business and Industrial Personal Property, of Chapter 25, General Business Assets, of the LTC Rules and Regulations. The committee made recommendations in the proposal based on review of economic life values used in three other states; Mississippi, Alabama and Washington State. The committee apparently considered only the economic life assigned to the specific item. The committee, however, failed to consider the percent good table associated with the economic life. The comparison table provided by the Assessors Association committee would lead one to believe that a 5-year life in Louisiana is the same as a 5-year life in Washington, yet the percent good tables are quite different. The table and chart below demonstrate the difference between a 5-year life in Louisiana, Alabama and Washington. Also included in the table and chart is a 6-year life in Washington. Mississippi is not shown because this state uses basically the same methodology as Louisiana. 5 Yr Life Comparison Age LA AL WA 5yr WA 6yr 1 0.85 0.93 0.700 0.760 2 0.69 0.85 0.490 0.578 3 0.52 0.69 0.343 0.439 4 0.34 0.52 0.240 0.334 5 0.23 0.34 0.168 0.254 6 0.18 0.23 0.118 0.193 7 0.20 0.146 8 0.18 0.111 9 0.16 10 0.14 One should note that the percent good values for the 5-year life in Louisiana are clearly greater than both the 5-year and 6-year percent good values in Washington. The table and chart below illustrate how Washington s 5-year life percent good values are basically the same as Louisiana s 3-year life values. 2
LA/WA Compare Age LA 3yr WA 5yr 1 0.70 0.700 2 0.49 0.490 3 0.34 0.343 4 0.16 0.240 5 0.168 6 0.150 The comparison of Louisiana s economic life values to those from another state should also indicate which Louisiana percent good table most approximates that state s economic life. The table below contains those items from the Assessors Association committee proposal that were color coded for discussion by the committee. The column labeled Life in represents the current and proposed economic lives in Louisiana, as presented by the committee. Note that Texas has been added, for this rebuttal, to the list of states used for comparison. Texas is another border state and is most competitive in the business area. Also note that the state of Washington has additional information added to its column. The information in parentheses, like (3), was added to illustrate which Louisiana Percent Good table most resembles the Washington economic life noted by the Assessors Association committee. The highlighted figures have either been corrected or added in this rebuttal. The double figures in parentheses, like (3-5), mean that Washington s percent good values for a 6-year economic life fall between the Louisiana 3 and 5 year percent good values. Business Activity/Type of Equipment Life In MS AL WA TX Agricultural Machinery & Equipment 10 Feed Mill Equipment (Production Line) 20 20.5 (15-20) Air Conditioning & Heat Repair 10 10 8 Air Conditioning Single Room Unit 10 9 (5-8) Amusement Devices (Music, Pinball 12 Mach., etc.) VCR & DVD Players 5 10 6 (3-5) Amusement & Theme Parks 12 13 10 10 Antenna (ex: Mounted on Towers (see Telephone Cellular) Auto Parts Retail 10 10 8 3
Business Activity/Type of Equipment Life In MS AL WA TX Auto Quick Service 10 10 8 Auto Repair M & E 10 Diagnostic Equipment (Electronic) 8 6 (3-5) Small Tools 5 6 (3-5) Banks Alarm Systems 8 6 (3-5) Automatic Teller Machines (ATM s) 8 Encoders 10 Furniture 12 Safety Deposit Boxes 25 Vault Doors 25 Value @ Cost Video Equipment 5 6 (3-5) C.A.T.V. Equipment 6 (5) Antenna 12 13 6 (3-5) 6 (5) Computers 5 6 10 6 (3-5) Headend Activity (Equipment @ 10 11 9 (5-8) 6 (5) Tower) House Drops & Converters 8 11 9 is incorrect, it should be 5 6 (5) (3) P & E (Distribution) 12 10 10.5 (10) 6 (5) Test Equipment and Tools 8 9 6 (3-5) 6 (5) Tower 20 24 20.5 (15-20) Cash Registers & Scanners (Also See Supermarket) 8 6 (3-5) Chiropractic Equipment 12 12 11 (10) 8 Cold Storage Warehouse Equipment 12 10 20 Compressors (General Business Assets 12 8 Only) Computers 5 6 10 is incorrect, should be 3 6 (3) 3 Construction M & E Cranes 20 Mobile Telescopic 10 9 (5-8) Coolers (water) 10 Water Bottles 3 Copy Machines 8 10 10 4.5 (3) Cotton Gins 20 12 Credit Card Machines (See Supermarket POS Equipment) Day Care (Exclude Office, Kitchen & Computer Assets) 5 5 6 (3-5) 8 4
Business Activity/Type of Equipment Life In MS AL WA TX Digital Cameras & Recorders 5 5.5 (3) Electronic Equipment 8 6 6 (3-5) Fitness Equipment 8 Manual 10 12 9 (5-8) Electronic 8 6 (3-5) Florist Retail (Except Computers and 12 10 Other Office Equipment) 9 (5-8) 8 Gaming Equipment: Electronic, Slots or Computers 5 Mechanical, Slots 10 Lotto Machines 5 4.5 (3) GPS Receivers (Hand Held) 5 4.5 (3) Hospital & Nursing Home Equipment 12 High Tech (Computer Driven) 5 6 10 6 (3-5) Equipment Leasehold Improvements 12 9 (5-8) Lumber & Wood Products Industry Logging M&E 10 8 (5-8) 8 Log Stackers 10 8 (5-8) Pulp, Paper & Paperboard M&E 20 21 (15-20) 10 Plywood & Veneer M&E 20 18 (15) Sawmills Portable 12 6 10.5 (10) 8 Stationary 20 10 19, this should be 18 (15) Shake & Shingle Mills Portable 12 Stationary 20 Machine Shop M & E (Maintenance) 12 7 10 12.5 (10) 10 Machine Shop M & E (Production) 20 14 12 20.5 (15-20) Medical Equipment 12 Computer Driven 5 6 10 6 (3-5) Metal Fabrication & Extrusion Mfg. M & E 20 20.5 (15-20) Movie (Film Making) 8 8 Music Studio Recording Equipment 8 6 (3-5) Music Systems (Background) 8 6 (3-5) Newspaper M & E Press 15 Photographic 10 Computer 5 6 6 6 (3-5) Other M & E 15 Nursing Home Equipment 12 Mattresses 5 4.5 (3) Office Computers 5 6 10 6 (3) 3 5
Business Activity/Type of Equipment Life In MS AL WA TX Office Copy Machines, Faxes, Printers 8 10 10 4.5 (3) Office Electronic Machines 8 10 10 10.5, this should be 6 (3-5) DELETE - Office Machines (including 10 electric) Oil & Gas Support Industries (ex. Mud Companies, etc.) Photography Equipment 8 6 10 9 (5-8) 10 One-hour Photo processing Equipment 8 9 (5-8) 5 Digital/Computerized Equipment 6/10 (3) Portalets 5 11 (10) Radio & Television Broadcasting Equipment 8 6 5 7.5 (5-8) 6 (5) C.A.T.V. (Cable Systems) Digital Radio Equipment 5 Recording Equipment 8 5 7.5, this should be 6 (3-5) Service & Repair Equipment 10 Towers 20 Rental Equipment Public U-Rent (except heavy equipment) 8 8 6 (3-5) Video Tape, DVD, Game Rental 3 10 Water Coolers 10 Water Bottles 3 Sheet Metal Fabrication 12 14 12 12.5 (10) 12 Small Tools perishable 5 6 (3-5) Supermarkets Cash Register Scanners 8 6 (3-5) POS Computer Systems (Point of Sale) 5 4.5 (3) PA Systems (Public Address) 10 7 (5) Walk-In Coolers 12 Surveying Equipment (Also See 12 10.5 (8) 8 Professional Equip.) Telephone & Intercom Systems Electronic 8 5 (3) 6 (5) Manual (non-electronic) 10 Telephone Cellular 6 (5) Analog & Digital Switching 10 10 Antenna 12 13 6 (3-5) Telephone 5 6 4.5 (3) Power Equipment 12 13 6
Business Activity/Type of Equipment Life In MS AL WA TX 10 10 Telephone Cellular (continued) Radio Frequency Channel Software 5 Transmission Equipment 10 10 Towers 20 24 20.5 (15-20) Theater Projection Equipment 10 10 9 (5-8) 10 F & F 15 8 (5-8) 8 VCR & DVD Equipment (If Rental Units, See Rentals) 5 6 (3-5) COMPUTER EQUIPMENT In considering which economic life to apply to computers, networking systems, computer peripheral equipment and computer-integrated machinery and equipment, the Commission should have correct data from which to derive a conclusion. The table and chart below illustrate how other states value computer equipment compared to Louisiana s current 5-year life percent good table and the 3-year life percent good table recommended by the Lafayette Parish Assessor. The states included in this comparison are Mississippi, Alabama, Washington, Texas, California and Michigan. California and Michigan were included because both states assessment governing bodies have studied the sales of used computer equipment in the market. Age LA Current 5yr MS AL Computer Equipment Percent Good LA prop 3yr WA TX CA MI 1 0.85 0.87 0.84 0.70 0.70 0.68 0.73 0.60 2 0.69 0.73 0.67 0.49 0.49 0.44 0.47 0.44 3 0.52 0.57 0.44 0.30 0.34 0.28 0.30 0.32 4 0.34 0.41 0.30 0.16 0.24 0.10 0.19 0.24 5 0.23 0.30 0.20 0.06 0.17 0.05 0.12 0.19 6 0.18 0.20 0.18 0.15 0.02 0.08 0.15 7 0.16 0.05 0.08 8 0.14 0.03 9 0.12 0.02 10 0.10 7
Computer Equipment Percent Good Comparison 1.00 0.90 Percent Good 0.80 0.70 0.60 0.50 0.40 0.30 LA Current MS AL LA prop WA TX CA MI 0.20 0.10 0.00 1 2 3 4 5 6 7 8 9 10 Year From this table and chart, one will note that the only state in the comparison that currently taxes computer equipment at a higher rate than Louisiana is Mississippi. By adopting the 3-year percent good table and economic life for computers recommended by the Lafayette Parish Assessor, Louisiana s taxation of computers will be comparable to that of these other states. More importantly, however, is that by valuing computer equipment with a 3-year table, the percent good applied to this equipment will be more in accord with the actual fair market value of these goods, as evidenced in the Proposal presented by the Lafayette Parish Assessor. SUMMARY Care should be exercised when simply comparing economic life tables of personal property from various states. Any comparison of this nature should include not only the economic life applied to these assets but the corresponding Percent Good tables. Only data from states which have 8
performed studies of economic lives and percent good factors should be incorporated into the comparison. Comparing Louisiana s economic lives and percent good factors with those used in other states that have done no studies, but rather rely on the antiquated data from Marshall & Swift, is pointless. Representatives of Marshall & Swift readily admit that their personal property depreciation tables have not been updated since they were first introduced over 20 years ago. By continuing to use a Percent Good table based on the Marshall & Swift personal property depreciation table, the Louisiana Tax Commission is causing the assessment of all personal property in Louisiana to be non-compliant with the State s Constitution and Laws, which call for assessments to be determined based on the fair market value of the assets. The use of 20-year old percent good values that are not related to current sales data of used equipment means that personal property in Louisiana is not being assessed according to its fair market value. This practice is tantamount to an assessor using Marshall & Swift construction cost data from 20 years ago to value buildings in the year 2006! Changes in technology, financing, economics and tax laws have caused the sale values of used equipment to change. Computers, copiers, and high-tech machinery and equipment are but a few examples of this used equipment value shift. The Louisiana Tax Commission should not adopt the proposed economic life table proposed by the Assessors Association Personal Property Committee. The commission s staff should evaluate the economic lives and percent good tables used by other states which have performed studies or reviewed recent market data to derive their conclusions. Texas, Washington, California and other states have used the same or related market data sources to develop their tables as were presented in the proposal from the Lafayette Parish Assessor. 9