West Virginia Code of State Rules
Agency 110 - Tax
Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT
Series 110-01P - Valuation of Commercial and Industrial Real and Personal Property for Ad Valorem Property Tax Purposes
Section 110-1P-3 - Appraisal of Valuation of Commercial and Industrial Real Property
Universal Citation: 110 WV Code of State Rules 110-1P-3
Current through Register Vol. XLI, No. 38, September 20, 2024
3.1. Introduction. -- This rule describes the method for determining the appraised value (market value) of commercial and industrial real property other than natural resources real property, land used for farming purposes and operating public utility property.
3.1.1. The market value of
commercial and industrial real property is the price at or for which the
property would sell if it was sold to a willing buyer by a willing seller in an
arms-length transaction without either the buyer or the seller being under any
compulsion to buy or sell. In determining appraised value, primary
consideration shall be given to the trends of price paid for like or similar
property in the area or locality in which the property is situated.
Additionally, for purposes of appraisal of any tract or parcel of real property
used for commercial or industrial purposes, including chattels real, the
appraisal shall consider the following factors:
3.1.1.1. The location of the
property;
3.1.1.2. Its site
characteristics;
3.1.1.3. The ease
of alienation, considering the state of its title, the number of owners, and
the extent to which the property may be the subject of either dominant or
servient easements;
3.1.1.4. The
quantity of size of the property and the impact which its sale may have upon
surrounding properties;
3.1.1.5. If
purchased within the previous eight years, its purchase price and the date of
each purchase;
3.1.1.6. The recent
sale of, or other transactions involving, comparable property;
3.1.1.7. The value of the property to its
owner;
3.1.1.8. The condition of
the property;
3.1.1.9. The income,
if any, which the property actually produces and has produced within the
preceding three (3) years; and
3.1.1.10. Any commonly accepted method of
ascertaining the market value of the property, including techniques and methods
peculiar to any particular species of property if the technique or method is
used uniformly and applied to all property of like species.
3.1.2. There are two (2) types of
improvements which are considered in the appraisal process; these are
improvements to the land and improvements on the land.
3.1.2.1. Improvements to the land are land
improvements, the value of which are included in the value of land. Some
examples of these improvements include privately owned drainage systems,
driveways, walks, etc.
3.1.2.2.
Improvements on the land are buildings and structures. They are valued separate
and apart from the land.
3.1.3. In addition to improvements, other
important considerations affecting the value of land, excluding farm land, are:
3.1.3.1. Location;
3.1.3.2. Size;
3.1.3.3. Shape;
3.1.3.4. Topography;
3.1.3.5. Accessibility;
3.1.3.6. Present use;
3.1.3.7. Highest and best use;
3.1.3.8. Easements;
3.1.3.9. Zoning;
3.1.3.10. Availability of
utilities;
3.1.3.11. Income imputed
to the land; and
3.1.3.12. Supply
and demand for land of a particular type.
3.1.4. Each of these factors should be
considered in the appraisal of a specific parcel. Some factors, however, may be
given more weight than others.
3.2. Generally accepted appraisal methods are used to establish the value of industrial and commercial real properties.
3.2.1. In determining an estimate of fair
market value, the Tax Commissioner shall consider and use where applicable,
three (3) generally accepted approaches to value:
(A) cost,
(B) income, and
(C) market.
3.2.1.1. Cost approach. - To determine fair
market value under this approach, replacement cost of the improvements is
reduced by the amount of accrued depreciation and added to an estimated land
value. In applying the cost approach, the Tax Commissioner shall consider three
(3) types of depreciation: physical depreciation, functional obsolescence, and
economic obsolescence.
3.2.1.2.
Income approach. - A property's present worth is directly related to its
ability to produce an income over the life of the property. The selection of an
overall capitalization rate shall be derived from current available market data
by dividing annual net income by the current selling price of comparable
properties. The present fair market value of the property shall then be
determined by dividing the annual economic rent by the capitalization
rate.
3.2.1.3. Market approach. -
The Tax Commissioner shall apply the market approach by considering the selling
prices of comparable properties.
3.2.2. Correlation. - Once generated, the Tax
Commissioner may consider the various estimates of value in determining a final
value estimate. However, the income approach is ordinarily inappropriate for
properties such as franchised restaurants, governmental properties, hospitals,
etc. In these cases, the cost or market approaches may be more suitable in
estimating fair market value.
3.2.2.a. When
possible, the Tax Commissioner should use the most accurate form of appraisal,
but because of the difficulty in obtaining necessary data from the taxpayer, or
due to the lack of comparable commercial or industrial properties, the choice
between the alternative appraisal methods may be limited.
3.2.3. Industrial and commercial site
classification. - For purposes of valuing active and residual industrial and
commercial land in West Virginia, the Tax Commissioner shall separate valuing
sites into four (4) broad categories: heavy industrial sites, light industrial
or commercial sites, industrial parks, and mine sites. The Tax Commissioner
shall further classify these sites, when appropriate, into active and residual
portions. The Tax Commissioner will consider these classifications when
applying and establishing the valuation method to the industrial or commercial
properties.
3.3. Valuation of leaseholds in industrial and commercial real properties.
3.3.1. General.
3.3.1.1. A leasehold in real property is
taxable for ad valorem property tax purposes, if it has a separate and
independent value from the freehold. Where leaseholds are of short duration,
the rent paid usually reflects income to the owner of the freehold commensurate
with the fair market value of the real property. Under ordinary conditions, the
leasehold itself will not have any ascertainable market value. Consequently, in
normal circumstances, determine the appraised value of the freehold subject to
a leasehold in the same manner that the appraised value of similar commercial
or industrial real property not subject to a leasehold is determined.
3.3.1.2. However, under circumstances
involving long-term leaseholds where the leasehold is itself a marketable asset
of value, the leasehold shall be valued as set forth in this rule. The
leasehold interest being a chattel real shall be listed and taxed as Class III
or Class IV tangible personal property depending on the location of the
freehold.
3.3.1.3. The appraised
value of a freehold estate is the appraised value of the freehold determined
without regard to the leasehold, minus the appraised value of the
leasehold.
3.3.1.4. In valuing a
leasehold:
3.3.1.4.a. The total value of the
property must be estimated and then allocated among the various interests in
the property under the terms of the lease; and
3.3.1.4.b. The appraiser shall determine
whether or not value has been created as a result of a favorable lease, in
addition to the total value of the property.
3.3.1.5. In deciding whether a leasehold has
value, and if so, what value to assign, the appraiser shall:
3.3.1.5.a. Estimate the value of the entire
property, as though not encumbered by the lease; then
3.3.1.5.b. Estimate the value of one (1) of
the partial interests, either the leasehold estate of the lessee or the leased
fee of the lessor.
3.3.1.5.c. The
appraiser shall deduct the value of the partial interest arrived at from the
value of the entire property to obtain the value of the other partial
interest.
3.3.1.6. To
value a leasehold interest, the appraiser shall consider the present
(discounted) worth of the rent saving, when the contractual rent at the time of
appraisal is less than the current market rent. If the land is improved by the
lessee, then the value of the leasehold interest shall be the value of the
saving in ground rent, if any, in addition to the value (not cost) of the
improvements of the lessee. If the contractual rent is greater than the
currently established market rent, the appraiser shall subtract present worth
of the difference from the value of the improvement.
3.3.1.7. When a property is under long-term
lease to a prime tenant, such as a nationally-known chain store concern, and
the estimated useful life of the building exceeds the term of the lease, the
appraiser may use the "Property Residual Technique" of evaluation along with
other generally accepted appraisal techniques, i.e., cost and market
approaches.
3.4. Valuation of commercial and industrial personal property.
3.4.1. General. - The
object of this rule is to provide methodologies for appraising commercial and
industrial furniture, fixtures, machinery, equipment, inventory, material and
supplies.
3.4.2. Situs.
3.4.2.1. The situs of commercial and
industrial furniture, fixtures, machinery, equipment, inventory, material and
supplies shall depend upon an analysis of the residence of the owner, and the
location of the personal property and whether the personal property is subject
to personal property taxation by another state and is taxed by the other
state.
3.4.2.2. All commercial and
industrial personal property belonging to persons or corporations residing in
this State, whether the property is in or out of the State is taxable, as
personal property, unless the property is actually and permanently located in
another state, and is subject to taxation as personal property and is actually
taxed as personal property in the other state.
3.4.2.3. All commercial and industrial
personal property located within this State, though owned by persons or
corporations residing in another state is taxable as personal property by this
State.
3.4.3. Valuation
of commercial and industrial personal property.
3.4.3.1. Three (3) approaches to fair value
considered and used in estimating fair market value are:
(A) cost,
(B) income, and
(C) market.
3.4.3.2. Correlation. - Once generated,
consider the various estimates of value when estimating final value. Of the
three (3) approaches to value, the cost approach may apply most consistently to
machinery, equipment, furniture, fixtures, and leasehold improvements because
of the availability of data. The market approach is used less frequently,
principally due to a lack of meaningful sales. The income approach is not
normally used because of the difficulty in estimating future net benefits to be
derived except in the case of certain kinds of leased equipment.
3.4.3.2.a. When possible, use an audit
appraisal method. Use a physical appraisal method if experiencing difficulty in
obtaining necessary accounting data from the taxpayer or lack comparable
commercial or industrial personal properties.
3.4.3.3. Adjustments. - When physically
inspecting commercial and industrial personal property for appraisal, use three
(3) types of depreciation: should be considered; physical deterioration
depreciation, economic obsolescence and functional obsolescence.
3.4.3.4. Valuation of common commercial and
industrial personal property. Use current appraisal guidelines furnished by the
Tax Commissioner to local assessors when valuing frequently encountered
commercial and industrial personal properties common to numerous businesses
within a taxing district.
3.5. Depreciation Adjustments.
3.5.1. Physical Depreciation - Depreciation
tables for commercial and Industrial personal property are developed using the
Marshall Valuation Service as the source guide.
3.5.2. Economic Obsolescence - Economic
obsolescence can best be measured by either a market approach method or an
Income method. Due to the lack of sales volume for comparable commercial or
Industrial properties, an income approach is normally used. However a market
approach method may be used where the specific facts and circumstances would
indicate that that method would achieve a more accurate measure of
value.
3.5.3. Functional
Obsolescence - Some functional obsolescence is accounted for in the Marshall
Valuation Service depreciation tables. Functional obsolescence can be either
curable or Incurable. Curable functional obsolescence can be measured by the
use of cost to cure methods. Incurable functional obsolescence can be measured
by either a market approach method or an Income approach method. Due to the
lack of sales volume for comparable commercial or industrial properties, an
Income approach method is normally used. However a market approach method may
be used where the specific facts and circumstances would Indicate that that
method would achieve a more accurate measure of value. Cost to cure means the
cost of repairs, the cost of investment in substitution or replacement of
property and the cost of additional property, including installation costs,
necessary to bring a subject property to current market standards or industry
standards and optimize the value of the property.
3.5.3.1. Curable and Incurable Functional
Obsolescence.
3.5.3.1.1. Superadequacy --
Superadequacy is functional obsolescence which occurs when property has
unnecessary or excess productive capacity such that the commercial or
Industrial property is underutilized, or where the property or a portion or
component of the property adds no value based on the current use of the
property or anticipated future use of the property. Superadequacies often
result from decreases in demand for a product produced at the subject property,
such that the productive capacity of the subject property is underutilized. A
superadequacy is curable if it is economically feasible to remove or remediate
the superadequacy, and is not curable if removal or remediation of the
superadequacy is not economically feasible.
3.5.3.2. Deficiency - Deficiency is
functional obsolescence which occurs when property has a capacity or quality
that is less than current market standards or industry standards, and which
requires additional investment in repairs, or in substitution or replacement of
property or installation of additional property, to bring the subject property
to current standards and improve the income producing capacity or productivity
of the property. Deficiencies often result from age and from failures of timely
maintenance, repairs and capital replacements or capital improvements. A
deficiency is curable if it is economically feasible to remove or remediate the
deficiency, and is not curable if removal or remediation of the deficiency is
not economically feasible.
3.5.4. Special Circumstances - In the event a
commercial or industrial facility is shut down on the assessment date, economic
and functional obsolescence cannot easily be determined. In these cases the Tax
Commissioner shall consider the following.
3.5.4.1. Plant Shut Down Temporarily - An
income approach method shall be considered based on the anticipated restart
date and discounted back to the assessment date.
3.5.4.2. Plant Shut Down Indefinitely -
Personal property should be appraised considering an orderly sale of the
property, either piecemeal or as a unit, whichever provides the more accurate
valuation, depending on the facts and circumstances of the particular case.
Personal property with a discernible market value should be appraised at that
value. Other personal property should be appraised at salvage or scrap
value.
Disclaimer: These regulations may not be the most recent version. West Virginia may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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