Volume 5: Personal Property All Chapters

Legal Basis

The Colorado Constitution and the Colorado Revised Statutes are the legal foundation upon which all valuations for assessment are determined. Taken together with valuation procedures and case law, the Constitution and statutes provide the necessary guidance for the valuation of all property for ad valorem (property tax) purposes.

The constitutional and statutory references in this manual are taken from the Colorado Revised Statutes. The Colorado Revised Statutes, commonly called the "Red Books," are reenacted by the Colorado General Assembly and distributed by LexisNexis.

The Division of Property Taxation produce the Statutory Index in the back of Volume 2, which provides copies of the relevant portions of the Constitution and an index of Constitutional and statutory citations. For questions involving legal interpretations or when litigation is involved, reference should always be made to the Colorado Revised Statutes (C.R.S.).

The ad valorem tax law in Colorado is specific in that it mandates the consideration of the three approaches to value in determining the value of personal property. The assessor should document the process by which the three approaches were considered and the reasons why a particular approach produced the most representative values for a class of property as required by § 39-1-103(5)(a), C.R.S., and Montrose Properties v. Board of Assessment Appeals, 738 P.2d 396 (Colo. App. 1987).

However, the statutes also require that if the taxpayer has timely and properly filed the personal property declaration schedule, including costs of acquisition, installation, sales/use tax, and freight to the point of use, the cost approach shall establish the maximum value and the market or income approaches can only be used to establish value if they produce a lower value than the cost approach as required by § 39-1-103(13), C.R.S. The law is also specific in mandating which property is taxable and which is exempt.

Assessor’s Responsibility

The county assessor is the official who is responsible for the discovery, listing, classification, and valuation of all taxable property within each county, except public utility property which is the responsibility of the Division of Property Taxation (Division).

Property Discovery

Discovery is the process whereby the assessor locates or discovers property to be valued. There are several techniques and sources of information useful to the assessor to accomplish the discovery of property. A complete discussion of the discovery process is found in Chapter 2, Discovery, Listing, and Classification.

Property Listing

The assessor is required by § 39-5-101, C.R.S., to list all real and personal property located in the county on the assessment date.

A declaration schedule form, on which the taxpayer who owns taxable personal property shall list all personal property, must be furnished to the taxpayer as soon after January 1 as practicable as required by § 39-5-108, C.R.S. Additional information regarding the listing of personal property is found in Chapter 2, Discovery, Listing, and Classification.

Property Classification

Property is defined by § 39-1-102(13), C.R.S., as both real and personal property.

Colorado statutes require that certain procedures be used for valuation of different kinds of property. Therefore, prior to valuation, the assessor classifies personal property based on the classification system established by the Division of Property Taxation.

All classes and subclasses established by the Division are listed in ARL Volume 2, Administrative and Assessment Procedures, Chapter 7, Abstract, Certification, and Tax Warrant.

Real Property

Real property is defined in § 39-1-102(14), C.R.S. The definition may be paraphrased as all lands or interests in lands, all mines, quarries, minerals in and under the land, all rights and privileges thereunto, and improvements.

Improvements are defined in § 39-1-102(6.3), C.R.S., as "all structures, buildings, fixtures, fences, and water rights erected on or affixed to land, whether or not title to such land has been acquired."

Fixtures

Fixtures are defined in § 39-1-102(4), C.R.S. The definition may be paraphrased as those articles that were once movable chattels, but have become an accessory to or a part of real property by having been physically incorporated therein or annexed or affixed thereto. Fixtures include systems for the heating, air conditioning, ventilation, sanitation, lighting, and plumbing of a building. These systems will be collectively referred to as fixture systems.

Fixtures do not include machinery, equipment, or other articles related to a commercial or industrial operation, which are affixed to the real property for proper utilization of such articles. In addition, for property tax purposes only, fixtures do not include security devices and systems affixed to any residential improvements including, but not limited to security doors, security bars, and alarm systems. Refer to Chapter 2, Discovery, Listing, and Classification, for a more complete discussion of fixture systems.

Personal Property

Personal property is defined in § 39-1-102(11), C.R.S. The definition may be paraphrased as everything which is the subject of ownership and which is not included in the term real property. Personal property includes machinery, equipment, and other articles related to the business of a commercial or industrial operation rather than components of fixture systems that are required for the proper operation of the improvements.

Taxable Personal Property

According to § 39-1-102(16), C.R.S., "'Taxable property' means all property, real and personal, not expressly exempted from taxation by law." The assessor has the responsibility to determine if property is exempt from property taxation under Colorado law, except for property granted exemption by the Property Tax Administrator under §§ 39-3-106 through 39- 3-113.5, and § 39-3-116, C.R.S. All personal property is taxable in Colorado unless specifically exempted by sections 3 to 6 of article X of the Colorado Constitution.

Exempt Personal Property

To be valid, the property tax exemption must be described in the Colorado Constitution. Several classes of personal property, both private and public, are listed in the Constitution as being exempt from property taxation. Colorado Constitutional exemptions are shown in four categories below. Applicable statutory citations follow these Constitutional exemption categories under the topic heading Statutory Exemptions.

Private Property:

Sections 3 to 6 of article X of the Colorado Constitution describe the following categories of private property as being exempt:

• Nonproducing unpatented mining claims
• Household furnishings not used to produce income at any time
• Personal effects not used to produce income at any time
• Inventories of merchandise, materials and supplies that are held by a business primarily for sale or consumption by the business
• Livestock
• Agricultural and livestock products
• Agricultural equipment used on a farm or ranch in the production of agricultural products
• Intangible personal property not owned by a state assessed public utility, e.g., stocks and bonds; copyrights, patents, trademarks, and other special privileges; franchises; contract rights and obligations; and operating software. Intangible personal property is exempted by 39-3-118, C.R.S. Certain intangible personal property, e.g., stocks and bonds, once was taxable, but its status was changed to exempt by Constitutional amendment. Computer software was exempted in 1990.

Certain classes of property in sections 3 to 6 of article X of the Colorado Constitution are exempt by definition and the assessor has the responsibility to determine whether or not property meets these criteria for exemption.

A complete discussion of the private exemptions described in the Colorado Constitution is found in Chapter 2, Discovery, Listing, and Classification.

Public Property:

Section 4 of article X of the Colorado Constitution exempts all personal property owned by the state, counties, cities, towns, other municipal corporations, and public libraries. The exemptions described in section 4 of article X of the Colorado Constitution include property owned by a political subdivision of the state, including school districts and special districts.

The property of the United States is exempt from all taxes imposed by the state of Colorado, including property taxes. The exemption of U. S. government property from state taxes is found in Section 4 of the Enabling Act. The Enabling Act allowed Colorado to enter the Union in 1876. Specific information about public property exemptions may be found in ARL Volume 2, Administrative and Assessment Procedures, Chapter 10, Exemptions.

Property Dedicated to Religious Worship and Charitable Purposes:

Section 5 of article X of the Colorado Constitution authorizes the exemption of property used for religious worship, private nonprofit schools and charitable purposes. The taxpayer must prove qualification for exempt status after filing an application with the Property Tax Administrator as described in § 39-2-117, C.R.S. Specific definitions for property exemptions under the provisions of Section 5 of the Colorado Constitution are found in §§ 39-3-106 to 113 and 39-3-116, C.R.S. Any questions about these exemptions should be directed to the Division of Property Taxation, Exemptions Section.

Self-Propelled Equipment, Motor Vehicles, and Other Mobile Equipment:

All motor vehicles, wheeled trailers, semi-trailers, trailer coaches and mobile and self propelled construction equipment are valued based upon a graduated specific ownership tax, which is imposed in lieu of ad valorem taxation as required by section 6 of article X of the Colorado Constitution and title 42 of the Colorado Revised Statutes.

Statutory Exemptions

The following is a reference list of categories of exempt property and their corresponding
citations:

** Exemption initially must be granted and then be reviewed annually by the Property Tax Administrator. Any questions regarding these exemptions should be directed to the Division of Property Taxation, Exemptions Section.

Valuation for Assessment

Appraisal of the current actual value of personal property is described in Chapter 3, Valuation Procedures.

Level of Value

The current actual value of personal property as of the assessment date must be adjusted to the level of value in effect for real property as required by §§ 39-1-104(10.2)(a) and (12.3)(a)(I), C.R.S. The Division publishes Level of Value (LOV) Factors to adjust the actual value of personal property to the level applicable for real property. LOV Factors are found in Chapter 4, Personal Property Tables.

Assessment Rate

In Colorado, the assessor must determine the assessed values. Assessed values are calculated using a percentage, i.e., an assessment rate. The property's actual value multiplied by the appropriate assessment rate results in assessed value.

Historically, the assessment rate for most personal property was 29 percent as required by §39-1-104(1), C.R.S. However, for tax year 2023, the personal property assessment rate (except for renewable energy property) was temporarily reduced to 27.9 percent. For 2024, the assessment rate for personal property is 29 percent.

For tax years 2022, 2023, and 2024, renewable energy personal property valued under §39-5-104.7, C.R.S, is assessed at 26.4 percent.

Suspicion of Removal

If at any time the treasurer believes that taxable personal property may be removed, dissipated, or distributed so that the taxes would not be collectible, the treasurer may immediately collect the taxes on such property. Upon request of the treasurer, the assessor must certify the current year's valuation of personal property that is under suspicion of removal as required by § 39- 10-113(1)(a), C.R.S. If the mill levy for the current year has not been fixed and made, the mill levy for the previous year shall be used to determine the amount of taxes due.

Valuation Certification

The assessor has responsibilities concerning the certification of various values. These responsibilities include the following:

1. Certification of values, including personal property values, to the taxing entities, the Division of Local Government, and to the Department of Education as required by §§ 39-5-128(1), 39-5-121(2), and 39-1-111(5), C.R.S.
2. Certification of the value associated with personal property that the treasurer believes may be removed or transferred prior to payment of personal property taxes as required by § 39-10-113, C.R.S.
3. Delivery of the tax warrant as required by § 39-5-129, C.R.S.

Tax Warrant

As soon after the taxes have been levied, but not later than January 10, the assessor must deliver the tax warrant to the county treasurer. The tax warrant is a public document and must be available for inspection by the public in the assessor's office.

The tax warrant contains the assessment roll which is a listing of the names of all taxpayers in the county, the class of their taxable property, its assessed valuation, the taxes levied against the property and the total amount of all property taxes levied in the county. The treasurer is required to collect all taxes listed in the tax warrant, § 39-5-129, C.R.S.

Taxpayer’s Responsibilities

The personal property owner has several statutory duties in the valuation and assessment of personal property. These range from the submission of the annual personal property declaration schedule, as required by §§ 39-1-120(1)(a) and 39-5-108, C.R.S., to the final payment of the personal property taxes levied against the property as required by §§ 39-10-102 and 103, C.R.S. Taxpayers' statutory duties and requirements are discussed in the paragraphs that follow.

Submitting the Property Declaration Schedule

The primary responsibility of the taxpayer is the submission of information regarding the taxpayer's property to the assessor. This responsibility may be broken out as follows:

• Completion and submission of the declaration schedule
• Submission of additional information pertinent to the valuation of the property

The statutes describe filing requirements for both personal and real property taxpayers.

Personal Property Filing Requirements

Taxpayers owning taxable personal property are required to complete and return the Personal Property Declaration Schedule to the assessor by no later than April 15 of each year. In accordance with § 39-1-120(1)(a), C.R.S., documents that are required to be filed (declaration schedules) that are mailed are “deemed filed with and received by the public officer or agency to which it was addressed on the date shown by the cancellation mark stamped on the envelope or other wrapper containing the document required to be filed.” The taxpayer must provide a list of all property owned or in the taxpayer's possession or under the taxpayer's control as of January 1. The property must be described in sufficient detail for the assessor to make a valuation as required by §§ 39-5-107, 108, 110(1), and 114, C.R.S.

Taxpayers should include a listing of any leasehold improvements, also known as tenant improvements or trade fixtures, on the declaration schedule as required by §§ 39-5-108 and 116, C.R.S.

Taxpayers may request an extension of ten or twenty days for filing the personal property declaration schedule. Any requests for extension must be made in writing by April 15. The fee for extension is two dollars per day for the number of days requested ($20 or $40), regardless of the number of schedules to be filed by the taxpayer as required by § 39-5-116, C.R.S.

The Personal Property Declaration Schedule and any attachments to it are private, confidential documents as required by § 39-5-120, C.R.S.

Failure to File the Declaration Schedule

When the taxpayer fails to return a declaration schedule required by statute by April 15, or if no request for extension was filed, or if the declaration is submitted after the last day of the extension period, the assessor shall impose a late filing penalty of 15 percent of the taxes due or $50.00, whichever is less, pursuant to § 39-5-116, C.R.S.

The failure of the assessor to receive a declaration schedule required by statute does not invalidate an assessment based upon the “Best Information Available” (BIA). Assessors may make BIA valuations based upon the “Best Information Available” to them as permitted by §§ 39-5-116 and 118, C.R.S. In Property Tax Administrator v. Production Geophysical et al., 860 P. 2d 514 (Colo. 1993), abatements for BIA values in excess of what should have been reported, had the taxpayer filed a declaration schedule, were disallowed. Note that to be considered a BIA assessment, the taxpayer must not have timely filed a declaration schedule or legally requested and paid for a filing extension and timely filed in line with the requested extension for the tax year.

A complete discussion of BIA assessments is found in Chapter 3, Valuation Procedures.

Failure to Fully and Completely Disclose

A taxpayer who owns taxable personal property fails to make full and complete disclosure if the taxpayer submits information on the declaration schedule that is false, erroneous, or misleading or fails to include all personal property owned by the taxpayer as described in § 39-5-116(2), C.R.S.

If any such taxpayer, to whom one or more declaration schedules have been mailed or upon whom the assessor has called and left one or more schedules, fails to complete and return a personal property declaration schedule to the assessor by the next April 15, the assessor shall impose a late filing penalty of $50.00 or, if a lesser amount, fifteen (15) percent of the amount of tax due on the valuation for assessment determined for the personal property for which any delinquent schedule or schedules are required to be filed, as provided for in § 39-5-116(1), C.R.S.

If any taxpayer, to whom two successive declaration schedules have been mailed or upon whom the assessor has called and left one or more schedules, fails to make a full and complete disclosure of personal property, the assessor shall apply a late filing penalty as provided for in § 39-5-116(1), C.R.S., and upon discovery, determine the actual value of such undisclosed property on the basis of the “Best Information Available” (BIA).

When, after the BIA assessment has been determined, a complete rendition of such property is made and in the event that the BIA value omitted the actual value of certain personal property, the assessor may impose a penalty of not more than 25 percent of the omitted personal property’s assessed value as provided for in § 39-5-116(2), C.R.S.

A penalty valuation can be applied only once, i.e., when it is discovered that the taxpayer failed to make a full and complete disclosure of specific omitted personal property. It is the assessor's responsibility to identify the omitted personal property and its assessed value in the event of a taxpayer appeal of the penalty valuation.

The assessor must notify the taxpayer of the failure to make full and complete disclosure and allow the taxpayer ten days from the date of notification to comply as required by § 39-5-116, C.R.S. Additionally, the percentage of omitted assessed value applied as a penalty should be documented as county policy and applied consistently throughout the county.

Further information on full and complete disclosure is found in Chapter 3, Valuation Procedures.

Declaration Schedule Information

The Division recommends when taxpayers make a full and complete disclosure, especially for their first filing to the assessor, they submit a complete itemized list of all personal property owned by them, in their possession, or under their control on the assessment date. The information submitted by the taxpayer should include the following:

• Whether Property is New or Used (year of manufacture, if known)
• Year Acquired, and Cost Data
• Market and Income Data (if available)
• Apportionment Data
• Proration Data

Year Acquired and Cost Data

The year of acquisition and original installed cost are very helpful to the assessor in valuing personal property using the cost approach. The information for year acquired and original installed cost may be available from the taxpayer's financial records. Procedures for acquiring cost information required by the assessor from the taxpayer are found in Chapter 2, Discovery, Listing, and Classification.

Market and Income Data

Market Data:

The taxpayer may submit market information, or comparable sales information, if it is available. Under § 39-5-115(1), C.R.S., the assessor may request market information from the taxpayer. However, if the taxpayer does not regularly buy and sell property in the equipment marketplace, no market data may be forthcoming. The failure of the taxpayer to submit market information does not excuse the assessor from gathering market data where it does exist, nor from giving appropriate consideration to the market approach.

Refer to Chapter 3, Valuation Procedures for the procedures used by assessors to complete the market approach.

Income Data:

When the income stream attributable to the personal property can be determined, the taxpayer should submit income and expense information to the assessor. The largest subclass of personal property subject to valuation by the income approach is leased or rented equipment. The DS 056 declaration schedule provides a place for taxpayers to file income information for leased equipment.

Under § 39-5-115(1), C.R.S., the assessor may request income and expense information from the taxpayer. However, if the taxpayer does not regularly rent or lease personal property, no income data may be forthcoming. Actual income data submitted by taxpayers is used by assessors to establish the economic rent of equipment. This economic rent may be applied to all similar equipment in order to determine value by the income approach. Refer to Chapter 3, Valuation Procedures for the procedures used by assessors to complete the income approach. The failure of the taxpayer to submit income and expense information does not excuse the assessor from gathering income data where it does exist, nor from giving appropriate consideration to the income approach.

Apportionment of Personal Property Valuation

Several situations require the apportionment, or division, of personal property value between two or more counties. The value of movable or portable equipment owned by a business that is typically used in more than one county during a year must be apportioned among those counties as required by § 39-5-113, C.R.S. This movable or portable personal property apportionment does not apply to special mobile machinery that is Class F personal property. Class F personal property is subject to specific ownership tax, in lieu of personal property taxes, as required by section 6 of article X of the Colorado Constitution.

Also, skid mounted oil and gas drilling rigs are subject to apportionment of their value according to their locations during the previous calendar year as required by § 39-5-113.3, C.R.S. This does not include self-propelled drilling rigs that are Class F personal property. No apportionments of personal property, other than those described below, are allowed. Specific procedures and examples for the apportionment of values are found in Chapter 7, Special Issues.

Movable or Portable Equipment:

Owners of movable or portable equipment, which in the ordinary course of business is likely to be located in more than one county during the current assessment year, must provide the assessor with the following information as required by § 39-5-113, C.R.S. This type of equipment does not include skid-mounted oil and gas drilling rigs.

1. Description of the equipment
2. Serial number of the equipment
3. Counties in which such equipment will be located during the year
4. Estimated number of days that the property will be located in each county

The specific procedures for the apportionment of movable equipment are found in Chapter 7, Special Issues.

Skid-Mounted Oil and Gas Drilling Rigs:

Taxpayers owning skid-mounted oil and gas drilling rigs, which operated in the state during the previous calendar year, must submit the following information to the assessor as required by § 39-5-113.3, C.R.S.:

• Descriptions of all such drilling rigs located in each county during the preceding calendar year
• Drilling logs for each rig, describing the locations in the state where the rig was used and the number of days that it was used at each location
• An inventory of the rig's equipment, sufficient to determine a value, must be submitted to the first county in the state in which the rig was located

The specific procedures for the apportionment of skid-mounted oil and gas drilling rigs are found in Chapter 7, Special Issues.

The repeal of personal property prorations described below does not affect the apportionment of movable equipment as provided for in § 39-5-113, C.R.S.; the apportionment of skid-mounted oil and gas drilling rigs as provided for in § 39-5-113.3; or the proration of Works of Art as provided for in § 39-5-113.5, C.R.S. Movable equipment can only be valued for the days it is traveling in or was located within Colorado. Skid-mounted drilling rigs can only be valued for the days they were traveling in, were operating within, or were stacked within Colorado.

Proration of Personal Property Valuation

Proration means the proportional valuation of property for assessment purposes based upon the number of days that the property is taxable compared to the full calendar year. As of January 1, 1996, the only proration of personal property that is allowed under Colorado statutes is for Works of Art as defined in § 39-1-102(18), C.R.S., and as described in Chapter 7, Special Issues. If other taxable personal property was located in Colorado on the assessment date, it is taxable for the entire assessment year, providing that, if it was newly acquired, it was put into use as of the assessment date. If it was newly acquired and it was not put into use as of the assessment date, it cannot be taxed until the next assessment year.

Personal property is valued as of the assessment date and is valued for the entire year regardless of any destruction, conveyance, relocation, or change in taxable status, § 39-5-104.5, C.R.S. Personal property removed during the assessment year is taxable for the entire year, § 39-5- 104.5, C.R.S. Whenever taxable personal property is brought into the state after the assessment date, the taxpayer must complete a personal property declaration and file it with the assessor if the total actual value of all of the taxable personal property owned by the taxpayer is over $52,000 per county, § 39-5-110, C.R.S. The owner of any taxable personal property removed from the state is liable for the entire tax obligation, § 39-5-110(2), C.R.S.

Except for the proration of Works of Art and except for movable equipment and skid-mounted oil and gas drilling rigs, which are apportioned, personal property exempt on the assessment date retains its exempt status for the entire assessment year. These requirements do not affect the proration of real property.

If proration of personal property value is not specifically allowed by statute, no proration may be applied. Procedures for the proration of Works of Art changing taxable status are found in Chapter 7, Special Issues.

Under §39-1-123, C.R.S., real and business personal property that is determined by the county assessor to have been destroyed by a natural cause, as defined in §39-1-102(8.4), may be eligible for a reimbursement of property tax liability for the year in which the natural cause occurred. Please refer to Assessors’ Reference Library, Administrative and Assessment Procedures, Volume 2, Chapter 4, Assessment Math, for procedures regarding this reimbursement.

Collection of Taxes on Property Moving Out of One County to Another

It is common practice for the treasurer to collect estimated taxes on personal property for the
entire year, if it is to be moved to another county within the state. This is due to the following
reasons:

• There is no statutory provision to prorate or apportion the value of this property.
• There is no statutory provision to reassess this property on its arrival to the next county.
• The treasurer cannot be certain that once the property leaves the county it will remain in the state. Once personal property leaves the state, collection of taxes can be virtually impossible.

Penalties

Penalty for Late Filing

A late filing penalty may be applied in the following circumstances:

Failure to file schedule - failure to fully and completely disclose.

(1) If any person owning taxable personal property to whom one or more personal property schedules have been mailed, or upon whom the assessor or his deputy has called and left one or more schedules, fails to complete and return the same to the assessor by the April 15 next following, unless by such date such person has requested an extension of filing time as provided for in this section, the assessor shall impose a late filing penalty in the amount of fifty dollars or, if a lesser amount, fifteen percent of the amount of tax due on the valuation for assessment determined for the personal property for which any delinquent schedule or schedules are required to be filed. Any person who is unable to properly complete and file one or more of such schedules by April 15 may request an extension of time for filing, for a period of either ten or twenty days, which request shall be in writing and shall be accompanied by payment of an extension fee in the amount of two dollars per day of extension requested. A single request for extension shall be sufficient to extend the filing date for all such schedules which a person is required to file in a single county. Any person who fails to file one or more schedules by the end of the extension time requested shall be subject to a late filing penalty as though no extension had been requested. Further, if any person fails to complete and file one or more schedules by April 15 or, if an extension is requested, by the end of the requested extension, then the assessor may determine the actual value of such person's taxable personal property on the basis of the best information available to and obtainable by him and shall promptly notify such person or his agent of such valuation. Extension fees and late filing penalties shall be fees of the assessor's office. Penalties, if unpaid, shall be certified to the treasurer for collection with taxes levied upon the person's property

§ 39-5-116, C.R.S.

Penalty for Failure to Fully & Completely Disclose Personal Property

A penalty for failure to fully and completely disclose personal property may be applied in the following circumstances:

Failure to file schedule - failure to fully and completely disclose.

(2)(a) If any person owning taxable personal property to whom two successive personal property schedules have been mailed or upon whom the assessor or his deputy has called and left one or more schedules fails to make a full and complete disclosure of his personal property for assessment purposes, the assessor, after notifying the person of his failure to make such a full and complete disclosure and allowing such person ten days from the date of notification to comply, shall, upon discovery, determine the actual value of such person's taxable property on the basis of the best information available to and obtainable by him and shall promptly notify such person or his agent of such valuation. The assessor shall impose a penalty in an amount of up to twenty-five percent of the valuation for assessment determined for the omitted personal property. Penalties, if unpaid, shall be certified to the treasurer for collection with taxes levied upon the person's personal property. A person fails to make a full and complete disclosure of his personal property pursuant to this paragraph (a) if he includes in a filed schedule any information concerning his property which is false, erroneous, or misleading or fails to include in a schedule any taxable property owned by him.

(b) Any person who makes full and complete disclosure on the first personal property schedules issued to him on or after August 1, 1987, shall not be assessed a penalty for property previously omitted from the assessment rolls under this article.

(c) Any person subject to paragraph (a) of this subsection (2) shall have the right to pursue the administrative remedies available to taxpayers under this title, dependent upon the basis of his claim.

§ 39-5-116, C.R.S.

The penalty valuation for omitted property may only be added if specific personal property has been omitted. Therefore, the BIA valuation must be based on an itemized list of personal property and associated values which are typical of a business of this type.

When the value of the personal property is declared or listed during a subsequent physical inspection, if the actual value of the personal property is determined to be more than the BIA assessment due to specific personal property not being included in the BIA valuation, then a penalty of up to 25 percent of the omitted personal property's value is added to the BIA assessed value. The assessor must notify the taxpayer of the failure to make full and complete disclosure and allow the taxpayer ten days to comply before actually placing the penalty on the omitted property value. The penalty valuation is applied only for the assessment year that the assessor discovers that the taxpayer has failed to make a full and complete disclosure.

The assessor immediately bills the taxpayer the penalty, which can be up to 25% of the BIA assessed value of the undeclared omitted personal property.

The assessor should maintain written documentation regarding the percentage used for the penalty because the penalty should be uniformly applied.

Omitted property can be valued for each of the past six years providing the failure to collect tax on the property was not due to an error or omission of a governmental entity, § 39-10-101(2)(b)(II), C.R.S. If the taxes were not collected because of an error or omission on the part of a governmental entity, taxes for any period, together with any interest thereon, shall not be assessed for a period of more than two years after the tax was or is payable. See ARL, Volume 2, Administrative and Assessment Procedures, Chapter 3, Specific Assessment Procedures, for additional omitted property information.

Example:

Assessment Date: January 1, 2023

Date of Acquisition/First Use: December 20, 2018

2019 Omitted Assessed Value: $1,000

Personal Property Valuations not included in the BIA:

Penalty of 25% of the $1,000 Assessed Value = $250 penalty billed

In the example, declaration schedules were mailed to the taxpayer for the years 2021-2023. The assessed value of the omitted property changes each year because additional depreciation is deducted. The penalty assessment is only applied in the current assessment year 2023, since it is applied only in the year of discovery and only if the owner fails to make full and complete disclosure. The penalty may be applied for this one year only and no penalty may be carried forward into subsequent assessment years.

Additional Information

The assessor may request additional information from the taxpayer at any time before or after April 15. The taxpayer must furnish the information requested by the assessor as required by § 39-5-115(1), C.R.S.

If any taxpayer refuses to furnish information to the assessor or refuses to be interviewed or answer questions asked by the assessor, the assessor may petition the district court to cite the taxpayer. The court may, at its discretion, require the taxpayer to furnish such information as requested by the assessor as controlled by § 39-5-119, C.R.S.

Additionally, at the request of the assessor, furnished rental residential property owners who advertise, or agents who advertise on behalf of the property owners, shall provide to the assessor a list of each property so advertised by address and owner pursuant to § 39-5-108.5, C.R.S.

Taxpayer Appeals Procedures

Owners of taxable personal property are given many opportunities to have their personal property valuations reviewed and appealed. The steps necessary for proper review and appeal are commonly referred to as "taxpayers’ administrative remedies." These steps must be adhered to by both the assessor and taxpayer to ensure the taxpayer's statutory due process rights. It is the taxpayer's responsibility to initiate and timely work through the administrative remedies. At the written request of any taxpayer, the assessor must make every attempt to inform the taxpayer of the methods used to value the personal property as required by § 39-5- 121.5, C.R.S.

A complete discussion of the rights of the taxpayer and the steps of the administrative appeals procedure are found in ARL Volume 2, Administrative and Assessment Procedures, Chapter 5, Taxpayer Administrative Remedies.

The specific sequence of events and the statutory references for owners of personal property are found in the assessment calendar in Addendum 1-A, Personal Property Assessment Calendar.

Notice of Valuation

The administrative remedies process starts with the mailing of the Notice of Valuation (NOV), which lists the previous year's total actual value, the current year's total actual value and the amount of such adjustment in value. The NOVs for personal property are mailed no later than June 15th.

Under section 20(8)(c) of article X of the Colorado Constitution, NOVs must be mailed by the assessor to each owner of taxable personal property every year. It is the taxpayer's responsibility to review the NOV and pursue the following administrative remedies if the taxpayer disagrees with the value assigned to the personal property by the assessor.

Assessor Hearing

To receive a hearing before the assessor between June 15 and July 5, the owner or the owner's agent must file a protest with the assessor. The taxpayer may contact the assessor in person or in writing and request a review. All mailed protests are considered timely filed if they are postmarked by June 30, or the next business day if June 30 falls on a holiday or weekend. All protests made in person are timely filed if they are made no later than June 30, or the next business day if June 30 falls on a holiday or weekend, as controlled by § 39-5-121(1.5), C.R.S.

If a representative or agent is used by the owner, a letter of agency or other document that conveys agency authorization from the owner must be obtained.

Owners acquiring personal property after January 1 of the current assessment year have the right to file a protest of the value the assessor has assigned to the newly acquired personal property. In such cases, the assessor should schedule a physical inspection of the property as soon as possible and use the list of property obtained during the inspection to determine its correct actual value.

Any written protest or objection to valuation received during the protest period must be answered with a Notice of Determination. The assessor must respond in writing to any personal property protest no later than July 10. Justification for the assessor's decision must be included as required by § 39-5-122, C.R.S.

Appeal of County Assessor’s Determination to CBOE

If a taxpayer is not satisfied with the assessor's valuation determination and the taxpayer files an appeal to the County Board of Equalization (CBOE), either in a letter postmarked or by appearing in person no later than July 20, the right to an appeal before the CBOE is guaranteed. If July 20 falls on a holiday or weekend and the letter is postmarked or the taxpayer appears in person the next business day, an appeal before the CBOE also is guaranteed.

Beginning on July 1, the CBOE will sit to hear appeals from value determinations made by the assessor, § 39-8-104, C.R.S. The taxpayer must be notified of these hearings, must be given the opportunity to attend, and must be allowed to present witnesses and other evidence, § 39-8-106, C.R.S. The CBOE must conclude hearings and render value decisions on or before August 5th and must mail their determination within five business days of making their decision. The assessor or a representative of the assessor shall be present at hearings on appeal as required by § 39-8-107, C.R.S.

Appeal of the CBOE’S Valuation Determination

Valuation determinations made by the CBOE may be appealed by the taxpayer in one of three ways.

Arbitration Process

The taxpayer may choose to use the binding arbitration procedure instead of appealing to the BAA or to the district court. No appeals from the decision of the arbitrator are permitted under §§ 39-8-108(4) and 108.5, C.R.S.

Specific arbitration procedures may be found in the ARL Volume 2, Administrative and Assessment Procedures, Chapter 5, Taxpayer Administrative Remedies or may be obtained from the county commissioner's office in each county.

Board of Assessment Appeals

When taxpayers disagree with the decision of the CBOE, they may file an appeal with the Board of Assessment Appeals (BAA). The hearing is a de novo hearing meaning that it is a new hearing based upon evidence submitted at the hearing. The CBOE and the taxpayer both present cases for the record before the BAA, § 39-8-108, C.R.S.

District Court

The taxpayer may appeal the decision of the CBOE to the district court of the county wherein the property is located. The hearing before the district court is a trial de novo and each party must present its case for the record as required by § 39-8-108, C.R.S.

Court of Appeals

If the petitioner has appealed to the Board of Assessment Appeals and the decision is against the petitioner he may, not later than 49 days after the decision, petition the court of appeals for judicial review.

If the petitioner has appealed to the district court and the decision is against the petitioner, the petitioner may seek review by the court of appeals upon filing for such review according to the Colorado appellate rules as controlled by §§ 39-8-108(3) and 24-4-106(9), C.R.S.

See September listings for county appeal rights in Addendum 1-A, Personal Property Assessment Calendar.

Abatement or Refund

Taxpayers who do not exercise the statutory rights listed above may petition for a change in valuation through the abatement or refund procedure. Abatements may be granted in cases of overvaluation as allowed by §§ 39-10-114(1)(a)(I)(A) and (D), C.R.S., but cannot be granted if the valuation was protested during the assessment year in question, or if the declaration was not filed according to §§ 39-5-107 and 108, C.R.S. However, if the following conditions are met, the taxpayer retains the right to file an abatement petition, § 39-10-114(1)(a)(I)(D), C.R.S.

Additional abatement information may be found in the ARL Volume 2, Administrative and Assessment Procedures, Chapter 5, Taxpayer Administrative Remedies.

Refund of Interest

With two exceptions, interest accrues from the date the taxes are paid pursuant to § 39-10-114(1)(b), C.R.S.

1. Refund interest is not included in a refund of prior years’ taxes in cases involving an error made by a taxpayer in completing personal property schedules according to article 5 of title 39, C.R.S.
2. Regarding refunds involving errors or omissions made by a taxpayer in completing statements pursuant to article 7 of title 39, C.R.S., interest accrues from the date a complete abatement petition is filed if the county pays the refund within the timeframe described in § 39-10-114(1)(a)(I)(B), C.R.S., which could be as long as the payment of property taxes for the year the final determination is made.

Abatement, cancellation of taxes.

(1)(b) Any taxes illegally or erroneously levied and collected, and delinquent interest thereon, shall be refunded pursuant to this section, together with refund interest at the same rate as that provided for delinquent interest set forth in section 39-10-104.5; except that refund interest shall not be paid if the taxes were erroneously levied and collected as a result of an error made by the taxpayer in completing personal property schedules pursuant to the provision of Article 5 of this title. Said refund interest shall accrue only from the date payment of taxes and delinquent interest thereon was received by the treasurer from the taxpayer; except that refund interest shall accrue from the date a complete abatement petition is filed if the taxes were erroneously levied and collected as a result of an error or omission made by the taxpayer in completing the statements required pursuant to the provisions of article 7 of this title and the county pays the abatement or refund within the time frame set forth in sub-subparagraph (B) of subparagraph (I) of paragraph (a) of this subsection (1). Refund interest on abatements or refunds made pursuant to the sub-subparagraph (F) of subparagraph (I) of paragraph (a) of this subsection (1) shall only accrue on taxes paid for the two latest years of illegal or erroneous assessment. (emphasis added)

§ 39-10-114, C.R.S.

A discussion of the abatement procedure is found in ARL Volume 2, Administrative and Assessment Procedures, Chapter 5, Taxpayer Administrative Remedies.

Effective July 1, 2010, Senate Bill 10-212 repealed § 39-22-124, C.R.S. Therefore, the perpetual Colorado state tax refund based on business personal property taxes paid has been repealed.

Personal Property Tax Reimbursements

House Bill 21-1312 creates a personal property tax reimbursement program due to the increase of the personal property exemption contained in § 39-3-119.5, C.R.S., beginning in the 2021 tax year.

For the 2021 tax year, each assessor is required to calculate the total value of the additional personal property exempted by this bill. This includes all personal property accounts with a total actual value of $50,000 or less but greater than $7,900. This total value establishes the “baseline exemption total” for a county or local government entity. The county treasurer must then calculate the total property tax revenues lost by each local governmental entity, based on exempted personal property actual value greater than $7,900 but not exceeding $50,000.

Beginning with the 2022 tax year, assessors must calculate the adjusted total value of the additional personal property exempted by this bill for the county and each local governmental entity. This adjusted total is calculated by taking the baseline exemption amount adjusted by the “growth factor.” The growth factor is the total statewide percentage increase or decrease in personal property values as calculated by the Property Tax Administrator (Administrator).

No later than February 1, 2022, and each year thereafter, the Administrator must calculate the “growth factor” and publish this information on the Division’s website.

Beginning with the 2022 tax year, the county treasurer must calculate the total property tax revenues lost by each local governmental entity using the growth factor adjusted exemption amount calculated by the county assessor. No later than March 1, 2022, and each March 1 thereafter, the county treasurer will report to the Administrator the total property tax revenues lost by each local governmental entity. The Administrator is required to review these tax revenue amounts, confirm their accuracy, and make corrections as necessary. The Administrator then forwards this information to the state treasurer.

The state treasurer will issue warrants (reimbursements) to the county treasurers beginning April 15, 2022, and each year thereafter. The county treasurer shall distribute the total amount received from the state treasurer to the individual local governmental entities.

Pursuant to § 39-5-128(1.5), C.R.S., assessors are required to report the aggregate value of exempt business personal property on the annual certification of values for each town, city, school district, or special district.

Addendum 1-A, Personal Property Assessment Calendar

January

April 

May

June

July

August

September

November

December

Three administrative steps must be taken by the assessor prior to determining the value of personal property. These steps are discovery of all taxable personal property, creation of an accurate listing of taxable personal property, and proper classification of the property. The assessor must ensure that effective office procedures exist to complete these steps, so that all taxable property will be properly assessed for property tax purposes.

Discovery and Listing of Personal Property

One of the most difficult jobs for a county assessor is the discovery of personal property. However, good discovery practices will yield positive results in accurate property records and assessments.

Overview

Personal property discovery must be an ongoing task because personal property is movable and may leave the county faster than the assessor can discover it. A thorough program of discovery must be created and maintained to ensure accurate property listings. Inaccurate property listings mean that certain personal property owners may escape paying their legal share of property taxes which results in a heavier tax burden on the taxpayers who do pay their legal share.

The personal property listing process begins by setting up account records in the assessor's office for businesses owning taxable personal property. A cross check should be conducted on existing office records to determine if a new business is filing under another name and/or at another location. An assessor's staff member should call or visit the property owner to gather any necessary information for the listing process.

Declaration Schedule

A primary source of personal property discovery is the annual declaration schedule. After the names of the businesses or owners have been recorded in the personal property account records, a declaration schedule is mailed.

It is especially important that owners of personal property located in the county on the January 1 assessment date receive the declaration schedules as soon after January 1 as possible. As noted in Chapter 1, Applicable Property Tax Laws, each person who owns more than $52,000 in total actual value of personal property per county on the assessment date must file a declaration schedule by no later than April 15. This allows the mailing of a Notice of Valuation (NOV) to the taxpayers by June 15.

However, a Special Notice of Valuation (SNOV) can be mailed at any time during the year. In this way the assessor preserves the rights of the taxpayer in the abatement process and presents a complete assessment roll to the County Board of Equalization (CBOE) in July.

In cases where property was in the county on the assessment date, but discovered after April 15, the assessor must still assess the property pursuant to §§ 39-5-110 and 125, C.R.S. In these cases, the taxpayer must be notified of the value via the SNOV and a thirty-day period must be given to the taxpayer to protest any personal property valuation made after June 15.

In addition to being a valuable discovery tool, the declaration schedule is the primary method used by the taxpayer to provide an original listing of personal property to the assessor. The taxpayer who owns taxable personal property must report all personal property owned by, in the possession of, or under the control of the taxpayer on January 1 to the assessor.

Taxable personal property that is fully depreciated or expensed by the business, must be declared and listed by the taxpayer on the declaration schedule. Property acquired prior to the January 1 assessment date, but not put into use until after January 1, should be declared for the following assessment year. For a complete discussion of “Personal Property in Storage” that have been stored after their use, refer to Chapter 7, Special Issues. Property leased from others and used in the business must be declared and the name and address of the lessor (owner) noted in the leased equipment area on the declaration schedule.

The taxpayer must completely describe all listed personal property so that the assessor can correctly classify and value it. The importance of accurate, detailed property descriptions cannot be overstated. The assessor cannot properly consider the cost, market, or income approaches to appraisal unless a very clear description has been obtained. General property descriptions such as “equipment” or “furniture and fixtures” are not acceptable because they do not sufficiently describe the property.

Information contained on the declaration schedules is often transferred directly to the appraisal records for analysis. The declaration schedule then becomes a part of the taxpayer's account valuation file.

Recorded Documents and Other Discovery Sources

Publicly recorded documents, such as real estate deeds, may also be useful in discovering personal property. Any evidence, such as notations on the TD-1000 real property transfer declaration or sales/use tax records from the Department of Revenue, which may be submitted to the clerk and recorder as proof of personal property that is included in a real property sale, can be used in the discovery process pursuant to §§ 39-13-102(5)(a) and 39-14-102, C.R.S.

Leases and bills of sale are useful in helping the assessor to discover personal property. These documents often will list specific pieces of property leased or sold from which the assessor can make an assessment even if the taxpayer does not file a declaration schedule. Leases may be recorded in the county clerk's office.

The following additional sources of information are available for the assessor to use in the discovery of personal property:

Federal Government Records
Bankruptcy filings
Lease records

State Government Records
Business licenses (sales/use tax)
Corporation filings
Trade name affidavits
State lease records

Local Government Records
Business licenses (city or county)
Permits (sign or building)
Lease records
Recorded real property conveyance documents for new owner/operators

Business Records and Publications
Business (City) or personal directories
Telephone directories
Trade journals
Utility hookups or disconnects

Media Sources
Newspaper articles and advertising
Radio and TV commercials
Real estate newsletters

Other
Location inspections, taxpayer visits, area canvasses
Voluntary filings by property owners

A complete discovery program uses all of the tools to find personal property that has not as yet been listed on the assessment roll. Most counties have an annual cycle in which one or more of these sources are reviewed, at different times of the year, to monitor any changes in the number of businesses or the locations of personal property.

Obtaining Depreciation Information

There is a provision in Colorado Revised Statutes that allows county assessors to obtain Colorado income tax returns for business taxpayers, including depreciation information, from the Colorado Department of Revenue (DOR).

Reports and returns.

(7) Notwithstanding the provisions of this section, the executive director of the department of revenue shall supply any county assessor of the state of Colorado or his representative with information relating to ad valorem tax assessments or valuation of property within his county and, in his discretion, may permit the commissioner of internal revenue of the United States, or the proper official of any state imposing a similar tax, or the authorized representative of either to inspect the reports and returns of taxes covered by this article.

(10) Notwithstanding the provisions of this section, the executive director of the department of revenue shall supply any county assessor of the state of Colorado or his representative with information obtained through audit of reports and returns covered by this article dealing with such taxpayers’ ability to pay or to properly accrue any ad valorem tax collected by such county assessor.

§ 39-21-113, C.R.S.

However, the DOR does not regularly receive depreciation information because it relies on the return information filed with the Internal Revenue Service. As such, it may not be possible to obtain this information directly from the DOR. If information is requested, discussions with DOR representatives indicated the following procedures should be used by assessors in obtaining DOR tax return information.

1. Prepare a cover letter, on county letterhead, requesting under authority of §§ 39-21-113(7) and 39-21-113(10), C.R.S., taxpayer income tax returns for the tax years under review by your office. Make sure that you include sufficient information about the tax years, taxpayer's name, trade name, location, Federal Employer Identification Number, etc., so that the DOR can locate the appropriate records.
2. Attach a DR 5714 (05/20/16) Request For Copy of Tax Records form completed by you to the best of your ability. Copies of this form can be directly obtained from the DOR website.
3. Mail both the letter and the completed form to:
   Colorado Department of Revenue
   Tax Files – Room B112
   PO Box 17087
   Denver, Colorado 80217-0087
   
   Copying cost: 1 – 10 Free, each additional page is $0.25.
   (303) 866-5407

NOTE: Any tax return information that you obtain from DOR must remain confidential in the same manner as the personal property declaration schedule and accompanying exhibits, pursuant to § 39-21-113(4), C.R.S.

Obtaining New Sales Tax Account Listings

DOR makes available to the counties sales tax records of their vendors. Counties that impose a sales tax have access to this information through the DOR's Sales and Use Tax System (SUTS) (previously known as the “Local Government Sales Tax Information System”). This is a secured site and you will need to contact the county finance office to request any sales tax information.

NOTE: Any sales tax information you obtain from the DOR must remain confidential in the same manner as the personal property declaration schedule and accompanying exhibits, pursuant to § 39-21-113(4), C.R.S.

Review of Property Account Files and Records

All property declaration schedules, supporting data, and correspondence contained in the taxpayer's files should be carefully reviewed before the initial telephone call. Also, any previous personal property audit information contained in the file should be reviewed. These reviews allow the assessor to become familiar with the business so that records relevant to past problems can initially be requested and so that appropriate questions regarding these records may be asked during the interview.

Physical Inspection

The physical inspection of property is another widely used tool in discovering and listing personal property. Physical inspection is fully discussed in Chapter 5, Personal Property Reviews.

Assessor Responsibilities

The assessor has several responsibilities relative to the listing of personal property. The
responsibilities are as follows:

• To provide declaration forms to taxpayers
• To use approved manuals, procedures, forms, and related data
• To maintain accurate records

Provide Declaration Forms

The assessor must provide a copy of the declaration schedule form to each taxpayer believed to own taxable personal property in the county. As described in the “Discovery” portion of this chapter, assessors attempt to discover all owners of personal property in the county so that the declaration schedules may be delivered to the taxpayer. Taxpayers must still obtain and file a declaration schedule even if the assessor fails to send the schedules as required by §§ 39- 5-107 and 108, C.R.S.

If desired, assessors have the option to mail out a declaration schedule to all personal property taxpayers. However, only when the total actual value of the personal property exceeds $52,000 per county is the taxpayer required to return the completed declaration. A late filing or failure to fully disclose penalty cannot be applied unless the total actual value exceeds $52,000 per county.

Use Approved Data

The assessor has the responsibility to use the approved manuals, procedures, and forms developed by the Division of Property Taxation as required by §§ 39-2-109(1)(d) and (e), C.R.S. Assessors must also consider any other pertinent data provided by the taxpayer to establish the total actual value of personal property as provided for in § 39-5-107, C.R.S.

Approved Manuals

The ARL Volume 5, Personal Property Manual, is the approved manual to be used in the valuation of personal property. The manual contains all recommendations and procedures published by the Division of Property Taxation, as approved by the State Board of Equalization (SBOE), concerning the valuation of personal property. In Huddleston v. Grand County, 913 P. 2d 15 (Colo. 1996), the Colorado Supreme Court recognized and affirmed the Property Tax Administrator’s broad authority to prepare manuals and procedures, as well as to require that the Colorado county assessors utilize these manuals and procedures to carry out their responsibilities pursuant to Colorado Constitution, Article X, § 3.

Forms

Pursuant to § 39-2-109(1)(d), C.R.S., the Property Tax Administrator is required to approve the form and size of all personal property declaration schedules, forms, and notices furnished or sent by the assessor to owners of taxable property. Exclusive use of approved schedules, forms, and notices are required. This standardizes the information that is being requested statewide and provides for equal treatment of all taxpayers.

NOTE: County assessors may create customized or computerized county Personal Property Declaration Schedules and taxpayer notification forms if they have these forms approved by the Property Tax Administrator prior to their use.

Appraisal Records

Appraisal records are used by assessors for listing information from the declaration schedule submitted by the taxpayer and to determine the actual and assessed values of personal property.

The personal property appraisal record is a one-year value calculation worksheet for developing cost approach estimates for all machinery, equipment, and furnishings. The appraisal record provides for the determination of current replacement or reproduction cost new less depreciation (RCNLD) and for adjusting the current value to the correct level of value. Computerized output documents may be used in lieu of the following manual form. The specific manual appraisal record used to list and maintain personal property cost information is as follows:

Additional documentation is required for application of the market and income approaches and reconciliation to a final value estimate. All appraisal records and appraisal documents should be initialed and dated by the assessor, the appraiser, or the data entry operator as appropriate and maintained as a part of the personal property valuation files.

Personal property may be manually valued using the AR 290 personal property appraisal record. A PDF version of the AR 290 may be found on the Division’s website.

Real property should be valued, and any related assessment records maintained, on appropriate real property appraisal records. Real and personal cross-reference indexes or files should be kept for related real and personal property. The index or file data should be reviewed annually to eliminate the possibility of duplicate or omitted assessments of property.

Notices of Valuation

The assessor must notify the taxpayers on approved Notices of Valuation (NOVs). The specific requirements and form standards for the NOV are found in ARL Volume 2, Administrative and Assessment Procedures, Chapter 9, Form Standards.

Maintain Accurate Records

Accurate property appraisal files must be maintained for each personal property taxpayer. These files, and their associated records, serve as the permanent documentation for any assessments made by the assessor. The files are the repository of all information gathered by the assessor regarding the taxpayer and the taxpayer's property.

Files should include all declaration schedules and documents submitted by an individual taxpayer or business, along with appraisal records, worksheets, copies of Notices of Valuation, all correspondence, and any other data pertaining to that specific taxpayer or business.

Account Identification System

To provide overall control of the ownership files and records, a permanent unique personal property account identification number should be assigned to each personal property account.

The recommended unique account identification number consists of the business activity code, ownership number, and physical location number.

Business Activity Code (5 digits):

The first digit corresponds with the general property class.

1 = residential
2 = commercial
3 = industrial
4 = agricultural
5 = open
6 = natural resources
7 = open
8 = state assessed
9 = exempt

The next four digits correspond with the Standard Industrial Classification Manual published by the Office of Statistical Standards of the Federal government for each type of business or industry.

As an example, 7359 is the standard industrial code for an equipment leasing business. Thus 27359 indicates a commercial equipment leasing business. Refer to the Standard Industrial Classification Manual that is available from any U.S. Government Printing Office or online.

Ownership Number (5 digits):

The assignment of a five-digit owner number provides for 99999 possible individual owners of personal property for each specific type of business or industry within the county. The ownership number is assigned by the assessor.

Physical Location Number (3 digits):

The assignment of a three-digit physical location number provides for 999 possible locations within the county for one owner.

An example account identification number 2-7394-00250-001 is shown below:

Account identification numbers provide for control of the personal property accounts. It also allows the assessor to keep records for similar types of businesses together for easy reference and comparison, on a business-by-business basis, when needed.

The ownership control numbers should be used on all records pertaining to a given taxpayer. Listed below are various records, which may be cross-referenced when using the ownership control numbers.

• Alpha listing
• Numerical listing
• Cadastral cards
• Property declaration schedules
• File jackets
• Appraisal records
• Master property record cards
• Notice of Valuation
• Location listing
• Correspondence
• Out of state owner listing
• Tax warrant
• Tax bills

Archives Requirements

Personal property listings and valuation records are kept for six years, plus the current year, after which they may be destroyed with the permission of the State Archivist. Refer to ARL Volume 2, Administration and Assessment Procedures, Chapter 1, Assessor’s Duties and Relationships, for specific archive retention procedures.

Confidentiality

Confidential information includes detailed listings of personal property reported by a prior owner, whether or not values are included with the listing. According to § 39-1-102(9), C.R.S., “‘Person’ means natural persons, corporations, partnerships, limited liability companies, associations, and other legal entities which are or may become taxpayers by reason of ownership of taxable real or personal property.” Pursuant to § 39-5-120, C.R.S., the declaration schedule and attachments are confidential documents and only the following persons have a legal right to view them.

1. The county assessor or members of the assessor's staff
   • The assessor and staff have access to the declaration schedule only as it pertains to the conduct of their official duties. Assessors may restrict which staff members may see or use the schedules.
   • Counties have the authority to hire contract agents/employees to assist the assessor. A contract agent/employee is considered a county employee for the purpose of § 39-5-120, C.R.S., for the duration of their contract and they have the right to view confidential data as it pertains to the conduct of their official duties as expressed in their contract. The county’s contract with the contract agent/employee shall include language denoting that the agent/employee is bound by the confidentiality provisions of § 39-5-120, C.R.S. and subject to the statutory penalties for divulging confidential information as provided for in § 39-1-116, C.R.S.
2. The county treasurer or members of the treasurer's staff
   • The treasurer and staff have access to the personal property declaration schedule only as it pertains to the collection of taxes due from the property listed in the schedule. The treasurer may restrict access to only those employees directly involved in the taxation of personal property.
3. The annual assessment study contractor, hired pursuant to § 39-1-104(16), C.R.S., and employees of the contractor
   • The annual assessment study contractor may view the declaration schedule only as part of the fulfillment of the annual study contract. The results of any such study are reported to the Legislative Council and the State Board of Equalization. No information from personal property declaration schedules may be used by the annual study contractor for purposes outside the scope of the contract.
4. The executive director of the Colorado Department of Revenue and staff members of the Department of Revenue
   • The staff of the Colorado Department of Revenue may view the personal property records as part of their official duties.
5. The Property Tax Administrator and Division of Property Taxation staff
   • Division of Property Taxation staff may view the personal property records if it is part of their official duties.
6. The county board of equalization (CBOE) and the Board of Assessment Appeals (BAA) when pertinent to a hearing or protest review
   • The CBOE or the BAA may see the personal property records as part of an administrative appeal only. In addition, members of these boards may only have access to these records when the appeal is properly before them for hearing. Only county commissioners or their designees may see personal property declarations when they sit as the County Board of Equalization.
   • The arbitrator, as defined in § 39-8-108.5, C.R.S., may subpoena the personal property records when they are involved in an arbitration proceeding.
7. The person whose property is listed on the schedule
   • The owners of the personal property may see their own schedule. This includes the authorized agent of the owner. Assessors require written authorization (letter of agency, LOA) from the personal property owners before releasing the information to a third party.
   • Taxpayers who purchased personal property or businesses during the current year are not allowed to see the personal property declaration schedule of a previous owner without the consent of that owner. This may include a waiver in the sale contract that sets forth the rights of the new owner to access all information previously filed. If the waiver was not part of the contract, the assessor should require separate written authorization prior to release of any confidential information.
   • If the new owner disagrees with the value established by the assessor, a physical inspection of the property should be scheduled as soon as possible. The total value determined from the physical inspection should be compared to the property's current total value to ascertain if an adjustment is warranted.
8. Personal property records ordered opened by the district court

Anyone listed above who uses the personal property schedules as part of official duties is also subject to the confidentiality provisions and may be held accountable for divulging the information on the schedule.

The statutory penalties for divulging confidential information include a fine of not less than $100 nor more than $500, or by imprisonment in the county jail for not more than three months, or by both the noted fine and imprisonment as provided for in § 39-1-116, C.R.S.

26 U.S.C. Section 7602 of the Internal Revenue Code (IRC) gives representatives from the Internal Revenue Service (IRS) the authority to examine and/or summon certain information (including confidential declaration schedule information) that the Secretary may deem as proper, related to ascertaining the correctness of any return for Federal taxation purposes. Any person that is served with an IRS summons to produce confidential records and information must timely comply or be faced with penalties as noted in Section 7604 of the IRC. Section 7609 of the IRC relieves any person from liability who makes such disclosure in reliance on a summons.

The natural resources property declaration schedules and appraisal records are used for both real and personal property data. Since confidential real and personal property information is contained on both the front and back of these declaration schedules, requests for non confidential information should be directed to other public agencies which have access to this information and have the means of disclosing it to the public.

These agencies include, but are not limited to, the Energy and Carbon Management Commission, Colorado Division of Reclamation Mining and Safety, Colorado Geological Survey, and the Federal Bureau of Land Management.

Taxpayer Responsibilities – Declaration Schedules

All owners of taxable personal property are to complete and file a personal property declaration schedule no later than April 15 each year as required by § 39-5-108, C.R.S. In accordance with § 39-1-120(1)(a), C.R.S., documents that are required to be filed (declaration schedules) that are mailed are “deemed filed with and received by the public officer or agency to which it was addressed on the date shown by the cancellation mark stamped on the envelope or other wrapper containing the document required to be filed.” The taxpayer must make a full and complete disclosure of all personal property owned by, under the control of, or in the possession of the taxpayer on the schedule, including any costs incurred for acquisition, sales/use tax, installation, and freight to the point of use of the personal property as required by § 39-1-103(13)(b), C.R.S. The taxpayer must also submit any other information requested by the assessor so that the assessor may place a value on the property as required by § 39-5- 115(1), C.R.S.

Declaration schedules have been developed by the Division of Property Taxation for use by the county assessors as required by § 39-2-109(1)(d), C.R.S. Assessors must provide these forms to the taxpayers for submission of their personal property data as required by § 39-5-107, C.R.S.

The primary form used by commercial business taxpayers is the Personal Property Declaration Schedule - DS 056. Other forms have been developed for residential rental taxpayers, lessors of personal property, renewable energy, and natural resource operations. A list of forms may be found in the assessor's archives retention schedule located in ARL Volume 2, Administration and Assessment Procedures, Chapter 1, Assessor’s Duties and Relationships.

Electronic versions of the each of the most current versions of the approved declaration schedules may be found on the Division’s website.

Classification

After property has been located or "discovered" and listed, it must be properly classified. Proper classification is necessary because the property valuation methodology may vary depending on the classification. Furthermore, there are several classes of property that are exempt from taxation by statute. The two fundamental classifications that the assessor must make are as follows:

1. Real or Personal Property
2. Taxable or Exempt Property

Real or Personal

The first classification that the assessor must make is to determine whether the property being
appraised is real or personal.

As discussed in Chapter 1, Applicable Property Tax Laws, real property is defined as paraphrased from §§ 39-1-102(6.3) and (14), C.R.S., as land, water rights, fixtures, fences, mines, quarries, mineral interests, and improvements. The statutes further define personal property as anything subject to ownership that is not real property.

Characteristics of Fixtures

Fixtures are defined in § 39-1-102(4), C.R.S. The definition may be paraphrased as those articles that were once movable chattels, but have become an accessory to or a part of real property by having been physically incorporated therein or annexed or affixed thereto.

Fixtures include systems for the heating, air conditioning, ventilation, sanitation, lighting, and plumbing of a building. Fixtures do not include machinery, equipment, or other articles related to a commercial or industrial operation which are affixed to the real property for proper utilization of such articles. In addition, for property tax purposes only, fixtures do not include security devices and systems affixed to any residential improvements including, but not limited to security doors, security bars, and alarm systems.

Fixtures include all components of the systems for the heating, air conditioning, ventilation, sanitation, lighting, and plumbing of a building. These will be collectively referred to as fixture systems.

Fixture systems, which are statutorily defined as real property, are appraised at the level of value designated for other real property. Fixture systems generally are given the same economic life as the building that they serve. However, if technological, economic, or functional obsolescence exist, it is possible that fixture systems may have a shorter economic life than the building that they serve.

In Del Mesa Farms, et al. v. Montrose CBOE, 956 P.2d 661 (Colo. App. 1998), using the definition of fixtures as stated in § 39-1-102(4), C.R.S., the court reasoned that a distinction must be made for classification purposes for property that are related to the operation of the building and property that are related to the operation of a business in the building. The court noted, "Thus, in our view, regardless of whether a particular item is affixed to a building and may otherwise constitute a fixture system, the item constitutes personal property if its use is primarily tied to a business operation" (emphasis added).

Major issues that arise in the classification of property as either real or personal are in the category of real property fixtures as discussed in Chapter 1, Applicable Property Tax Laws.

Definitions-.

(11) "Personal property" means everything that is the subject of ownership and that is not included within the term "real property". "Personal property" includes machinery, equipment, and other articles related to a commercial or industrial operation that are either affixed or not affixed to the real property for proper utilization of such articles. Except as otherwise specified in articles 1 to 13 of this title, any pipeline, telecommunications line, utility line, cable television line, or other similar business asset or article installed through an easement, right-of-way, or leasehold for the purpose of commercial or industrial operation and not for the enhancement of real property shall be deemed to be personal property, including, without limitation, oil and gas distribution and transmission pipelines, gathering system pipelines, flow lines, process lines, and related water pipeline collection, transportation, and distribution systems. Structures and other buildings installed on an easement, right-of-way, or leasehold that are not specifically referenced in this subsection (11) shall be deemed to be improvements pursuant to subsection (6.3) of this section.

§ 39-1-102, C.R.S.

Taxable or Exempt

All property in the state is taxable unless specifically exempt by the Colorado Constitution. Taxable personal property that is fully depreciated or expensed by a business for income tax purposes is still taxable to the owner. The types of personal property exempt from taxation are listed in Chapter 1, Applicable Property Tax Laws. What follows are the specific definitions of the exempt property and the applications of these exemptions by the assessor. All exemptions from property taxation are strictly construed and in United Presbyterian Association, et al. v. Board of County Commissioners, 167 Colo. 485, 448 P.2d 967 (1968), the court held that the taxpayer has the responsibility to prove that property is exempt. If a property owner is claiming exemption from taxation, the owner must show where in the Colorado Constitution or the statutes the exemption is justified.

Exemption of Consumable Personal Property

Defined by the Colorado Division of Property Taxation policy according to §§ 39-1-102(7.2) and 39-2-109(1)(e), C.R.S. and exempted under § 39-3-119, C.R.S.

In 2000, the Colorado Legislature amended § 39-3-119, C.R.S., to require the Division of Property Taxation to “publish in the manuals, appraisal procedures, and instructions prepared and published pursuant to section § 39-2-109(1)(e), C.R.S., a definition or description of the types of personal property that are ‘held for consumption by any business’ and therefore exempt from the levy and collection of property tax pursuant to this section.” In the 2007 published Colorado Court of Appeals case, EchoStar Satellite, LLC., and BAA v. Arapahoe County BOE and PTA, 171 P.3d 633 (Colo. App 2007), the Colorado Court of Appeals noted that, “By statute, the PTA has the responsibility to determine the scope of the ‘consumable’ exemption by publishing appropriate guidelines in the reference manuals.”

The Division developed and published the following policy language criteria, examples, and leased personal property provision to be considered together to aid in determining whether personal property is considered "consumable" and, therefore, exempt from property taxation. To be classified as “consumable,” personal property must fall under one of the following criteria:

1. The personal property must have an economic life of one (1) year or less.
   
   This criterion applies to any personal property regardless of the original installed cost. This category also includes non-functional personal property that is used as a source of parts for the repair of operational machinery and equipment with an economic life of one year or less.
    

2. The personal property has an economic life exceeding one year, but the original installed cost including acquisition cost, installation cost, sales/use tax, and freight expense to the point of use, is $350 or less.
   
   The $350 threshold should be applied to personal property that is completely assembled and ready to perform the end user’s intended purpose(s).
   
   The threshold should not be applied to the personal property’s or personal property system’s unassembled, individual component parts or separate accessories.
   
   In cases where there is a separation in the ownership of the system components/accessories, the sum of the original installed costs of all of the components/accessories that are under common ownership per location should be added together for the $350 or less "consumable" exemption consideration.
   
   If the reasonable original installed costs for the personal property or personal property system including components/accessories cannot be determined based on the information received by the assessor, the assessor may use the best information available process to determine a reasonable estimate of the original installed cost for $350 or less “consumable” exemption consideration. Note the following examples:
   
   Example 1, Computer system with common ownership:
   The original installed costs incurred for a complete computer system in-place and ready for the “end user” should be considered. The component parts of the system including the mouse, keyboard, monitor, and the CPU should not be divided and considered separately for the $350 or less “consumable” exemption.
   
   Example 2, Theater system with common ownership:
   The original installed costs incurred in the acquisition and installation of an entire theater seating system should be considered. The individual theater seats are unassembled individual component parts of a larger theater seating system and their costs should not be considered separately for the $350 or less “consumable” exemption.
   
   Example 3, Security system with separate ownership:
   A business owner signs a service agreement with a security system service provider that transfers ownership of specific security system components to the business owner upon execution of the agreement. For $350 or less “consumable” exemption consideration, the assessor must work with the taxpayers to determine the reasonable original installed cost for each of the system components/accessories. All system components/accessories under common ownership at the specific location that are used with the system should be added together for the $350 or less “consumable” exemption consideration.

   Leased personal property provision:
   For leased personal property, the market value in use for the personal property at the retail “end user” trade level, including an allowance for acquisition costs, installation, sales/use tax, and freight to the point of use, at the time the initial agreement is executed should be estimated. The estimate of market value in use is to be used for the purposes of determining taxable status under the $350 or less “consumable” exemption.

Exemption - Actual Value of $52,000

Defined by § 39-1-102(11), C.R.S. and exempted under § 39-3-119.5, C.R.S. Exemption of personal property equal to or less than $52,000 in total actual value is provided for in § 39-3-119.5, C.R.S. An exemption is allowed and should only be applied if the total actual value of taxpayer's personal property per county is equal to or less than $52,000. The statute does not exempt the first $52,000 of each personal property taxpayer's schedule.

On September 10, 2001, in Huddleston and TCI v. Board of Equalization of Montezuma County, 31 P. 3d 155 (Colo. 2001), the Colorado Supreme Court affirmed four separate Colorado Court of Appeals’ judgments that had reversed the decisions of the State Board of Assessment Appeals (BAA). Principally, at issue was whether the Property Tax Administrator’s interpretation that § 39-3-119.5, C.R.S., should be applied on a per business location basis by the assessors of this state is consistent with section 20(8)(b) of article X of the Colorado Constitution, which provides for the exemption of personal property. This ruling changed the previous Division policy that held that this exemption should be applied on a "per business location" basis.

This decision allows taxpayers to file more than one schedule for efficiency and convenience, but clarifies that the exemption must be applied for taxpayers owning $52,000 or less of business personal property on a “per county” basis.

Listed below are important criteria that must be considered when implementing this legislation:

1. This exemption applies to all personal property:
   1. That is not otherwise exempt by constitutional or statutory authority, and
   2. That is defined under § 39-1-102(11), C.R.S., as machinery, equipment, and other articles related to a commercial or industrial operation or are defined, under § 39-1-102(6) and (10), C.R.S., as household furnishings or personal effects and that are used for the production of income for any time during the assessment year, and
   3. Where the total actual value of the personal property owned by a specific taxpayer and located in the same county is $52,000 or less.
2. Taxpayers owning personal property that has a total actual value of $52,000 or less per county are not required to file a personal property declaration schedule with the assessor in that county.
3. All personal property owners, regardless of property classification subclass, are subject to the $52,000 exemption threshold. This includes all residential, commercial, industrial, other-agricultural, natural resource, producing mines, and oil and gas personal property. The exemption also applies to state assessed personal property. It is measured against the entire Colorado personal property value of a company, NOT the value apportioned to individual counties. The state assessed value apportioned to each county has already been adjusted for this exemption.
4. If an assessor believes, through comparison with similar types of businesses, that the total actual value of the taxpayer’s personal property per county is likely to exceed the $52,000 threshold, a declaration schedule should be sent, a “best information available” (BIA) valuation should be assigned to the property, and the taxpayer should be notified prior to the tax bill being issued. Assessors are encouraged to contact taxpayers by telephone or through a physical inspection of the personal property, as soon as possible, to determine whether the $52,000 threshold is exceeded.
   
   If it is apparent that the total actual value is likely to exceed the threshold, taxpayers should be advised, as soon as possible, and given the opportunity to provide an itemized list of the personal property.
   
   As required by § 39-3-119.5, C.R.S., this exemption is adjusted biennially to account for inflation. Beginning with the 2023 tax year, the Property Tax Administrator is also required to publish an “alternative exemption amount” starting from $7,900 and adjusted biennially to account for inflation. This alternative exemption amount only applies if not all counties have received a reimbursement in accordance with §§ 39-3- 119.5(2)(b)(I)(C) and (3)(f), C.R.S. For the 2023 and 2024 tax years, the alternative exemption amount is $8,200 or less.

Agricultural

Agricultural and Livestock Products

Defined by § 39-1-102(1.1), C.R.S. and exempted under § 39-3-121, C.R.S.

Definitions.

(1.1) (a) “Agricultural and livestock products” means plant or animal products in a raw or unprocessed state that are derived from the science and art of agriculture, regardless of the use of the product after its sale and regardless of the entity that purchases the product. ‘Agriculture’, for purposes of this subsection (1.1), means farming, ranching, animal husbandry, and horticulture.

(b) On and after January 1, 2023, for the purposes of this subsection (1.1), “agricultural and livestock products” includes crops grown within a controlled environment agricultural facility in a raw or unprocessed state for human or livestock consumption. For the purposes of this subsection (1.1)(b), “agricultural and livestock products” does not include marijuana, as defined in section 18-18-102 (18)(a), or any other nonfood crop agricultural products.

§ 39-1-102, C.R.S.

This definition includes most plant or animal products in the raw or unprocessed state. These would include, but are not limited to, products such as alfalfa, all grains, eggs, milk, fruit, and crops grown within a controlled environment agricultural facility. All of these products are exempt from property taxation. Any personal property not qualifying as agricultural or livestock products and any processed products may qualify for exemption as supplies or inventories of merchandise and materials held for sale. Marijuana, as defined in section 18-18- 102 (18)(a), and any other nonfood crop agricultural products are excluded from the definition of "agricultural and livestock products" under subsection (b) of § 39-1-102 (1.1), C.R.S.

Agricultural Equipment Used on the Farm or Ranch

Defined by § 39-1-102(1.3), C.R.S. and exempted under § 39-3-122, C.R.S.

All of the following qualifications must be met for the property to be exempt as agricultural equipment:

1. Agricultural equipment must be personal property to be exempt. Fixtures, as defined in § 39-1-102(4), C.R.S., are to be valued as part of the building or structure. A distinction must be made for classification purposes for property that are related to the operation of the building and property that are related to the operation of a business in the building. Regardless of whether a particular property is affixed to a building and may otherwise constitute a fixture system, the property constitutes personal property if its use is primarily tied to the business operation. Therefore, any mechanical system used on the farm or ranch for the conveyance and storage of animal products in a raw or unprocessed state is exempt regardless of whether or not it is a fixture.
2. The equipment must be used on a farm or ranch, that is, land where agricultural products originate from the productivity of the land or land which is grazed by domestic animals.
3. Only equipment that is used to plant, grow, or harvest an agricultural product, raise or breed livestock, or the agricultural equipment that is primarily tied to the agricultural operation are exempt.

It is very important that the terms "farm" and "ranch" be understood by the assessor when classifying agricultural personal property because only that personal property used on a farm or ranch is exempt. The specific definitions for the terms "farm" and "ranch" are found in §§ 39-1-102(3.5) and (13.5), C.R.S., respectively.

Silviculture is defined as the branch of forestry that is concerned with the development and care of forests. Pursuant to §39-1-102(1.3), agricultural equipment includes “silviculture personal property that is designed, adapted, and used for the planting, growing, maintenance, or harvesting of trees in a raw or unprocessed state.”

Livestock

Defined by § 39-1-102(7.7), C.R.S. and exempted under § 39-3-120, C.R.S.

Livestock includes all animals. The animals need not be used on a farm or ranch to be exempt as indicated in section 3(1)(c) of article X, of the Colorado Constitution when read in conjunction with § 39-1-102(7.8), C.R.S.

All Other Agricultural as “All Other” Property

As required by § 39-1-102(1.6)(b), C.R.S., all other agricultural property that does not meet the definition set forth in § 39-1-102(1.6)(a), C.R.S., must be classified and valued as all other property. For purposes of identification, a classification category of “all other agricultural property” was developed and includes agribusinesses and/or agriculturally related commercial operations. The land, improvements and personal property classified as “all other agricultural property” are taxable. However any personal property used in direct connection with the operation of a controlled environment agricultural facility is exempt from property taxation for tax years 2023-2027.

A complete discussion of the valuation of agricultural lands is found in ARL Volume 3, Real Property Valuation Manual, Chapter 5, Valuation of Agricultural Land.

Residential Household Furnishings

Defined by § 39-1-102(6), C.R.S. and exempted under § 39-3-102, C.R.S.

Any household furniture and freestanding appliances and security systems found in private homes that are used to produce income at any time during the year are taxable for the entire year, otherwise they are exempt pursuant to § 39-3-102, C.R.S. Furniture, freestanding appliances, and security systems found in rental properties are taxable regardless of the terms or duration of the lease agreement or the physical characteristics of the rental property.

Renewable energy property that is located on a residential classified property, owned by the residential property owner, and produces energy that is used by the residential property is exempt from Colorado property taxation.

Independently owned residential solar electric generation facilities (photovoltaic solar systems) that meet criteria listed in § 39-1-102 (6.8), C.R.S. are exempt from Colorado property taxation under 39-3-102, C.R.S. To qualify for the exemption the solar electric generation facility must be located on residential real property, used to produce electricity from solar energy primarily for use in the residential improvements, and have a production capacity of no more than one hundred kilowatts.

No work of art, as defined in § 39-1-102(18), C.R.S., which is not subject to annual depreciation and which would otherwise be exempt as household furnishings shall cease to be exempt because it is stored or displayed on premises other than a residence pursuant to § 39- 3-102(2), C.R.S.

Intangible Personal Property

Exempted under §§ 39-3-118 and 39-22-611, C.R.S.

Black's Law Dictionary, Sixth Edition, defines intangible property and intangible assets, paraphrased as follows:

As used in the law of taxation, the term intangible property means that such property has no intrinsic and marketable value, but is merely the representing evidence of value such as certificates of stock, bonds, promissory notes, copyrights, and franchises:

An intangible asset is property that is a "right" such as a patent, copyright, trademark, etc., or one which is lacking physical existence, such as goodwill.

Software is classified as intangible property except for the machine language which is automatically initiated during the computer startup. The value of this machine language is inherent in the value of the computer hardware and is not to be exempted. Refer to Chapter 7, Special Issues, for a complete discussion of Software.

Inventories of Merchandise, Material and Supplies

Defined by § 39-1-102(7.2), C.R.S. and exempted under § 39-3-119, C.R.S.

The elements of what constitutes exempt inventory include the following:

1. Personal property which is held primarily for sale by a business, farm, or ranch;
2. Component parts of personal property held for sale by a business, farm, or ranch or parts that are a part of the manufacturing process include:
   1. The personal property in these two categories include any inventory held for sale; raw materials, work in progress, and finished goods held by a manufacturer; and replacement parts inventory held for sale by manufacturers, wholesalers, or retailers. There is no difference in the inventory held for sale between a wholesaler or a retailer. Any personal property held for sale by a business, whose primary purpose is the sale of such inventory and that are listed as inventory on the company's financial records are exempt.
   2. The definition does not include equipment that is for sale by a business, which does not regularly engage in the sale of inventory. For example, an individual who claims that all of his furniture is for sale as of January 1 cannot have his property exempted as inventory. The primary use of the property is not to be held for sale; rather it is to operate the business.
   3. In addition, any property that is subject to an allowance for depreciation cannot be classified as exempt inventory. Careful examination of the taxpayer's financial records should reveal any allowances for depreciation taken. An exception to this requirement is property rented for 30 days at a time or less as provided for in § 39-1-102(7.2), C.R.S.
3. Personal property that is held for consumption by a business, farm, or ranch
   1. Supply property is generally considered to be consumed internally during the operation of a business, farm, or ranch and are not generally sold. Such things as paper, pencils, computer disks, baling wire, fuel, and fertilizer are normally included in this category.
4. Rental property that is:
   1. Rented for thirty days at a time or less, and
   2. Which can be returned at the option of the person renting, and
   3. Is involved in transactions on which the sales/use tax will be collected before finally being sold, and

   4. Is not governed by the terms of a lease contract covering a specific period of time and which includes financial penalties for early cancellation.

      1. In general, personal property held for rent or lease is taxable except for property with a life of less than one year, in which case, it is considered a supply and is therefore exempt.
      2. The language of § 39-1-102(7.2), C.R.S., exempts certain rental property under specific conditions. (The rental property for which exemption is claimed must meet all the criteria set forth in the law before it can be declared exempt.)
      3. The following describes certain types of personal property which are rented or leased and appear to conform, but in fact do not conform with the thirty days or less exemption criteria. This type of personal property can be discovered through the usual process of identifying such businesses and sending or delivering a personal property declaration schedule.

      Automatic Rollover Leases

      The personal property is typically rented for more than thirty days, even if the rental/lease agreement is structured to appear otherwise, then the personal property is actually rented for more than 30 days. Therefore, the personal property does not fall under the 30 days or less rental exemption. Examples of this type of personal property rollover leases would include water service bottle holders/dispensers and all rent-to-own furniture, appliances, construction tools, and equipment.

      Service Organization Property Leases

      Even if the personal property is "changed out" or replaced with an identical or closely similar property during a period of time of less than 30 days, these property are actually rented for more than 30 days. Therefore, the property does not fall under the 30 days or less rental exemption. Examples of this type of service organization property would include: compressed gas tanks, water service bottles, and live plant leasing companies.

      Property Secondary (Sub) Leases

      If the personal property is rented for thirty days or less and conforms to all other provisions of the 30 days or less rental exemption, but this property is leased for more than 30 days from an original distributor, the property does not qualify for the thirty days or less rental exemption.

      In these cases, the personal property is actually owned by the original distributor, not by the company executing secondary (sub) leases with a consumer. Therefore, the property is actually leased for more than 30 days to the secondary lessor.

      Exemption of personal property held for rent in no way affects the assessment of any furniture or equipment used by the business. This property would be taxable so long as it does not meet any of the other requirements for exemption found in the law.

5. Inventory owned by and in the possession of the manufacturer of the inventory when both of the following apply:
   1. The inventory is in the possession of the manufacturer after having been leased to a customer directly by the manufacturer.
   2. The inventory is designated for scrapping, reconditioning, renovation or remanufacture. Normal maintenance is not included in these criteria.
      
      Personal property owned by manufacturers/lessors that were leased during the previous calendar year, but that have been returned to the manufacturer/lessor for scrapping, substantial reconditioning, renovating, or remanufacturing must be reported to the assessor for the assessment year following the year in which the personal property were put back into service.
      
      The language of the statute only addresses machinery that had once been directly leased by the manufacturer to the customer and which has been returned to the manufacturer. The manufacturer must designate such property for scrapping or major reconditioning to qualify the property as exempt. Personal property that is leased through a third party or which have been returned for normal maintenance do not qualify as exempt.
      
      Any leased property which has been returned to the manufacturer and which has not been designated for scrapping or substantial reconstruction cannot be classified as exempt inventory and must be reported to the assessor who will value and assess it as taxable equipment pursuant to § 39-5-107(1), C.R.S.

Business Personal Property Not as Yet in Use

Exempted under § 39-3-118.5, C.R.S.

Business personal property shall be exempt from the levy and collection of property tax until such business personal property is "first used" in the business after acquisition. Taxpayers are to be given this exemption during the “window” between the date that the personal property is acquired and the date when the personal property is first used in the business.

The following criteria should be used when establishing the exemption period prior to first use:

1. This policy applies to newly acquired personal property, whether it was acquired either new or used or for either a new or existing business.
2. Information reported by the taxpayer on the applicable declaration schedule will be the primary source in establishing the period of exemption and the point in time when the property becomes assessable. The assessor should contact the taxpayer to resolve any questions regarding acquisition year and year of first use. In case of disagreement between the taxpayer and county regarding the year of first use, the burden of proof is on the taxpayer to substantiate the year the personal property was first used in the business.
   
   The Division has incorporated special language and formatting in all declaration schedules so that taxpayers can indicate both year of acquisition and year the personal property was first used in the business.
    
3. Personal property that is on-site, but has not initially been put into service, qualifies for this exemption. The exemption also applies to property that is in a test or “shakedown” mode prior to being put into service. However, once personal property is put into service to function for its intended use it no longer qualifies for the exemption. This intended use may include testing property, research and development property, proof of concept property, and safety/emergency property. Personal property that is removed from service does not qualify.
4. Until it is first leased, personal property newly acquired for lease by a lessor qualifies for this exemption. However, once this property is leased, it no longer qualifies for this exemption.

Internal auditing procedures in the county will have to be updated so that during on-site field inspections, information is requested from the taxpayer as to the date the personal property was acquired in addition to the date the personal property was first used in the business.

Personal Effects

Defined by § 39-1-102(10), C.R.S. and exempted under § 39-3-103, C.R.S.

Personal effects include all property used by private citizens in private life. It includes any property used by the taxpayer in sports or hobbies or other recreational activities so long as the personal property is never used to produce income. If the equipment is used to produce any income during any time of the year, it is taxable for the entire year.

There are instances in which it is difficult to ascertain whether or not income is being derived from a personal effect. One indicator is if the taxpayer advertises a service in some sort of public medium.

If the assessor suspects that a taxpayer is using personal effects for the production of income, a declaration schedule should be sent so that the taxpayer has an opportunity to file and be on record as to the nature and use of the property.

Property Leased to Governmental Entities

Personal property that is leased to certain governmental entities may be exempt from property taxation.

Refer to Chapter 1, Applicable Property Tax Laws, for a complete listing of statutory citations for these exemptions and ARL Volume 2, Administrative and Assessment Procedures, Chapter 10, Exemptions, for a complete discussion of these exemptions.

Works of Art

Defined by § 39-1-102(18), C.R.S. and exempted under §§ 39-3-102 and 39-3-123, C.R.S.

Works of art are original creations of visual art, including but not limited to the following:

• Sculpture
• Paintings or drawings
• Mosaics
• Photographs
• Crafts made from clay, fiber and textiles, wood, metal, plastics or any other material
• Calligraphy
• Mixed media
• Unique architectural embellishments

As provided in § 39-3-123, C.R.S., works of art are exempt for the period of time that they are loaned to and under the control of three types of entities.

1. The State of Colorado
2. A political subdivision of the State (Counties, cities, towns, special districts; and school districts)
3. A library, an art gallery, or museum, if:
   1. Owned or operated by a charitable organization as defined by § 39-26-102(2.5), C.R.S.
   2. The organization's property is irrevocably dedicated to charitable purposes.
   3. The organization's assets do not benefit any private person upon the liquidation, dissolution, or abandonment by the owner.
   4. The use of the work of art is for charitable purposes. Charitable purpose is defined as follows:
      1. Public display
      2. Research
      3. Educational study
      4. Maintenance of the property
      5. Preparation for display

The assessor can confirm items 3a through 3c by review of the Certificate of Sales Tax Exemption and the Articles of Incorporation for the art gallery or museum.

Works of art that are part of an individual's private collection and not used to produce income at any time are classified as household furnishings or personal effects and are exempt pursuant to §§ 39-1-102(6) or (10), C.R.S.

Paraphrasing § 39-3-102(2), C.R.S., no work of art, as defined in § 39-1-102(18), C.R.S., which is not subject to annual depreciation and which would otherwise be exempt as household furnishings shall cease to be exempt simply because it is stored or displayed on premises other than a residence.

Works of art that are owned by a business or corporation are taxable unless they meet the requirements of §§ 39-3-102(2) or 123, or 39-5-113.5, C.R.S.

The owners of the works of art must file a works of art statement, personal property declaration, and proof of the exemption (documentation) with the assessor to substantiate the claim for exemption each assessment year. Counties creating a form to use for the works of art exemption must submit the form to the Division of Property Taxation for approval pursuant to § 39-2- 109(1)(d), C.R.S.

Proof of the Display Location's Exemption

The taxpayer claiming exemption must furnish proof of exemption according to §§ 39-26- 102(2.5) and 39-3-123, C.R.S., for the location in which the works of art are to be displayed. The necessary documentation should be available from the organization that is to display the art to comply with the provisions for proof of exemption in § 39-5-113.5(1), C.R.S. Documentation is not required in the case of government buildings.

Proration of Works of Art Valuations

The assessor determines the actual value of the property and prorates the value based on the number of days it qualifies for exemption compared to the full calendar year. After the value is determined and prorated, the assessor must notify the taxpayer pursuant to § 39-5-113.5(2), C.R.S. Procedures and an example of the proration of works of art changing taxable status are found in Chapter 7, Special Issues.

Electric Vehicle Charging Systems

Section 39-3-138, C.R.S., exempts electric vehicle charging systems from the levy and collection of property taxes for property tax years 2023 through 2029. Electric vehicle charging systems are defined in § 38-12-601, C.R.S.

(6)(a) "Electric vehicle charging system" or "charging system" means a device that is used to provide electricity to a plug-in electric vehicle or plug-in hybrid vehicle, is designed to ensure that a safe connection has been made between the electric grid and the vehicle, and is able to communicate with the vehicle’s control system so that electricity flows at an appropriate voltage and current level. An electric vehicle charging system may be wall-mounted or pedestal style and may provide multiple cords to connect with electric vehicles. An electric vehicle charging system must be certified by underwriters laboratories or an equivalent certification and must comply with the current version of article 625 of the national electrical code.

 

§ 38-12-601, C.R.S.

For tracking and reporting purposes, exempt electric vehicle charging systems should be assigned an abstract code of 9420. For more information on assigning abstract codes for exempt electric vehicle charging systems, see Assessors’ Reference Library, Volume 2, Chapter 6.

In accordance with §§ 39-1-103(5) and 39-1-104(12.3)(a)(I), C.R.S., each Colorado county assessor is required to determine the “actual value” of taxable property located in their county on the January 1 assessment date each year. Colorado statutes define actual value as that value determined by appropriate consideration of the following approaches to value:

1. Cost Approach
2. Sales Comparison (Market) Approach
3. Income Approach

The assessor is to consider the approaches to value that are applicable to valuing the personal property prior to determining an actual value estimate as required by §§ 39-1-103(5) and 39- 1-104(12.3)(a)(I), C.R.S. If the taxpayer's declaration is complete; if it contains a full and complete disclosure of reasonable costs of acquisition, installation, sales/use tax, and freight to the point of use; and if it is timely filed, the cost approach to value is considered the maximum value as required by § 39-1-103(13), C.R.S. Reasonable costs are defined as costs that were available to any market participant at the time of the personal property acquisition. Reasonable costs can be estimated using costs declared for similar personal property from similar business/industry accounts. The costs of personal property acquired through special deals, special concessions, purchasing power based discounts and/or other transactions that were not available to the general public at the time of the personal property acquisition are not considered reasonable costs.

For Colorado personal property assessment purposes, § 39-1-104(12.3)(a)(I), C.R.S. requires that the actual value is the value in use. Colorado statutes also require that personal property be valued inclusive of all costs incurred in acquisition and installation of the property. The costs of acquisition, installation, sales/use tax, and freight to the point of use must be considered in the personal property valuation. The inclusion of these costs requires that personal property be valued in use. Therefore, the actual value of personal property is based on its value in use, as installed.

Appraisals are made to determine the value of personal property. An appraisal is an estimate of value as of a given date. The assessor estimates the value of the property being appraised by using comparative data consisting of cost, recent sales, and income information. The relationship between the subject property being appraised and similar properties of known value forms the foundation of the three approaches used to measure the value of personal property. Current actual value is established each and every year for personal property as required by §§ 39-1-104(12.3)(a)(I) and 105, C.R.S.

In Colorado, the assessment date for personal property is defined by § 39-1-105, C.R.S., as January 1 of each year. However, after a current value is established, it is rolled back to the June 30 appraisal date established for real property, using the factors found in Chapter 4, Personal Property Tables, as required by § 39-1-104(12.3)(a)(I), C.R.S. According to § 39- 5-108, C.R.S., the assessor values all taxable personal property owned by, in the possession of, or under the control of each taxpayer in the county based upon the characteristics and condition of the property as of January 1.

The assessor documents all valuations for assessment and maintains complete appraisal records to support the values placed on the personal property. The three approaches to value must be considered and documented on the appraisal records. If a given approach to value is not applicable, the assessor should note this in the appraisal records along with defensible reasons why the approach was not used, as prescribed in Montrose Properties, LTD et al. v. Colorado Board of Assessment Appeals et al., 738 P.2d 396 (Colo. App. 1987).

Data Collection and Analysis

Before estimating the value for personal property, the assessor gathers and analyzes all necessary data. The assessor gathers general, comparative, and specific data with which to complete the appraisal. Data is collected for the subject property (the property being appraised) as well as for comparable (similar properties). Most data collection occurs during the discovery process as discussed in Chapter 2, Discovery, Listing, and Classification.

General Data

Several types of general information are gathered by the assessor. The general information is useful in determining the economic environment that the personal property is used in and may provide clues as to the actual value of the property. The types of general information include the following:

1. Economic Trends
   1. National
   2. Regional
   3. Local
2. Specific Industry
3. Business Cycles
4. Governmental Regulations

Specific Data

The specific information necessary to value personal property includes the following:

1. Current property owner’s name and mailing address
2. Property location
3. Property general use:
   1. Residential
   2. Commercial
   3. Industrial
   4. Agricultural
   5. Natural resources
4. Property description
5. Property acquisition year
6. Property original installed costs
7. Property specific use
8. Property physical condition
9. Property estimated remaining economic life

This information is specific to the subject property being appraised.

The primary tool used to gather specific information is the personal property declaration schedule.

The specific information includes a description of the subject property which is crucial to an accurate valuation. The assessor should obtain a clear, current, and detailed description of the subject property before estimating the value. Without an accurate description of the subject property it will be difficult for the assessor to gather comparable information.

As discussed in Chapter 1, Applicable Property Tax Laws, it is the duty of the taxpayer to furnish information to the assessor about the nature and condition of the property being appraised as required by §§ 39-5-107, 108, and 114, C.R.S. However, the assessor does have a responsibility to gather as much data as possible and to contact the taxpayer if in doubt as to the nature of the subject property.

Comparative Data

Comparative data is used to measure the value of the subject property by comparison with other, similar property. Necessary comparative data includes all specific data, as gathered for the subject. The degree of similarity between the comparable property data and the subject will determine the usefulness of the comparative data in making the appraisal.

Comparative data consists of cost, market, and income information and may be gathered for groups of taxable property.

Any comparative data gathered for use in the appraisal must be confirmed before use. It is especially important that sales information be verified with the buyers and sellers and income and expense data be verified with lessors and lessees. This will ensure that data used in the valuation of the subject is accurate. Cost data submitted by the taxpayer can be confirmed during an office review or a physical inspections. Data that cannot be verified should be used with caution in the appraisal of the subject property.

Highest and Best Use

Unless otherwise required by law, personal property should be valued according to its highest and best use. For personal property, “The highest and best use of an asset is generally when the asset is fully installed and operating for the purpose in which the asset was intended” (Standard on Valuation of Personal Property, IAAO, 2018). The value in use concept requires that personal property be valued inclusive of all costs incurred in the acquisition and installation of the property. As such, typically the highest and best use of personal property is consistent with its value in use.

Application of the Approaches

The assessor is to consider the three approaches to value in determining an actual value estimate for taxable personal property as required by §§ 39-1-103(5) and 104(12.3)(a)(I), C.R.S.

For Colorado personal property assessment purposes, § 39-1-104(12.3)(a)(I), C.R.S. requires that the actual value is the value in use. Colorado statutes also require that personal property be valued inclusive of all costs incurred in acquisition and installation of the property. The costs of acquisition, installation, sales/use tax, and freight to the point of use must be considered in the personal property valuation. The inclusion of these costs requires that personal property be valued in use. Therefore, the actual value of personal property is based on its value in use, as installed.

The most current valuation information available must be gathered and analyzed. It is Division policy that sales comparison (market) and income information used to determine the current actual value of all types of personal property should be gathered and analyzed from the twelvemonth period immediately preceding the current assessment date, i.e., the prior calendar year. Analysis of data from this period insures that adequate current market and income information is used in the valuation of personal property.

Assessors must document the physical condition of personal property as of the assessment date. Assessors also must consider current economic conditions when appraising personal property and must document the reasons for any functional and/or economic obsolescence that may exist as of the assessment date.

Cost Approach

The cost approach is based upon the principle that the value of a property equals the cost of acquiring an equally desirable substitute property. It is essentially an estimate of the cost of replacing the subject property with a new property that is equivalent in function and utility. However, the subject property is usually worth less than its cost of replacement because of depreciation.

Depreciation can be defined, in simple terms, as the loss in value due to any and all causes. However, cost tables only reflect physical depreciation due to ordinary use of the personal property and some functional obsolescence. The cost tables do not reflect depreciation due to extraordinary functional and/or any economic obsolescence, which must be separately estimated. Refer to Determine Accrued Depreciation later in this chapter.

Colorado statutes provide that the cost approach shall establish the maximum value of personal property when the owner of the property has timely filed a declaration which contains full and complete disclosure of all reasonable costs incurred in the acquisition and installation of the property as required by § 39-1-103(13)(a), C.R.S.

As paraphrased from § 39-1-103(13)(c), C.R.S., the assessor must consider the cost approach in good faith and shall not deny its use except for just cause that the owner has not made full and complete disclosure, or has not filed a declaration by the statutory deadline. Also, an assessor that wrongly denies the use of the cost approach can be held liable for all costs incurred by the taxpayer in protesting an assessment based on such denial.

Note that taxpayer declared costs that are not representative of reasonable costs at the appropriate retail “end user” level should not be used. Instead, comparable personal property costs should be researched and used in place of the unreasonable declared costs.

Types of Cost

There are several different cost bases that are referred to in accounting and appraisal work. The different types of cost and descriptions of each are as follows:

Reproduction Cost New

Reproduction cost new is defined as “The cost of reproducing a new replica of a property on the basis of current prices with the same or closely similar materials, as of a specific date” (Valuing Machinery and Equipment, ASA, 4th Edition, 2020).

Replacement Cost New

Replacement cost new is defined as “The current cost of a similar new property having the nearest equivalent utility as the property being appraised, as of a specific date” (Valuing Machinery and Equipment, ASA, 4th Edition, 2020).

RCN is an acronym that is used to represent either Reproduction Cost New or Replacement Cost New, whichever is appropriate. When using the cost approach, the appraiser must clearly denote the cost sources used and what RCN represents.

Manufacturer's Cost

Manufacturer's costs include only those costs that have been incurred by the manufacturer of the property to produce the property at the plant. The manufacturer's cost is not at the appropriate retail “end user” trade level and it does not include installation, sales/use tax, and freight to the point of use.

Original Installed Cost

Original installed cost is the amount that was paid for the personal property when it was new. Original installed cost includes the purchase price of the personal property, freight to the point of use, applicable sales/use tax and any installation charges necessary to ready the property for use in the business.

Original installed cost should be the cost declared on the personal property declaration schedule. It represents the cost to the owner for acquiring the personal property, putting it in place, and having it ready for its intended business use at the appropriate retail “end user” trade level. Original installed cost is not a depreciated value.

Original installed cost is synonymous with historical installed cost. Original installed cost is trended to estimate RCN as of the assessment date.

Cost to Current Owner

The cost to current owner is generally the depreciated acquisition cost of used personal property reported by subsequent owners. When the current owner has purchased used personal property, the costs reported on the declaration schedule filed by the current owner may represent the depreciated value of the personal property.

If the current owner of the personal property does not have the reasonable original installed cost information to report to the assessor, then the reasonable cost to current owner (depreciated costs), in use may be used. The costs reported by the current owner must represent reasonable used personal property acquisition costs. If not already included in the cost to current owner, an allowance for freight to the point of use, applicable sales/use tax and any installation charges necessary to ready the property for use in the business must be added. Note that taxpayer declared costs that are not representative of reasonable costs at the appropriate retail “end user” trade level should not be used. Instead, comparable personal property costs should be researched and used in place of the unreasonable declared costs.

Assuming that a current owner of personal property has timely filed a declaration that includes a full and complete disclosure of all costs incurred in the most recent acquisition of the property, the most recent sale price must be used as the acquisition cost prior to calculating RCN. The only exceptions to this rule are as follows:

1. If the last transaction was not arm's-length, then prior acquisition costs or comparable RCN estimates from outside sources should be used. If the costs declared are not representative of reasonable costs at the appropriate retail “end user” trade level, then they should not be used.
2. If the personal property is at the end of its economic life and the depreciated value floor of the personal property generally has been reached, then the acquisition price paid for the personal property is treated as the depreciated value floor (RCNLD) for the personal property and no RCN trending factors or percent good (depreciation) factors are applied to these prices unless the personal property is reconditioned or upgraded to extend its remaining economic life.
   
   Even though personal property has been permanently taken out of service, but has not been scrapped or sold, it still has value. However, additional functional and/or economic obsolescence may exist.

Trade Level

Personal property valuation should consider the appropriate trade level, which refers to the production and distribution stages of a product. There are three distinct trade levels including: the manufacturing level, the wholesale level, and the retail “end user” level. Incremental costs will be added to the product cost as it advances from one level to the next. Therefore, the final product cost will differ depending on the level of trade. In light of the Colorado Constitutional provisions requiring property to be assessed at its “actual value” and promoting the principle of “equalized value,” for Colorado ad valorem taxation purposes, all property is valued at the retail “end user” level.

If an owner of taxable personal property declares manufacturing or wholesale costs, the county assessor should request an amended listing of personal property showing the original installed costs or the market-derived RCN at the appropriate retail “end user” trade level. In cases where the taxpayer provides declared costs that are not representative of reasonable costs at the appropriate retail “end user” trade level, the unrealistic declared costs should not be used. Instead, comparable personal property costs should be researched and used in place of the unreasonable declared costs.

In Xerox Corporation v. Board of County Commissioners of the County of Arapahoe, 87 P.3d 189(Colo. App. 2003), the Colorado Court of Appeals concluded that, “various ARL provisions bolster the conclusion that the comparable sales price, rather than the manufacturer’s cost, is the appropriate starting point for the cost approach under § 39-1-103(13).” It further stated, “the DPT’s interpretation comports with Colorado constitutional provisions requiring property to be assessed at its ‘actual value’ and promoting the principle of ‘equalized value.’”

Unique Personal Property

Occasionally, specialized industrial and other types of unique personal property are designed and manufactured within a company. In cases where the taxpayer has built a piece of personal property for which no comparables exist in the market, the taxpayer must estimate the cost of materials and labor used to build the personal property. In addition, estimates for freight to the point of use, installation charges, and sales/use tax must be added to develop a reasonable value in use for the personal property. The estimation procedure is to be used only when no comparable personal property exists in the market.

No or Low Cost Personal Property

Taxable personal property acquired for no or low monetary cost, to the owner (e.g., trades, gifts) still has value. The reasonable cost of comparable personal property; along with the reasonable costs of installation, sales/use tax, and freight to the point of use are to be used to develop a reasonable value in use for the personal property.

Antique Personal Property

Antique value is generally considered an intangible value component and should not be included in the valuation of personal property for property tax purposes. Market sales of antique personal property will typically exceed the RCNLD value. Antique personal property should be valued using the RCN of comparable non-antique personal property that serve the same purpose or function. In determining the RCN of antique personal property, the appraiser should consider the quality and other physical characteristics in determining the appropriate RCN.

Bulk Sale of Personal Property

When the sale of a business results in the transfer of most or all of the business's personal property to a new owner, this is known as a bulk sale of personal property. Provided that the sale is an arm's length transaction and the declared cost represents the reasonable value in use of the sold personal property, this sale of used personal property represents the acquisition cost to the new owner and may be used as the basis for the personal property value. Personal property bulk sale costs that are calculated based on an allocation may not be representative of a reasonable value in use for the personal property. Note that taxpayer declared costs that are not representative of reasonable value in use at the appropriate retail “end user” level should not be used. Instead, comparable personal property costs should be researched and used in place of the unreasonable declared costs.

For personal property which has reached its depreciated value floor by the date of acquisition, the reasonable value allocated from the bulk sale price is frozen. For personal property which has not reached its depreciated value floor, the value allocated from the bulk sale price is depreciated over a complete economic life appropriate to the personal property as though the personal property were new.

Cost Approach Procedure

The steps in the cost approach for personal property valuation are:

1. Estimate RCN.
2. Determine accrued depreciation.
3. Calculate RCN Less Depreciation (RCNLD).
4. Adjust RCNLD to the June 30 level of value established for real property.

Estimate Replacement or Reproduction Cost New

In the cost approach, the assessor determines either the cost of producing an exact replica of the subject property at current cost (Reproduction Cost New) or the cost of replacing the subject property with personal property that is similar in function and utility (Replacement Cost New). RCN is an acronym that is used to represent either Reproduction Cost New or Replacement Cost New, whichever is appropriate. When using the cost approach, the appraiser must clearly denote the cost sources used and what RCN represents.

The two methods used by assessors to estimate the RCN of personal property are:

1. Original installed cost trended by cost indices
2. Research RCN data from outside sources

Original Installed Cost Trended by Cost Index:

Original installed cost trending is the most commonly used method for estimating RCN in Colorado. The method relies on original installed costs furnished by the taxpayer and is applicable in a mass appraisal approach to valuing personal property.

The RCN is estimated for personal property appraisals by multiplying the original installed cost of the subject by the appropriate cost index factor for the year of acquisition. The index, or trending factor, adjusts the original installed cost to the current cost of replacing the personal property with similar personal property.

Price indices developed with the use of Marshall Valuation Service have been compiled and published by the Division for use by all assessors. These indices show the specific rates and directions of price movements throughout various industry categories. The base year for the Marshall Valuation Service indices is 1926. This means that the published factors are based upon 1926=100%. The indices measure the difference between 1926 costs and current year costs.

The Division of Property Taxation, through the courtesy of Marshall Valuation Service, converts the industry cost indices into cost trending factors. The factors relate original installed costs, by industry category, to current year costs. The factors are published annually so that assessors may use them to estimate the current RCN of personal property. The factors are found in Chapter 4, Personal Property Tables.

Original installed cost trending has several limitations:

• The cost factors are designed to be used only during the economic life of the property. After the property has reached the end of its economic life, the factoring of original installed costs may lead to distorted RCN values.
• As property ages, the use of original installed cost multiplied by trending factors and percent good factors may not yield reasonable RCNLD values. Any RCNLD estimate should be cross-checked with market and income information sources and adjusted, if necessary.
• The cost factors are based upon broad surveys of personal property cost levels conducted by the Marshall Valuation Service.

In the year in which the personal property has reached its minimum residual percent good floor, the applicable RCN trending factor in use at that time is "frozen" and the Level of Value (LOV) adjustment factor is “frozen” at 1.0. For the assessment years that follow, the RCNLD value does not change unless the personal property has been reconditioned or upgraded to extend its remaining economic life.

Even though personal property has been permanently taken out of service, but has not been scrapped or sold, it still has value. However, additional functional and/or economic obsolescence may exist.

The cost factors published in this manual are intended for use with original installed costs submitted by the taxpayer. Each category factor is industry specific.

Determination of Current RCN From Outside Sources:

The RCN of personal property is also estimated directly from market information published
by outside sources. Typical sources of RCN information include the following:

• General Services Administration (GSA) List Prices
• Manufacturer Catalog List Prices
• Reported Costs of Similar Property
• Local Cost Surveys of Equipment Dealers
• Commercial Replacement Cost Manuals

GSA List Prices

The GSA, or General Services Administration, is the central purchasing and leasing agency for the federal government. Many manufacturers publish catalogs specifically for use by the federal government. These catalogs contain current selling prices and lease rates available to federal agencies from individual manufacturers. These manufacturers must be contacted to obtain their GSA price lists. At the time of contact, the manufacturers should be queried as to whether discounts from the listed prices are typically given.

The assessor must also take care that the personal property listed in the price list are comparable to the subject property. In addition, estimates for freight to the point of use, installation charges, and sales/use tax must be added to develop a reasonable value in use basis for the property. The GSA prices are current RCN prices and should not be trended using cost factors found in Chapter 4, Personal Property Tables.

Pricing Catalogs

Many manufacturers or distributors of personal property maintain current pricing catalogs for the retail trade. Price catalogs are similar to the GSA prices in that they contain current replacement costs for various types of personal property. Price catalogs are available from the manufacturers or distributors of the property.

The price lists give information about the RCNs of certain personal property for the period of time in which the lists are valid. Supply catalogs such as J.C. Penney contain pricing information for common types of personal property.

The assessor must also take care that the personal property listed in the catalog or price list are comparable to the subject property. In addition, freight to the point of use, installation charges, and sales/use tax must be added to develop a reasonable value in use basis for the personal property valuation. Catalogs, which are current on January 1 of the assessment year, provide the best information. Any current prices taken from any catalogs should not be factored using the cost trending factors found in Chapter 4, Personal Property Tables.

Reported Costs of Similar Property

Assessors may review the reported costs of similar personal property from personal property declarations schedules to help them determine a reasonable cost at the appropriate retail “end user” trade level. Costs reported on the personal property declaration schedules should represent either the original installed cost or cost to current owner of the personal property. If the reported costs represent the original installed costs from other personal property schedules with similar personal property, the assessor can use the reported costs to estimate reasonable original installed costs for similar personal property. If the reported costs represent the cost to current owner of the personal property, the assessor must make sure that an allowance for freight to the point of use, applicable sales/use tax and any installation charges necessary to ready the property for use in the business have been added before they can use the costs in the valuation process to derive the appropriate personal property value in use.

If the costs derived from this analysis are current replacement costs, they should not be factored using the RCN trending factors found in Chapter 4, Personal Property Tables. However, if the costs are not current, they must be factored from the year of the comparable costs to the current assessment date. In this event, the year of the costs may or may not correspond to the taxpayer's year of acquisition. It is important that the assessor knows which information is in use and applies the correct trending and percent good (depreciation) factors.

Local Cost Surveys of Equipment Dealers

Assessors may also contact local equipment dealers to determine RCN. Local equipment dealers have current list prices available for various types of personal property. The assessor should contact these dealers and ask about the prices of certain types of personal property. This is especially useful as a check on the accuracy of reported costs and trended values. At the time of contact, the dealers should be queried as to whether discounts from the listed prices are typically given.

The assessor must ensure that the personal property listed by the dealers are comparable to the subject property. In addition, estimates for freight to the point of use, installation charges, and sales/use tax must be added.

Commercial Replacement Cost Manuals

Several companies publish pricing manuals for personal property. These manuals are updated periodically and provide information for the assessor to use, especially in cases where no other information is available.

Many of the companies charge a fee for the information contained in the manuals. However, payment of the fee usually entitles the purchaser to all updates or factors used in the manual. The manuals provide a valuable crosscheck for RCN estimates.

Do not factor the prices listed in the manuals using the cost trending factors found in Chapter 4, Personal Property Tables. Trending factors are furnished with the manual by the publisher in order to trend manual RCN's to the current assessment date. Since these trending factors are specifically intended for use with the particular manual, the manual user should not apply these factors to other manuals or to original costs declared by the taxpayer.

The assessor must ensure that comparable personal property that is used from the manuals is comparable to the subject property. In addition, estimates for freight to the point of use, installation charges, and sales/use tax must be added.

Determine Accrued Depreciation:

Accrued depreciation is the difference between the current RCN and the present value of the personal property as of the appraisal date. Depreciation may be defined as follows.

Depreciation is "Loss in value of an object, relative to its replacement cost, reproduction cost, or original cost, whatever the cause of the loss in value," according to Property Appraisal and Assessment Administration, IAAO, 1990, page 641.

The causes of accrued depreciation are divided into three categories:

1. Physical Depreciation (deterioration)
   1. Wear and tear from use or from the elements
   2. Negligent care or inadequate maintenance
   3. Damage from moisture, breakage, or fire
2. Functional Obsolescence
   1. Poor plan, design, or style
   2. Mechanical inadequacy or superadequacy
   3. Functional inadequacy or superadequacy due to size, style, age
   4. Technological innovation
   5. Changes in manufacturing techniques
   6. Changes in consumer tastes
3. Economic Obsolescence
   1. Adverse economic conditions
   2. Passage of restrictive legislation
   3. Loss of material or labor sources

Physical depreciation and functional obsolescence relate to deficiencies within the property itself. Deficiencies may be classified as either curable or incurable. The deficiencies are curable if the cost to repair, replace, or correct them is economically feasible. This cost to cure is economically feasible if the cost is equal to or less than the additional income which would be generated by the property after the deficiencies have been cured. The deficiencies are incurable if they are physically or economically impractical to repair, replace, or correct.

Economic obsolescence is due to negative forces outside the property. This type of depreciation is seldom curable and is generally classified as incurable.

Losses in value due to functional or economic causes are not related to the actual age of the property, but rather to changing market forces that affect the property. Physical depreciation is related more to its economic life, i.e., its full life assuming normal maintenance, rather than the actual physical age of the personal property. Therefore accrued depreciation is based upon economic life rather than physical life.

Depreciation, as used in appraisal, differs from depreciation as used in accounting. Accounting depreciation can be defined as “the total accruals recorded on the books of the owner of property summarizing the systematic and periodic expenses charged toward amortizing the investment of limited-life property over its expected life” (Standard on Valuation of Personal Property, IAAO, 2018). Accountants are interested in income tax deduction justification or allocation of the investment made in the personal property to various income producing activities. In contrast, the assessor attempts to estimate the actual value of the personal property as of the appraisal date.

The assessor must consider and document all elements of physical depreciation and functional and economic obsolescence as of January 1 each year before placing a value on personal property.

Measure Incurable Physical Depreciation:

Physical depreciation which is due to ordinary use of the property is incurable because it is economically impractical to bring the property to its original condition when new each year. In order to measure incurable physical depreciation, the assessor determines the total economic life, the effective age, the remaining economic life, and the appropriate depreciation amount to apply to the subject property. Remaining economic life is the number of years remaining in the economic life of the personal property as of the appraisal date.

To make a supportable estimate of incurable physical depreciation, the assessor first determines the correct total economic life of the personal property being appraised.

Total economic life is the total period of time over which it is anticipated that personal property can be profitably used. It is described as the sum of the effective age and the remaining economic life. Total economic life is usually less than the physical life of the property. The Recommended Economic Life information in Chapter 4, Personal Property Tables, is provided to ensure uniformity in the estimation of total economic life.

The following are characteristics of personal property that have long, average, and short term economic lives:

Long-lived Personal Property:
The characteristics of long-lived personal property include:

• Relatively large investment in relation to the value of the unit produced
• Occurrence in the heavy manufacturing processes such as metal, sugar, oil, paper, cement, stone, and milling
• Infrequent changes in the process, product, style, or function of the property or the industry
• Durability, characterized by a steady output, efficient operation, and normal operating costs over its economic life
• Difficulty in moving due to the special foundation or structures necessary for operation
• Tied to the economic life of the structure in which it is housed

Average-lived Personal Property:
The characteristics of average-lived personal property include:

• Found commonly in business and industry
• Adaptability to change or technical advances
• Susceptibility to obsolescence in both style and function
• Ease of relocation (mobility)

Short-lived Personal Property:
The characteristics of short-lived personal property include:

• High rate of total wear relative to replacement cost
• Rapid accrual of obsolescence due to advances in technical improvements and capabilities
• Lack of adaptability

Estimate Effective Age

The effective age of personal property is the age of the property as indicated by its condition and utility. Personal property that is not properly maintained, is used more extensively than the average, or due to technological advancement has diminished utility, may have an effective age greater than the actual age of the property. Conversely, personal property in better than average condition may have an effective age that is less than the actual age of the property.

Effective age may be determined from the declaration schedule submitted by the taxpayer and physical inspection of the property. Physical inspections are necessary to determine the use and condition of the property.

Determine Remaining Economic Life

Remaining economic life expresses the period of time remaining over which the subject property will provide a net return to the owner. In other words, it is the period of time from the appraisal date to the time when the property only has salvage value or is scrapped.

Remaining economic life is calculated by subtracting the effective age from the total economic life estimate.

Calculate Incurable Physical Depreciation to Arrive at % Good

The amount of incurable physical depreciation is calculated using the percent good table found in Chapter 4, Personal Property Tables. The percentage allowed for incurable physical depreciation plus the percent good equals 100%.

The percent good table measures the remaining value of property at given points in time during the total economic life of the property. The tables found in Chapter 4, Personal Property Tables, generally measure loss in value attributable to typical physical depreciation, and functional/technological obsolescence.

The percent good table is designed to estimate RCNLD. The column headings represent the typical economic life expectancy of the personal property under consideration.

The procedure for using the percent good table is as follows:

1. Estimate total economic life.
2. Estimate effective age.
3. Multiply RCN by the percent good listed in the table that corresponds to the effective age of the personal property and its total economic life.

Measure Curable Depreciation & Functional Obsolescence
Curable physical depreciation and curable functional obsolescence are generally measured using the cost to cure method, i.e., the cost of curing or repairing the additional depreciation or obsolescence. Keep in mind that curable depreciation and obsolescence must be economically practical to cure. The cost to cure the deficiency is subtracted from the RCNLD estimate as a loss in addition to incurable physical depreciation.

Measure Incurable Functional and Economic Obsolescence
Incurable functional and economic obsolescence can be estimated by capitalizing the loss of income due to whatever causes exist at the time of the appraisal (rent loss method), by estimating that loss using direct sales comparison in the market, or by using an inutility formula to measure decreased output or production.

The analysis and verification of increased operating costs, reduced economic income, or reduction in market value of a property provide the assessor with indicators that a depreciation or obsolescence adjustment, over and above that published in age-life depreciation tables or the Personal Property Tables, may be warranted.

The court ruled in Colorado & Utah Coal Co. v. Rorex, 149 Colo. 502, 369 P.2d 796 (1962),that if economic obsolescence exists, it must be acknowledged and deducted.

Measuring Overall Depreciation Through Capitalization of Loss:

The assessor, in some cases, may be able to estimate the typical net income producing capabilities of the personal property being appraised. Then the actual diminished net income, from all causes of depreciation, is measured.

This difference in net income is capitalized using an overall capitalization rate (OAR), if possible. Even if the capitalization rate is developed using the band of investment or summation techniques as described in published appraisal texts and in ARL Volume 3, Real Property Valuation Manual, Chapter 4, Valuation of Vacant Land Present Worth, it must include return of investment, return on investment, and an effective tax rate.

The resulting capitalized value of the income loss from all causes of depreciation is subtracted from the estimate of the capitalized value of the income determined for a comparable property when new. This approach can only be applied when income can accurately be attributed to a single piece of personal property, as with a mobile hot dog stand. When income must be allocated to various pieces of personal property, this approach loses credibility and generally is not appropriate.

Measuring Overall Depreciation Through Direct Sales Comparison:

The amount of diminished value from extraordinary functional and any economic obsolescence can be estimated using the direct sales comparison method. In using this method, the assessor estimates the value of property with the obsolescence using sales of comparable obsolete property. If the calculated RCNLD value of the property is greater than the value indicated by the sales of obsolete properties, this difference is an indication of the value loss due to extraordinary functional and any economic obsolescence.

The assessor can use the direct sales comparison method to set up percent loss in value norms for different classes of properties within specific business activity codes. A percent loss in value factor for extraordinary functional and any economic obsolescence may be developed for a class of property within a business activity code and deducted from the calculated RCNLD after application of the percent good factors from the Personal Property Tables. The general percent good factors published in the Personal Property Tables account for incurable physical and some functional obsolescence. See Chapter 4, Personal Property Tables, for more information.

Sales used to quantify extraordinary functional or economic obsolescence should be qualified and verified to ensure the sales are arm’s-length transactions and representative of the market. Refer to the Sales Comparison (Market) Approach section later in this chapter for more information on qualifying and verifying sales data.

Sales prices should be adjusted to reflect a value in use by adding all costs that would be incurred to acquire, transport, and install the property at its point of use. Sales prices should also reflect, or be properly adjusted to reflect, the retail “end user” trade level. Refer to the Trade Level section earlier in this chapter for more information.

Measuring Functional or Economic Obsolescence through Inutility:

Obsolescence can also be measured using an inutility adjustment. Inutility represents a decrease in production or output relative to a piece of equipment’s rated or design production capacity. Inutility can be caused by physical depreciation and/or functional or external obsolescence. Because of this, the assessor must ensure that the cause of the inutility has been properly identified to avoid a double deduction of depreciation.

One method for calculating an inutility adjustment is that published by the American Society of Appraisers:¹

Capacity A = Rated or Design Capacity
Capacity B = Actual Production
x = Exponent or Scale Factor

In general, the assessor should use actual production from the calendar year prior to the assessment date when determining the actual production (Capacity B) of the property for use in an inutility formula. It may also be appropriate to look at historic production to determine if long-term trends exist.

Rated or design capacity (Capacity A) can often be obtained from the manufacturer of the personal property. Caution must be exercised when using the manufacturer’s rated or design capacity in calculating an inutility adjustment. While rated or design production capacity may be appropriate in many instances, actual production may be less than rated or design capacity for reasons other than obsolescence. In some cases actual production may be less than rated or design capacity due to seasonality in production, downtime, repairs, planned growth in production, and other related factors. For instance, a manufacturer may operate at full capacity for a portion of the year but at a reduced rate for the remainder of the year. The apparent excess capacity is necessary to meet peak production and the property is not being underutilized due to obsolescence factors. In these instances, it may be inappropriate to apply an inutility adjustment, or the inutility calculation may need to be adjusted to account for these other causes of underutilization.

Underutilization of an asset does not necessarily demonstrate that obsolescence exists.

Decreases in production may also be attributable to other economic forces that may affect the business or going concern value of a business operation but do not affect the value of the personal property. As an example, a particular business may be failing to compete in a particular industry resulting in decreased demand for its products and decreased production. However, unless economic obsolescence exists in the industry as a whole, an inutility adjustment is likely unwarranted. The assessor must take care to differentiate economic obsolescence that may be affecting the value of the personal property from economic factors that may be affecting the business or going-concern value of the overall business operation.

Due to changes in market conditions and production numbers from year-to-year, inutility adjustments should be revalidated and re-quantified each assessment year.

The appropriate scale factor can be determined from published sources or can be calculated using a cost-to-capacity calculation. For more information on determining a scale factor using a cost-to-capacity methodology, please see Chapter 3, Valuing Machinery and Equipment, ASA, 4th Edition, 2020.

For more information on applying an inutility adjustment, see in Chapter 3 of the Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, American Society of Appraisers (ASA), 4th Edition, 2020.

¹ Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, American Society of Appraisers (ASA), 4th Edition, 2020, page 69.

A complete discussion of the techniques and theories behind depreciation is found in Chapter 8 of the Property Appraisal and Assessment Administration, IAAO, 1990.

Calculate RCNLD:

The assessor deducts accrued depreciation from the estimate of RCN. The result is commonly called Replacement or Reproduction Cost New Less Depreciation (RCNLD). RCNLD reflects the current actual value in use of the personal property.

RCNLD, as calculated using the tables in Chapter 4, Personal Property Tables, includes loss in value from physical causes and is the indicated current actual value determined by the cost approach. Additional value loss due to extraordinary physical and functional obsolescence or any economic obsolescence can be deducted if these circumstances can be documented.

RCNLD must be factored to the June 30 level of value in effect for real property prior to applying the appropriate assessment percentage.

Valuation of Used Personal Property:

The valuation of used personal property requires that a decision be made concerning the remaining economic life of the property. If the personal property's elapsed age from its actual year of manufacture, or estimated effective year of manufacture, is equal to or greater than the number of years the personal property reaches its depreciated value floor, as evidenced in Chapter 4, Personal Property Tables, then the owner's acquisition cost for the personal property is to be treated as RCNLD and "frozen" at that value. The level of value will be frozen at 1.0 (LOV = 1.0) in the year that the personal property reaches its fully depreciated residual value.

An exception to this rule applies when the personal property is reconditioned to extend its remaining economic life. In such cases, the personal property’s effective age is adjusted appropriately and the reasonable acquisition, installation, sales/use tax, and transportation costs of the personal property are subject to depreciation over the entire estimated remaining economic life of the personal property.

Even though personal property has been permanently taken out of service, but has not been scrapped or sold, it still has value. However, additional functional and/or economic obsolescence may exist.

If, however, the elapsed age from the year of manufacture, or estimated effective year of manufacture, is less than the number of years when the personal property would have reached its depreciated value floor, as evidenced in Chapter 4, Personal Property Tables, then the property is treated as a new personal property and the owner's acquisition cost is subject to depreciation over the complete economic life of new personal property. The resulting value should be compared to comparable values in use of the personal property, if such information is available.

Sales Comparison (Market) Approach

In accordance with § 39-1-103(5)(a), C.R.S., the actual value of personal property must be determined by the appropriate consideration of the cost, sales comparison (market), and income approaches to value. However, § 39-1-103(13), C.R.S., specifies that the value derived from the cost approach shall be the maximum value if the owner has timely filed a declaration which contains a full and complete disclosure of all personal property including reasonable costs of acquisition, installation, sales/use tax, and freight to the point of use. The sales comparison (market) approach is based on independent information gathered by the assessor and may be considered when it results in a lower value than the cost approach as required by § 39-1-103(13)(c), C.R.S. The assessor may use the sales comparison (market) approach either when there is sufficient comparable sales data and the resulting value is lower than that indicated by the cost approach or when the declaration schedule contains faulty or misleading information.

The sales comparison (market) approach is based upon the assumption that property value may be measured by analyzing what buyers pay for similar property. There is one method that is typically employed in the sales comparison (market) approach to the valuation of personal property and that is the comparable sales method.

Comparable Sales Method

The comparable sales method involves analysis of market sales of comparable properties and possibly of the subject property itself. It provides an indication of what people in general are willing to pay for a given type of property at the time of sale, i.e., the market value of the property. Refer to the Bulk Sale of Personal Property under the topic Types of Cost and to Sources of Data under the Comparable Sales Method topic, both in this chapter.

The procedure for the direct sales comparison method is as follows:

Step 1 - Collect and confirm comparable sales data
Step 2 - Select appropriate units of comparison
Step 3 - Adjust comparable sales data using market data
Step 4 - Array and analyze the adjusted comparable sales data
Step 5 - Estimate the current actual value of the subject

Collect and Confirm Comparable Sales Data

Before the sales comparison (market) approach can be used on personal property, two conditions must exist:

1. There must be personal property comparable or similar to the subject.
2. Reliable sales data must exist for the comparables.

The assessor gathers current market sales for personal property being appraised. Current sales include transactions occurring during the twelve months preceding the assessment date. These transactions must include, in addition to acquisition price paid by the current owner, adjustments for the cost of installation, sales/use tax, and freight to the point of use.

In accordance with Jefferson County Board of County Commissioners v. IBM Credit Corporation, 888 P.2d 250 (Colo. 1995), all information that is provided to and/or gathered by the assessor up to the assessment date that may affect personal property valuation should be considered. In addition, current sales are gathered because §§ 39-1-103(5)(a) and 39-1- 104(12.3)(a)(I), C.R.S., require the estimation of current actual value of personal property before adjustment of that actual value to the June 30 appraisal date for real property.

Local, regional, state, or national sales data may be used. It may not be sufficient, when gathering market sales for personal property, to restrict the marketplace to an individual town or county. The personal property market is unique in that personal property is movable and has use in many locations. The assessor should attempt to obtain and analyze data from wherever the market exists for the personal property.

After sales of comparable properties have been gathered, the assessor must confirm them to ascertain whether or not they are arm's-length transactions. Confirmation should be made in writing, if possible, and may be accomplished through the buyer, the seller, personal property dealers, auctioneers, or brokers.

Verified sales should be given more weight than those sales where confirmation was initiated, but no verification could be acquired. It is important that the assessor note how the sales information was verified and how familiar the person was with the property.

Minimum Standards for Sales Data:

The following are the minimum requirements for the sales data used in the sales comparison
(market) approach:

1. Date of sale
2. Sale Price
3. Condition of the sold property
4. Age of the sold property
5. Location of the sale
6. Buyers' and sellers' names and addresses
7. Special terms of the sale, if any
8. Complete description of the sold property
9. Any unusual conditions surrounding the sale

All of the information must be considered together as part of the valuation of the subject property.

Sources of Data:

There are several sources of comparable market data. The first source is the taxpayer. The acquisition cost of the property may provide the assessor with reliable market information for the date when the personal property was first acquired. Other taxpayers with similar property can provide market information for the same type of personal property. Once a database has been established, the assessor analyzes it to see if any trends emerge which indicate the actual value of the subject property. This analysis is useful for all types of property similar to the property in the database.

For personal property that, due to supply and demand imbalance, is oversupplied in the market, obsolescence is frequently reflected in auction sales prices. This is true only when auctions are the market for this personal property, i.e., when there are few, if any, resales of such personal property outside of an auction environment. Auction sales of personal property may provide reasonable value estimates provided that auctions are held to sell personal property in the normal course of the trade. If these transactions do not include installation, sales/use tax, and freight to the point of use, in addition to acquisition price paid by the current owner, adjustments to the value for the personal property must be made to develop a reasonable value in use.

Auction sales resulting from seller financial duress or involuntary liquidation of personal property are used only in rare instances where no other sales exist or when no other sales have taken place in the recent past. Bankruptcy or forced liquidation auctions may only give evidence of liquidation value instead of actual value. The assessor is appraising property at value in use not at liquidation value.

Used personal property guides may indicate the market value of used personal property. Since some guides report values for disassembled, non-installed properties, the assessor must determine if the used values include installation, sales/use tax, and freight to the point of use. If these transactions do not include installation, sales/use tax, and freight to the point of use, in addition to acquisition price paid by the current owner, adjustments to the reported value for this personal property must be made to develop a reasonable value in use.

Documentation as to the methodology used in determining the used personal property values and the sources for this data should be requested before considering the value as an indication of market value. The comparability of the property listed in the personal property guide to the subject property also must be determined.

Select Appropriate Units of Comparison

The assessor determines an appropriate unit of comparison for the subject and the comparable properties. Personal property units of comparison may include the following:

• Model number
• Equipment type and production output per time period
• Capacity and special accessory items
• Horsepower
• Weight

Any meaningful unit of comparison may be used so long as it allows the assessor to analyze subject and comparable properties on the same basis. Discussions with personal property manufacturers, personal property dealers, and personal property leasing companies may clarify the appropriate units of comparison.

Adjust Comparable Sales Data Using Market Data

Before adjusting sales, any differences between comparable properties and the subject property must be identified. The adjustment process accounts for differences between properties so that the comparable market data is made more similar to the subject. Types of adjustments which may be required are as follows:

• Financial terms of the sale
• Time of sale
• Location of sale
• Physical characteristics of the property (including capacity)
• Condition of the property
• Brand name
• Extra accessory items

Based on the effects of the market, there may be no adjustment for a specific difference. The assessor must investigate the marketplace to determine which differences in the property actually affect value.

Adjustments are always made to the comparable property sales prices and never to the subject.

Adjustments may be made in one of two ways:

1. Percentage amounts
2. Dollar amounts

Percentage Adjustments:

A percentage adjustment is made by adjusting the sales prices of other comparable properties by specified percentages of the sales price. The actual percentages used are derived from the market. Comparable property sales which are superior to the subject must be adjusted downward and comparable property sales which are inferior to the subject must be adjusted upward. Time adjustments, if applicable, must be made first because all sales must be on an equivalent basis before other adjustments can be made.

Example: Assume Property A recently sold for $20,000. The market indicates Property B, the Property you are appraising (Property B), sells for 20 percent more than Property A because it is in better condition. Using only this information, what would be your estimate of Property B's value?

Answer: $20,000 + (.20 X $20,000) = $24,000

Example: Assume Property A recently sold for $20,000. The market indicates Property A is ten percent better than Property B because Property A is in better condition. Using only this information, what would be your estimate of Property B's value?

Answer: $20,000 - (.10 X $20,000) = $18,000

Percentage adjustments may be determined by studying economic trends, price level changes, information from personal property manufacturers and dealers, or from the database of sales collected by the county assessor. Analysis of sufficient data should yield percentage value changes that may be applied to comparable property sales prices to estimate subject property value.

Dollar Adjustments:

Dollar adjustments are made in the same way as percentage adjustments except that actual dollar amounts are used. The amount of the adjustment is determined from the market.

Example: Assume Property A recently was sold for $20,000. The market indicates Property B, which you are appraising, sells for $4,000 more than Property A because it is in better condition. Using only this information, what would be your estimate of Property B's value?

Answer: $20,000 + $4,000 = $24,000

Note the similarity of the methodologies used in the two examples. The estimated value of the subject in both cases is the same.

The type of adjustments that should be made will depend on the data available and the judgment of the assessor.

A step-by-step example of the comparable sales method for the valuation of personal property is shown below.

Step 1 - Collect and Confirm Comparable Sales Data

Market data is collected, confirmed, and arrayed according to type of personal property, age, date of sale, and by units of comparison that may exist. An array is a grouping of data in a specific order that facilitates analysis in such a way that comparisons and relationships between the data may be identified and quantified.

Step 2 - Select Appropriate Units of Comparison

From this point the sales data are analyzed and market comparisons are made. The array facilitates analysis by displaying the data in a form that can quickly be sorted and analyzed.

The value ranges per unit of comparison that are established are ultimately used to establish indicators of market value.

Step 3 - Adjust Comparable Sales Data Using Market Data

Sales prices adjusted for installation, sales/use tax, and freight to the point of use, if necessary, are used in the arrays to establish value ranges for various types of personal property.

Step 4 - Array/Analyze the Adjusted Comparable Sales

The price paid for each unit of comparison can be calculated by dividing the sales price by the applicable unit of comparison. A range of values per unit emerges.

Step 5 - Estimate the Current Actual Value of Subject

From the data, a conclusion must be reached on the typical price per unit of comparison for the type of personal property. This analysis must be performed yearly to keep the market indicators current.

After the current estimated value of the subject has been determined, the assessor makes adjustments for installation, sales/use tax, and the cost of freight to the point of use, if these were not included with the acquisition price paid by the current owner to develop a reasonable value in use. The assessor's judgment and experience are involved in analyzing the values to estimate the final value. The value of the subject property must be reasonable, defensible, and documented.

Market indicators are used in the valuation of similar types of property for the current assessment year. Market indicators also provide a tool which can be used in checking cost approach depreciation estimates. And, they can be used for comparison with the value estimates developed using the cost and income approaches to value before a final value estimate is made. Market indicators can be especially useful with properties subject to a high degree of functional or economic obsolescence.

Income Approach

Colorado Revised Statutes section 39-1-103(5)(a), requires that the actual value of personal property be determined by appropriate consideration of the cost approach, the sales comparison (market) approach and the income approach. However, § 39-1-103(13), C.R.S., specifies that the value derived from the cost approach shall be the maximum value if the owner has timely filed a declaration which contains a full and complete disclosure of all personal property, including the reasonable costs of acquisition, installation, sales/use tax, and freight to the point of use. The income approach is based on independent information gathered by the assessor and may be considered when it results in a lower value than the cost approach as required by § 39- 1-103(13)(c), C.R.S.

Income analysis yields an estimate of the present value of future net benefits to be derived from a property. This approach is based on the premise that the price paid for property is dependent on the future net benefits to be derived or investors' estimates of what those future net benefits will be. The procedure for the income approach is as follows:

1. Estimate gross income.
2. Deduct allowable expenses to calculate net income.
3. Determine capitalization rate or gross rent multiplier.
4. Capitalize net income into value.

Estimate Gross Income

In using the income approach, the assessor first measures the economic income (rental or lease amounts) for comparable properties. Economic rental data can be gathered from actual rental data observed in the market. In cases where no rental rates can be established, it is very difficult to accurately value property using the income approach.

The assessor estimates the gross economic income for the property being appraised by gathering current rental or lease information from the books and records of taxpayers leasing or renting personal property.

The assessor also contacts personal property dealers or lessors to determine typical rental or lease rates for various types of personal property. The assessor measures gross income to the personal property, not to the business enterprise, and it must be clear that the income stream being measured is attributable only to the specific personal property.

In situations where the income stream is attributable to the entire business enterprise, including income for land, improvements, intangibles, and personal property, the assessor cannot allocate the income to the various components before attempting to value the personal property. The income attributable to the personal property must be capable of being isolated or the income approach should not be used to value the personal property.

The following terms are described in The Dictionary of Real Estate Appraisal, Appraisal Institute, 7th Edition, 2022:

• Rent - "An amount paid for the use of land, improvements, or a capital good."
• Profit - "The amount by which the proceeds of a transaction exceed its cost.
  Comment: The income approach requires that the assessor only estimate the income attributable to the property being appraised, not to the entire business. Indeed, a business can operate at a loss instead of a profit, but this does not mean that the property used by the business has a negative value. The income measured by the assessor is the income attributable to the personal property, not business income. Therefore, the term profit is not used as a measure of the value of personal property.
• Contract Rent - "The actual rental income specified in a lease."
• Economic Rent - "In appraisal practice, a term sometimes used as a synonym for market rent."
  Comment: Economic rent, in appraisal, is a term sometimes used as a synonym for market rent. Economic rent is sought in the income approach because it is the rent justified for the property on the basis of comparable rental properties and upon past, present, and projected future rents of the subject property. It is customarily stated on an annual basis.
• Gross Income - "Total income from a property before deducting any expenses, customarily stated on an annual basis. This means the gross income that could be generated by the property on an annual basis."
  Comment: It is based on the economic rent determined from the analysis of rental rates of similar personal property, not the actual contract rent generated by the subject property.

Deduct Allowable Expenses to Calculate Net Income

The assessor deducts current, typical, personal property operating expenses from the gross income to estimate net income. The expenses deducted from the gross income must be typical for the type of property being appraised. The following expenses are generally allowable.

1. Management
2. Salaries
3. Repairs and maintenance
4. Insurance (if provided by the lessor)

There are other expenses that are not allowable expenses for deduction from gross income. These include the following:

1. Depreciation
2. Debt service
3. Income taxes
4. Capital improvements & expenditures
5. Owner's business expenses

A complete discussion of the income approach is found in Chapter 5 of the Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, American Society of Appraisers (ASA), 4th Edition, 2020.

After the assessor deducts the allowable expenses from gross income, the result is the estimate of net income. It is this estimate of net income that is capitalized into value. The net income is one of the critical components in the income approach to value. The other critical component is determination of the capitalization rate.

Determine Capitalization Rate

There are several methods used to determine capitalization rates. The data used in developing capitalization rates directly from the market include current typical income and expense data and market sales data. Data used in developing capitalization rates using other techniques include the rates of return expected by typical investors and by lenders, rates developed for recapture of the original investment, and effective tax rates. The techniques for the determination of the capitalization rate are fully discussed in the Chapter 12 of Property Appraisal and Assessment Administration, IAAO, 1990 and additional income approach information may be found in Chapter 5 of Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, ASA, 4th Edition, 2020. Generally, the appropriate overall rate for personal property is higher than the overall rate for real property because of the short life of personal property.

Capitalize Net Income into an Indication of Value

There are three fundamental elements in the income approach: the personal property value (V), the net income from the personal property (I), and the rate of return on the investment (R). The relationship of these three quantities is expressed in three formulas, which are really three different arrangements of the same formula:

Formula 1: V x R = I
Formula 2: I ÷ V = R
Formula 3: I ÷ R = V

"V" and "I" are expressed in dollars. "R" is usually expressed as a percent, but in computations it should always be converted to decimal form. If the rate of return is 12 percent, it should be expressed as 0.12 for use in computations.

Example:

1. If the property value is $50,000 and the capitalization rate is 12 percent, what is the net income?
   
   Answer: $6,000 (formula 1: $50,000 x 0.12 = $6,000).
    
2. If net income is $20,000 and the property value is $100,000, what is the rate?
   
   Answer: 20% (formula 2: $20,000/$100,000 = 0.20)
    
3. If net income is $18,000 and the overall rate is 15 percent, what is the property value?
   
   Answer: $120,000 (formula 3: $18,000/0.15 = $120,000)

If any two of the three quantities V, I, or R are known, the third value can be determined by using the appropriate formula.

The actual value of personal property in the income approach is estimated by dividing the net income by the capitalization rate. The result is the estimate of actual value for the current assessment year. The following formula that is used to accomplish this was mentioned earlier in this chapter.

Formula 3: I ÷ R = V

or Income divided by the Capitalization Rate equals Value

The estimate of value from the income approach must include an allowance for the cost of freight to the point of use, installation, and sales/use tax, or adjustments for these costs must be made to develop a reasonable value in use.

Finally, the estimate of value from the income approach is adjusted to the level of value in effect for real property using the adjustment factor found in Chapter 4, Personal Property Tables.

Final Estimate of Value

After the assessor has determined the indicators of value from the applicable approaches, the current actual value must be determined and carried through to final assessed value. The abundance, reliability, and relevance of the available data will help determine which approach is the most appropriate to use to determine a reasonable value in use for the personal property.

The step in the appraisal process wherein the assessor determines the current actual value is called reconciliation.

Reconciliation

The actual value is determined using that estimate which can most readily be defended under the Colorado Revised Statutes. The reconciliation of all available valuation data will indicate which approach to value should be used for an individual property.

When the value indications from the three approaches have been determined, a reconciliation is made. Typically the value indications from the three approaches will not be the same. The best value estimate must be judged according to the following:

1. Requirements of the Colorado Constitution, Colorado Revised Statutes, relevant case law, and the Assessors’ Reference Library manuals
2. The amount and reliability of the data considered in each approach
3. The strengths and weaknesses of each approach
4. The relevancy of each approach to the subject property

For Colorado personal property assessment purposes, the actual value is the value in use, as installed. Colorado statutes require that personal property be valued inclusive of all costs incurred in acquisition and installation of the property. The costs of acquisition, installation, sales/use tax, and freight to the point of use must be considered in the personal property valuation. The inclusion of these costs requires that personal property be valued in use. Therefore, the actual value of personal property is based on its value in use.

As previously indicated, § 39-1-103(13), C.R.S., provides that the value derived from the cost approach shall be the maximum value of the personal property if the owner has filed a timely declaration which contains full and complete disclosure pertaining to the valuation of the property. Once these conditions have been met, values derived from the market and income approaches can be considered, but can only be used if they result in a lower value than the value estimated from the cost approach.

It is not acceptable to average value indications. Rather, the assessor relies upon the data that are superior in quality, quantity, and defensibility. If the data collected and analyzed do not support a reasonable estimate of value, the assessor must re-evaluate some or all of the appraisal data before a final estimate of value is made.

The final estimate of value usually is based upon taxpayer-submitted information. Under certain circumstances, the final value estimate may be based upon the “Best Information Available” (BIA). After establishing the actual value for the personal property as of the assessment date, the level of value adjustment factor must be applied to trend the personal property actual value back to the level of value in effect for real property as required by § 39- 1-104(12.3)(a)(I), C.R.S. Refer to Chapter 4, Personal Property Tables. After establishing the current value in use of the personal property as of the January 1 assessment date, the applicable level of value adjustment factor must be applied to trend the personal property value back to the applicable June 30 of the prior even year’s value.

Best Information Available Valuation

The assessor must value all taxable personal property even though no information has been received from the taxpayer. Failure by the assessor to receive a declaration schedule does not invalidate the assessor's valuation, § 39-5-118, C.R.S. Any valuation made without the receipt of the declaration schedule is known as a "Best Information Available" (BIA) valuation. Any valuation determined by BIA generally is not capable of adjustment through the abatement process. In Property Tax Administrator v. Production Geophysical et al., 860 P. 2d 514 (Colo. 1993), abatements for BIA values in excess of what should have been reported, had the taxpayer filed a declaration schedule, were disallowed.

BIA valuations are also made in cases where the owner of the property cannot be determined after due diligence. The assessor may list such property on the tax roll as “owner unknown” as permitted by § 39-5-102(2), C.R.S.

Taxpayers are always notified when a BIA valuation is made. Usually BIA valuations are made prior to the June 15 Notice of Valuation (NOV) deadline. Only in the case of omitted property can a BIA valuation be made after June 15. The assessor uses the Special Notice of Valuation (SNOV) and allows the taxpayer 30 days in which to protest such omitted property valuations. During the protest of any BIA valuation, the assessor should require the taxpayer to submit the personal property declaration schedule or an itemized listing of personal property for the year being protested. If the taxpayer refuses to submit the schedule or list, the protest is denied.

If the taxpayer owns personal property in excess of $52,000 in total actual value per county and does not file a property declaration schedule by the April 15th deadline or if the taxpayer requests either a 10 or 20 day filing extension, and fails to meet the extended deadline, the assessor makes a BIA valuation and adds a late filing penalty as required by § 39-5-116, C.R.S. Taxpayers owning personal property of $52,000 or less in total actual value per county are not required to file personal property declaration schedules, as this property is exempt from property taxation pursuant to § 39-3-119.5, C.R.S.

Under certain circumstances the assessor may add, in addition to a late filing penalty, a penalty valuation for omitted property discovered after the assessment date as permitted by § 39-5- 116(2)(a), C.R.S.

The penalty valuation for omitted property may only be added if specific personal property has been omitted. Therefore, the BIA valuation must be based on an itemized list of personal property and associated values which are typical of a business of this type. Refer to the topic Penalties in this chapter. See ARL Volume 2, ADMINISTRATIVE AND ASSESSMENT PROCEDURES, Chapter 5, Taxpayer Administrative Remedies, for additional BIA information.

Estimating Actual Value

If an itemized list was submitted in previous years, or if the property was subject to a field audit/physical inspection during the last personal property review, the assessor may already have sufficient information to determine the value. In all cases, BIA valuations should only be made after research or comparison of the subject property with the valuations of similar properties.

A BIA valuation is not an arbitrary valuation, an excessive valuation, or a penalty imposed upon the taxpayer. The only statutory penalties that the assessor may attach to personal property are found in § 39-5-116, C.R.S. There are no statutory provisions for the assessor to knowingly overvalue personal property.

Data Sources

The assessor has a variety of data sources available when determining values according to the “Best Information Available” (BIA). They include the following:

Comparable Property Records

The property declaration schedules and related appraisal records of comparable or like properties will usually provide the assessor with certain personal property characteristics and value ranges for a given type of business.

Subject Property Records

Other sources of data include assessment and related accounting records for the same business from previous years. These records may be used in valuing the business this year based on the best information available. If proper allowances are made for normal trends regarding additions and deletions, a business may be its own best comparable when estimating BIA values for the current assessment year.

Supply Catalogs

Supply or sales catalogs for equipment, furniture, and machinery can provide the assessor with price ranges. A list of supply catalogs was previously provided in this chapter.

Appraisal Manuals/Industry Guides/National Averages

Many appraisal manuals contain appraisal procedures, theories, and techniques along with personal property pricing information. In addition, typical values for personal property are available in industry guides. Many of these guides are available in public libraries.

Special Considerations

Annually, about 10 percent or more of the owners of personal property fail to timely file personal property declarations with the county assessor. These property owners create a large volume of BIA valuations immediately prior to Notice of Valuation deadlines. For the majority of these properties, physical inspection is the best way to establish an accurate value. As many physical inspections as possible should be made before setting BIA valuations.

Any properties not physically inspected are then valued using BIA methods based upon comparable business data. The assessor makes BIA valuations based on current cost, market, or income information. All estimates of value are adjusted to the level of value in effect for real property using the published factors.

A complete discussion of the physical inspection is found in Chapter 5, Personal Property Reviews.

Valuation Information for Taxpayer Review

According to § 39-5-121.5, C.R.S., all information and documentation, including sales information obtained from all sources, used to determine a valuation be made available to the taxpayer. In addition, § 39-8-107(4), C.R.S., prohibits the assessor from using any confidential information which is not available for review by the taxpayer unless such confidential data is presented in such a manner that the source cannot be identified.

At the written request of any taxpayer or taxpayer’s agent, the assessor must make available the data used in determining the actual value of any property owned by the taxpayer within seven (7) working days following the written request. Upon receiving the request, the assessor must immediately advise the taxpayer or agent of the estimated cost of providing the data. The intent of the statute is that the assessor immediately estimates the cost because payment must be sent to the assessor prior to providing the data. Once the data is gathered, the assessor can choose whether the data is mailed, faxed, or sent by electronic transmission to the taxpayer or agent. If the estimated cost was lower than actual costs, the assessor may include a bill with the data for any reasonable cost above the estimated cost subject to the statutory maximum. The additional costs are due and payable upon receipt of the data according to § 39-5-121.5, C.R.S.

Pursuant to § 24-72-205, C.R.S., the statutory maximum is $0.25 per page not to exceed the actual cost of providing a copy, printout, or photograph. The statute delineates how the charges may be calculated. For additional information regarding this issue, refer to ARL Volume 2, Administrative and Assessment Procedures, Chapter 1, Overview of Assessor’s Duties and Relationships.

If the Computer Assisted Mass Appraisal (CAMA) process is used to determine values, all information used to create the valuation model must also be made available for review by the taxpayer. However, confidential information must be compiled and presented in such a manner
that the source of the information cannot be identified. It is suggested that summaries of sales and income data for the various economic areas in the county be prepared. For example, a summary of market sales of office desks would reflect market values ranging from $X to $Y.

It is important that the assessor ensure confidentiality in all cases. All information entered or attached to the DS 056 Personal Property Declaration Schedule and any other declaration schedule is confidential information. This information includes any detailed listing of property reported by a prior owner, whether or not valuations of the property are shown.

Information, both confidential and otherwise, should be summarized and ready for distribution prior to the taxpayer protest period. This will allow ample time to summarize confidential Personal Property Declaration Schedule information, yet supply the taxpayer all information to which the taxpayer is entitled. For additional information concerning confidentiality requirements, see Chapter 2, Discovery, Listing, and Classification.

Compliance Requirements

Required procedures of the State Board of Equalization are as follows:

1. Establish and follow a personal property audit plan such as the one described in Chapter 5, Addendum 5-A, Personal Property Audit Standards.
2. For counties with a population over 100,000, the assessment contractor shall analyze a sample of not less than 30 personal property schedules. The sample shall be taken from schedules physically audited by the assessor.

The chapter contains the industry category, cost factor, economic life estimates, general percent good and level of value factor tables are provided to ensure uniformity in valuing personal property by application of the cost approach. The level of value factor table is provided according to § 39-1-104(12.3)(a)(I), C.R.S., and must be used to factor assessment date actual values of personal property to the level of value (as of the appraisal date) in effect for real property. To aid users with the understanding of how to properly apply these tables to value taxable personal property, the chapter provides explanatory information and language with references, examples, and the following Addenda:

Addendum 4-A, Industry Category Table
Addendum 4-B, Cost Factor Tables
Addendum 4-C, Economic Life Estimates Tables
Addendum 4-D, General Percent Good Tables
Addendum 4-E, Level of Value Factor Table
Addendum 4-F, Consolidated Example

The published tables are subject to verification in the marketplace at the retail “end user” trade level. All cost approach value estimates are based upon the tables found in this chapter. Cost approach value estimates must be reconciled to the market and income approaches to value based upon the appraiser's opinion as to the reliability of the information used to derive the value estimates from each approach. Reconciliation of the applicable approaches to value is required for the valuation of all personal property in Colorado.

The following statute must be considered when determining the actual value of personal property for Colorado ad valorem taxation purposes:

Actual Value Determined When.

(13)(a) [T]he cost approach shall establish the maximum value of property if all costs incurred in the acquisition and installation of such property are fully and completely disclosed by the property owner to the assessing officer.

(c) However, nothing in this subsection (13) shall preclude the assessing officers from considering the market approach or income approach to the appraisal of personal property when such considerations would result in a lower value of the property and when such valuation is based on independent information obtained by the assessing officers.

§ 39-1-103(13), C.R.S.

For Colorado personal property assessment purposes, the actual value is the value in use, as installed. Colorado statutes require that personal property be valued inclusive of all costs incurred in acquisition and installation of the property. The costs of acquisition, installation, sales/use tax, and freight to the point of use must be considered in the personal property valuation. The inclusion of these costs requires that personal property be valued in use. Therefore, the actual value of personal property is based on its value in use.

Counties that develop in-house trending or depreciation tables must submit them annually for approval to the Statutory Advisory Committee to the Property Tax Administrator prior to use.

See Chapter 7, Special Issues, for the Renewable Energy Property information.

Industry Category and Cost Factor Tables

The industry category and cost factor tables are provided to ensure uniformity in the determination of Reproduction Cost New or Replacement Cost New (RCN) estimates by multiplying either original/historical cost or the reasonable cost to the current owner of personal property by the cost price indexes published and made available courtesy of Marshall Valuation Service. When the original/historical cost or the reasonable cost to the current owner is multiplied by the factor for the year of acquisition, the product will approximate the RCN of the personal property being appraised.

The assessor must select the appropriate industry category number that corresponds to the type of personal property being appraised from the industry category table. Fourteen industry category numbers are supplied. In many instances, the individual industry category covers more than one type of commercial or industrial property. Specific types of commercial and industrial property are found in each industry category.

If the property to be factored can be specifically identified, the appropriate specific industry category (such as 3 for office personal property) should be applied. If the property cannot specifically be identified, the industry category for the business type may be used. If property is generally useful in many types of business activities, the predominant use shall determine the industry category.

If particular property types are not included in the table, a comparable property type industry category number may be selected. The “average of all” (industry category number 1) should be selected if the specific property type is not included in any of the industry categories and a similar industry category is not evident.

After selecting the appropriate industry category number, the assessor uses the specific cost factor that corresponds to the year of acquisition of the personal property. The original cost of the personal property is then multiplied by the cost factor to arrive at the estimated RCN as of the assessment date.

Cost Factor Table Example:

In other words, it would cost $1,980 on the current assessment date to reproduce or replace an office desk purchased in 2018 for $1,500.

See Addendum 4-A, Industry Category Table and Addendum 4-B, Cost Factor Tables.

The fixtures/leasehold improvements cost factor table is provided to ensure uniformity in relating original/historical costs or costs to current owner of fixtures or leasehold improvements to the real property level of value. The property may be valued using real property appraisal records for computations and should be assessed to the owner of record.

When using this method of valuation, the property must be classified and abstracted as real property improvements. The factors are useful only in the cost approach when attempting to factor original/historical costs or costs to current owner to the correct level of value. All cost approach value estimates must be reconciled to the sales comparison (market) and income approaches to value as with other real property improvements. The factors found in this table are for estimating RCN only and do not include an allowance for depreciation.

Economic Life Estimates

The economic life estimates are provided to ensure uniformity in applying the general percent good depreciation tables for each type of property being valued. The economic life recommendations are based upon the Class Life Asset Depreciation Range published by the Internal Revenue Service (IRS), Marshall Valuation Service (MVS), and other sources. Additional information about the economic life estimates may be found in IRS publication 946, "How to Depreciate Property", available from the IRS and the MVS cost manuals.

The economic life estimates are based on average national service lives and assume normal use and maintenance of the property. Typical physical depreciation and functional or technological obsolescence for the personal property are accounted for when using the appropriate economic life estimate. Use of economic lives that differ from those in the estimates must be documented. Counties and taxpayers are encouraged to provide this documentation for review by the Division of Property Taxation for possible update of existing published lives.

For specific types of personal property, economic life estimates were developed based on studies completed by the Division of Property Taxation. See Addendum 4-C, Economic Life Estimates Tables.

General Percent Good Tables

The personal property general percent good tables are provided to ensure uniformity in estimating the Reproduction Cost New or Replacement Cost New (RCNLD), whichever is appropriate. The column headings represent the average service life expectancy of the personal property being appraised. Each column contains the percent good factor for a specified age in the life of the property.

Percent good tables measure the value remaining in personal property. Depreciation tables measure the loss in value at a specified age. The factor shown in the columns of the general percent good table represents the percentage of RCN remaining at a specified age. The general percent good tables are built upon the following assumptions:

1. Iowa State University property retirement & depreciation studies (Iowa Curve Studies)
2. A specified rate of return
3. Average condition and usage of typical property

The General Percent Good Table was developed using an estimated probable life (from the Iowa Curve Studies) and a present worth methodology. The probable life is determined using the R-3 Curve from the original Bulletin 125 of the Iowa Curve Studies and revised by Bulletin 155. The right modal curves, including the R-3 curve, are “characterized by few retirements early in life, followed by heavy retirements soon after the average life” (Wolf and Fitch, Depreciation Systems, Iowa State University Press, 1994, page 39). The present worth method is applied using the following formula from Bulletin 155:

Vp = present value
Vnd = depreciable value new
r = rate
n = probable life
x = age of the property
Vs = net salvage at retirement

This formula is further modified to account for declining net income over the life of the
property.

For further information, see:
Robley Winfrey, Statistical Analysis of Industrial Property Retirements (Bulletin 125), 1935, revised 1967.
Robley Winfrey, Depreciation of Group Properties (Bulletin 155), 1942.
Wolf and Fitch, Depreciation Systems, Iowa State University Press, 1994

The general percent good table is generic in nature. It was designed to be generally useful for the majority of personal property. It is not specific to any particular industry or type of personal property.

The table was designed to account for normal physical depreciation. Typical physical depreciation and functional/technological obsolescence are accounted for when the appropriate economic life estimate is used. Additional functional/technological and/or economic obsolescence may also exist. If documented to exist, additional functional and economic obsolescence must be measured in the marketplace using the direct sales comparison, rent loss, or inutility methods. In addition, any adjustments to the percent good due to the condition of the subject property must be defensible and documented.

The minimum percent good shown for each of the columns is useful as a guide to residual value. It is not absolute and must be reconciled with value in use information at the retail “end user” trade level for similar types of property. If the market information shows that the actual value of personal property is lower than the value developed by using the minimum percent good, the use of the minimum percent good should be rejected in favor of the lower value. The actual value of the personal property must be determined as long as the personal property is taxable.

If the cost-calculated value is lower than the market and/or income approach developed value in use when the personal property reaches its minimum percent good, the assessor should review the original/historical costs or costs to current owner, all assigned factors, the physical condition of the property, and other pertinent contributors to value. If these are correct, the assessor must use the cost approach value as the actual value of the personal property according to § 39-1-103(13)(a), C.R.S.

To use the table, the assessor and other users must determine the economic life and the effective age of the subject property. The percent good may be determined by moving across the columns until the one specified for the economic life is reached and then down this column to the point that reflects the effective age of the property.

The Division has developed percent good tables specifically for technologically advanced personal property and renewable energy personal property. See the Technologically Advanced and Renewable Energy Percent Good Tables section.

General Percent Good Table Example:

The RCNLD of the office desk purchased in 2018 for $1,500 is $990.

See Addendum 4-D, General Percent Good Tables.

The assessor and other users must also consider functional and economic obsolescence, atypical physical condition, or other factors that might affect the value of the personal property. They should also consider the frequency and extent of maintenance to the property. Extensive maintenance or reconditioning of the property may extend the economic life of the property just as a lack of maintenance may shorten the economic life.

Depreciated Value Floor

In the year in which the personal property has reached its minimum residual percent good floor, the applicable RCN trending factor in use at that time is "frozen" and the Level of Value (LOV) adjustment factor is “frozen” at 1.0. For the assessment years that follow, the RCNLD value does not change unless the personal property has been reconditioned or upgraded to extend its remaining economic life.

It is possible that the market or income approach may indicate a lower value than the personal property’s minimum percent good. In addition, as property ages, the use of original installed cost multiplied by trending factors may not yield reasonable RCN values. Any RCNLD estimate should be crosschecked with sales comparison (market) and income information sources, if possible, and the appropriate value used.

Valuation of Used Personal Property

The valuation of used personal property requires that a decision be made concerning the remaining economic life of the property. If the personal property's elapsed age from its actual year of manufacture, or estimated effective year of manufacture, is equal to or greater than the number of years in which the personal property would have reached its fully depreciated value floor, then the price paid for the personal property is to be treated as RCNLD and "frozen" at that value. RCN trending and percent good factors will not be applied to the frozen value. The LOV adjustment factor is “frozen” at 1.0 and will remain 1.0 unless the personal property is reconditioned or upgraded.

When the personal property is reconditioned to extend its remaining economic life and/or upgraded to improve its utility, the reconditioned/upgraded personal property may be treated similar to newer personal property and the acquisition cost subject to depreciation over a complete economic life of the personal property. In such cases, the county staff should contact the taxpayer and discuss the effect that the reconditioning/upgrade has had on the personal property so that a reasonable effective age for the personal property may be established.

Even though personal property has been permanently taken out of service, but has not been scrapped or sold, it still has value. However, additional functional and/or economic obsolescence may exist.

If the elapsed age from the year of manufacture, or estimated effective year of manufacture, is less than the number of years when the personal property would have reached its depreciated value floor, as evidenced in its recommended economic life from Addendum 4-C, then the property is treated similar to new personal property and the owner's acquisition cost is subject to depreciation over the personal property’s complete economic life. However, the resulting value should be compared to the sales comparison (market) value for the personal property, if possible.

Technologically Advanced and Renewable Energy Percent Good Tables

Using market studies, two separate technologically advanced percent good tables have been developed for Personal Computers (PCs) and Accessories and for Other Computers and Stand Alone Peripherals. These percent good tables account for typical physical depreciation as well as functional and technological obsolescence intrinsic to technologically advanced or “high tech” property.

We have assigned Personal Computers and Accessories to Industry Category (RCN Factor) Table 13 (no RCN trending) and to a three (3) year economic life. The percent good table for Personal Computers (PCs) and Accessories utilizes an accelerated depreciation schedule with a seven percent (7%) residual value.

We have assigned Other Computers and Stand Alone Peripherals to Industry Category (RCN Factor) Table 13 (no RCN trending) and to a four (4) year economic life. The percent good table for Other Computers and Stand Alone Peripherals utilizes an accelerated depreciation schedule with a seven percent (7%) residual value.

The Other Computers and Stand Alone Peripherals percent good table should also be used for copiers and telecommunication personal property.

For personal property classified as computer-integrated personal property, a four (4) year economic life is assigned. The four (4) year life depreciation table found in the General Percent Good Table in this chapter should be used and not the Other Computers and Stand Alone Peripherals percent good table.

If you have questions concerning personal computers (PCs) and accessories, other computers and stand-alone peripherals, computer-integrated personal property, copiers, or telecommunication personal property, please refer to Chapter 7, Special Issues, under Technologically Advanced Personal Property.

The Renewable Energy Percent Good Table should be used for renewable energy personal property valued in accordance with §§ 39-5-104.7(1)(a) and 39-4-102(1)(e), C.R.S. This table utilizes a twenty-year economic life with straight-line depreciation and a twenty percent (20%) depreciated floor value. For more information the assessment of renewable energy personal property, please refer to Chapter 7, Special Issues, under Renewable Energy Property Assessment.

Level of Value Factors

The following table contains the indexes for adjusting current actual value of personal property to the level of value (LOV) in effect for real property as specified by § 39-1-104(12.3)(a)(I), C.R.S. The procedure involves the multiplication of the assessment date actual value (RCNLD) estimate by the appropriate LOV factor for the type of property being valued. When personal property reaches its fully depreciated value floor the actual value should be determined and frozen. The LOV factor is "frozen" at 1.0 and will remain 1.0 unless the personal property is reconditioned or upgraded.

Level of Value Factor Example:

The RCNLD rolled back to the 6/30/22 appraisal date for the office desk purchased in 2018 for $1,500 is $940.

See Addendum 4-E, Level of Value Factor Table and Addendum 4-F, Consolidated Examples.

Addendum 4-A, Industry Category Table

Types of Personal Property Included in Industry Categories:

Industry Category Table

Source: Marshall Valuation Service

* Please refer to Chapter 7, Special Issues, under Technologically Advanced Personal Property, for more information.

† Please refer to Chapter 7, Special Issues, under Renewable Energy Property Assessment, for more information.

Addendum 4-B, Cost Factor Tables

2024 Personal Property Cost Factor Table

Source: Marshall Valuation Service, October 2023

2024 Fixtures/Leasehold Improvements Cost Factor Table

Source: Marshall Valuation Service, October 2022

Addendum 4-C, Economic Life Estimates

Addendum 4-C, Economic Life Estimates

Addendum 4-D, General Percent Good Tables

2024 General Percent Good Table

Source: Division of Property Taxation Rate Applied: 8.0%

2024 Technologically Advanced Percent Good Tables

Using market studies, the following table has been developed for Personal Computers (PCs) and Accessories:

Three-Year Economic Life Table

Source: Division of Property Taxation

Using market studies, the following table has been developed for Other Computers and Stand Alone Peripherals:

Four-Year Economic Life Table

Source: Division of Property Taxation

2024 Renewable Energy Percent Good Table

The following table has been developed for locally assessed renewable energy personal property valued in accordance with §§ 39-5-104.7(1)(a) and 39-4-102(1)(e), C.R.S.:

For more information on the assessment of renewable energy personal property, please refer to Chapter 7, Special Issues, Renewable Energy Property Assessment.

Addendum 4-E, Level of Value Factors

2024 Personal Property LOV Factor Table

June 30, 2022 Level of Value

Source: Division of Property Taxation and Marshall Valuation Service

Addendum 4-F, Consolidated Example

Cost Factor Table Example:

In other words, it would cost $1,980 on the current assessment date to reproduce or replace an office desk purchased in 2018 for $1,500.

General Percent Good Table Example:

The RCNLD of the office desk purchased in 2018 for $1,500 is $990.

Level of Value Factor Example:

The RCNLD rolled back to the 6/30/22 appraisal date for the office desk purchased in 2018 for $1,500 is $940.

Pursuant to §§ 39-9-103 (1) and (8), C.R.S., the State Board of Equalization has the authority to order reappraisals of property classes that are found to be out of compliance. Originally the State Board of Equalization required the audit of 20 percent of all non-residential personal property accounts within a county on an annual basis in order to ensure compliance. In 1994, the State Board of Equalization implemented an alternate plan in place of the 20 percent audit requirement. This plan, which became effective beginning in the 1995 tax year, requires assessors to develop written criteria as part of a personal property audit plan for determining which personal property schedules and/or businesses will be audited each year. The personal property audit plan must be updated and adopted by each county assessor each year.

Chapter 5 is intended to guide county assessors in personal property compliance regarding the audit plan by providing the procedures for conducting an annual personal property audit and review program.

Purpose of Analysis

Two of the most important reasons for implementing an effective annual personal property audit and review program are:

1. Valuation equity, including confirming the accuracy of valuation data
2. Equal taxpayer treatment, from both an appraisal and an administrative standpoint

Valuation Equity

The county assessor is responsible for ensuring that valuations of property are just and equalized. This means that all taxpayers are being fairly treated and similar property is being equitably valued.

A formal personal property review ensures that values are just and equalized as affirmed in Nuttal v. Leffingwell, 193 Colo. 137, 563 P.2d 356 (1977). In order for the reviews to be effective, the assessor should ensure that the following steps are completed:

1. All personal property in the county is inspected on a regular basis to account for all taxable personal property.
2. The valuations of like personal property are reviewed to ensure that similar property is comparably valued so that taxpayers pay only their fair share of the property tax burden.

Equal Taxpayer Treatment

Assessors must never show favoritism or bias toward taxpayers. The laws and procedures governing property assessment must be correctly applied to all properties.

A formal personal property review allows assessors to check their work and helps them eliminate errors that may occur in the valuation of personal property.

A good personal property review program will also help personal property taxpayers to recognize the assessor’s efforts to ensure that taxpayers are being treated fairly.

Benefits of Review

The two most significant benefits for assessors and taxpayers, that come from good personal property reviews include:

1. Verification of data
2. Promotion of accuracy

Verification of Data

During personal property valuation reviews, the assessor and the taxpayer have an opportunity to verify all information used in the appraisal. This helps ensure that taxpayers have correctly filed their personal property declaration schedule(s) with the assessor and that the assessor is appropriately assessing only the property owned by the taxpayer.

Promotion of Accuracy

Taxpayers are more likely to accurately file declaration schedules when they understand that the assessor is regularly reviewing and conducting field audits of personal property accounts.

Assessors are more likely to keep clear, accurate, and organized valuation records when they know taxpayers have the opportunity to regularly review such records.

Types of Review

The three types of personal property reviews commonly used by county assessors in Colorado include:

1. Office review
2. Field audit/physical inspection
3. Examination of accounting books and records

Office Review

Definition

An office review is completed using the personal property records as they exist within the assessor's office and are usually completed between January 1st and June 15th of each year because this is the period of time when new declaration schedules are being submitted by taxpayers.

Overview

An office review consists of checking the current personal property declaration schedule against existing assessor records which are collectively referred to as an "account." One important part of the office review is the comparison of valuations of similar property to ensure there is equalization between similar types of property. This also is the time when the assessor makes additions to or deletions from the property list supplied by the taxpayer.

The assessor reviews the account and may contact the taxpayer to clarify information found on the current or past declaration schedules. In addition, if significant questions arise, the assessor can flag the account for a field audit/physical inspection of the property.

Review Objectives

The main objectives of the office review are to check and update the property appraisal records and select accounts that may need additional review through physical inspection and analysis of books and records.

Procedures for Office Review

All personal property schedules are reviewed in the office on a yearly basis as part of the valuation process. The review is in preparation for the yearly appraisal of personal property actual values which are listed on the Notices of Valuation (NOV's).

To conduct an effective review in the assessor's office, the following steps are completed during the review of each personal property account:

1. All existing personal property records on file in the assessor's office are reviewed. The most current declaration schedule data are compared to the additions and deletions from the prior two years' data to determine if there has been consistency in the pattern of reporting personal property additions and deletions.
2. The current assessment status of all equipment listed as leased or loaned equipment is checked. All taxable property is verified as to having been assessed to the proper owner.
3. Any additional information necessary to explain discrepancies is requested from the taxpayer.
4. All description and value data are reconciled and a final estimate of value is completed.
5. Like properties are compared, with typical standards or with similar properties, to verify that all property has been correctly valued.

The office review is typically conducted while processing the declaration schedule for the current year and is performed in conjunction with the current appraisal of personal property. The office review usually occurs before June 15 and is helpful in determining which accounts may need special attention during the physical inspections conducted later in the year.

Field Audit/Physical Inspection

Definition

The field audit/physical inspection involves a representative of the assessor's office visiting and inspecting property at the taxpayer's place of business.

Overview

The field audit/physical inspection may be conducted at any time of the year, but usually begins after the NOV's have been mailed. There are, however, instances in which the assessor may find it necessary to visit the taxpayer's place of business prior to the setting of final values. The usual cause of this early inspection is a need to verify information considered to be doubtful or incomplete, especially in the case of Best Information Available (BIA) assessments from the prior year, or to establish an accurate list of property under a new ownership as in the case of a business sale or a new business.

The field audit is one of the best ways for the assessor to accurately estimate the condition of each piece of personal property.

Objectives

There are several objectives of the field audit which can be described as obtaining answers to the following questions:

1. Does the listed taxable personal property exist?
2. Who owns the property?
3. Has the correct original cost been reported to the assessor?
4. Have personal property dispositions, such as sales or scrapping, been reported to the assessor?
5. Has all leased equipment been reported?
6. Has all leased equipment ownership been reported?
7. Will any leased equipment become the property of the lessee during this year? This property can be flagged to be assessed to the lessee the following year.
8. Is there any taxable personal property on the premises that has not been declared by this taxpayer or by any other taxpayer? Is there any personal property reported by the taxpayer, but not located on the premises?
9. What economic life should be assigned to property not specifically listed in Chapter 4, Personal Property Tables?
10. What is the overall physical condition of the property? Should additional functional or economic obsolescence be considered?
11. Is movable equipment apt to be located in more than one county during the year and, if so, where and for what periods of time?
12. Is Special Mobile Machinery (SMM) listed? If SMM does not leave the real property location owned or leased by the equipment owner, it may not be subject to specific ownership tax, and if not, it is subject to ad valorem tax. SMM which is subject to specific ownership tax, but for which no current SMM plates, Z-tabs, or lease decals are visible should be added to the taxpayers list of personal property.
13. To enhance the discovery, listing, and classification process, have all leasehold improvements been declared, listed and assessed, but not double assessed by the real property appraiser, to the lessee of the real property?
14. Is there any personal property that was acquired during the previous calendar year, but not placed into service as of the current assessment date?
15. Does the taxpayer have more than $52,000 in total actual value of personal property in this county?

Field Audit/Physical Inspection Planning

The personal property review program can be more effective if the personal property schedules designated for field audit and review are grouped geographically. This allows for a concentration of effort in one area of the county and reduces travel expenses.

In addition, this approach provides for taxpayer understanding of the personal property review program because several taxpayers in an area will be analyzed at the same time.

Many assessors target all the accounts for specific types of businesses for field audit and review in a given year. For example, the assessor may select all attorneys, physicians, accountants, and appraisers during the current year. Analyzing similar business during the same year aides the assessor in identifying inconsistencies within like businesses.

The following types of accounts should be analyzed each year:

• Best Information Available (BIA) valuations
• Incomplete declarations and taxpayers who have failed to file
• Returns that are inconsistent with historical information
• Specific suspected discrepancies

The appraiser assigned to the geographical area prepares a preliminary schedule so the course of the personal property review program may be planned and the most convenient time for the taxpayer appointments may be determined.

Personal Property Audit Plan

Each county should establish a personal property audit plan. Included in this plan is a twelve month audit time frame which will allow assessors to plan an annual personal property review program and monitor efforts by personal property staff. The goal of this program is to complete office reviews, field audits/physical inspections, and examination of accounting books and records according to the adopted county plan. The county should keep track of all accounts completed according to the plan for review by the state assessment auditor. A Personal Property Audit Plan Template is included as Addendum 5-A, Audit Standards.

Accounts to Be Analyzed

All personal property accounts are to be included in the personal property audit plan developed by the county assessor. Refer to Addendum 5-A, Audit Standards.

Initial Telephone Call

It is very important that the assessor spend adequate time on preliminary personal property review research and the initial taxpayer telephone contact before conducting the field audit. An appointment should be made with the taxpayer, if possible.

A time of day for the appointment does not necessarily need to be specified, unless the taxpayers so request, but the taxpayers at least should be informed that an appraiser will be in their area reviewing and inspecting accounts on a particular day or days. This prepares taxpayers for the field audit and allows them time to review and to gather all necessary records before the assessor arrives.

The following recommendations are made to assist assessors in the initial contact with the taxpayers:

1. The public should be notified of the purpose and procedure of the field audits through public notices, news releases, and other public relations efforts. The audit program should be explained as to how it will be conducted and the purpose of field audits.
2. The taxpayer should be contacted in advance of the field audit to enable convenient appointment scheduling.
3. The taxpayer should be put at ease by assurances that the field audit is routine and that it will benefit all taxpayers.
4. The appointment should be kept. Since a county employee is both a professional and a representative of county government, it is necessary to be punctual in keeping scheduled appointments. The appointment should be re-scheduled as soon as it becomes apparent that it cannot be kept.

Appointment Verification Letter

If possible, an appointment verification letter is mailed to each taxpayer whose property is scheduled for field audit. This begins the written record of the field audit. A copy of the original public notice or news release can be enclosed with the letter. A copy of the letter should be filed with the personal property valuation records of the taxpayer.

Taxpayers should be contacted either by phone or by letter. An example taxpayer contact letter is included in Addendum 5-B, Sample Letters.

Conducting the Field Audit

General Demeanor

Taxpayers deserve to be treated with courtesy and respect. Discourteous or argumentative behavior makes the field audit more difficult and reflects negatively on the entire assessor's office staff.

Getting the Taxpayer to Cooperate

The following recommendations are made to help the assessor obtain the taxpayer's
cooperation and respect:

• A courteous, cooperative, and professional attitude should be displayed, along with appropriate professional attire. All questions asked by the taxpayer should be addressed.
• All offers of gratuities should be declined.
• Political, religious, or other potentially argumentative topics should be avoided.
• Premature conclusions should not be drawn.
• During the course of the field audit, the assessor will request several types of information from the taxpayer. This information includes data about the business enterprise, as well as the methods used by the taxpayer to account for the acquisition or disposition of personal property.
• All pertinent questions should be asked of the taxpayer during the field audit. However, the taxpayer should be informed that additional questions may need to be answered once the collected data has been reviewed.

Conduct Field Audit

In cases where no itemized listing of personal property has been furnished by the taxpayer, the assessor creates one during the field audit. If the taxpayer has submitted an itemized list, the assessor verifies the listed property while auditing the business location.

While conducting the field audit, the assessor should note high and low dollar value personal property not listed by the taxpayer on the declaration schedule.

A field audit not only allows the assessor to see how personal property is used, but also allows the assessor to observe and rate physical condition.

The assessor verifies that all property appearing on the personal property account is still being used in the business. Any personal property that is no longer used in and located at the business location is flagged for removal from the taxpayer's account.

The assessor should pay particular attention to real property that has been reported with personal property, to ensure that they are not double assessed as both real and personal property. This is particularly important for property described as "leasehold improvements." Classification guidelines are located in Chapter 2, Discovery, Listing, and Classification.

The assessor should document all findings and conclusions in such a manner that anyone can review and understand what occurred during the field audit.

Examination of Accounting Books and Records

During the initial contact with the taxpayer, it should be explained which records are to be reviewed and over what periods of time. Unnecessary records should not be requested from the taxpayer. The appropriate individual to see for access to records and the location(s) where records are kept also should be determined. If the records are in the possession of an independent accountant the accountant should be contacted, after obtaining the taxpayer's permission. The actual owner of the property should always be contacted first, if possible.

Business Enterprise Information

Information about the business enterprise which is requested or verified during the examination of accounting books and records includes the following:

1. Description of the business

   1. Products manufactured or sold or services offered
   2. Number of employees
   3. Hours of operation

   The information requested here enables the appraiser to make judgments about the general operation of the business. The general operation of the business gives indications as to how well property is maintained and indicates the normal use of the property.

2. The business's capitalization and expense practices for accounting purposes

   1. Rules concerning expensing equipment purchases which fall below a specified minimum amount above which equipment would be capitalized; expense equipment is still taxable, unless it meets the consumable personal property exemption criteria and is exempt pursuant to § 39-3-119, C.R.S.
   2. Rules concerning expensing or capitalizing freight to the point of use, installation, and sales/use tax; these costs should be included with the original cost of the equipment
   3. Rules concerning writing off fully depreciated personal property; this personal property may still be taxable until it is scrapped or sold, even if it is not in use or if the business is no longer operating
   4. Rules concerning writing off scrapped or sold personal property; these should be deleted from the personal property account
   5. Rules concerning capitalizing or expensing major equipment repairs; major equipment repairs may change the effective age of equipment, but should not be included with the original cost of the equipment
   6. Rules concerning recording trade-in allowances which some companies deduct from the original cost of the acquired personal property; original costs should include trade-in allowances as part of compensation for the purchased equipment
   7. Rules concerning residual value of leased property at “buy out” time; this is not the original cost of the equipment

   The information regarding the methods used by the taxpayer to account for property acquisition and recovery is important to the assessor in reconciling the taxpayer's financial records, the physical inspection, and the personal property account. Companies that expense personal property with a value that is below a specified amount may not be reporting all of their taxable personal property to the assessor’s office.

   Understanding the procedures used by taxpayers regarding personal property treatment and disposition allows the assessor to confirm the accuracy of personal property account listings.

3. Reconciliation between the subsidiary ledgers original costs and the original costs reported on the declaration schedule
   
   Comparisons should be made to reconcile original equipment or pooled personal property costs and the original costs listed on the declaration schedules. The assessor needs to ask the taxpayer, in the initial telephone contact, to provide this subsidiary ledger information or to give permission to contact the taxpayer's accountant, if necessary.
   
   A thorough understanding of any differences between original book costs and original costs reported on the declaration schedule helps the assessor confirm the accuracy of the property listings and the appraised values of the personal property.
    
4. Method of recording purchases
   
   The company's policy on recording purchases gives information about the accuracy of the declaration schedule, and helps the assessor reconcile the declaration schedule and the taxpayer's accounting records.
    
5. Methods of accounting for personal property at the subject location that are recorded on the books of a subsidiary or parent corporation
   
   The taxpayer is required to file a listing of all personal property at the subject location. Any property listings carried on the accounting records of a parent or subsidiary company are usually not available to the assessor for reconciliation with the physical inspection or the personal property account.
    
6. Method of accounting for property leased or rented from others
   
   The way in which taxpayers account for leased or rented equipment is important to the assessor for the discovery of leased property and to reconcile the physical inspection listing with the taxpayer's accounting records.
   
   Careful attention to the ownership of leased property helps avoid double assessments of this property.
    
7. Access to the company's chart of general ledger accounts may be helpful in determining the company's accounting practices. Any questions which arise as to the appropriateness of an accounting practice, which affects personal property values, should be resolved in consultation with a professional accountant and according to Generally Accepted Accounting Principles (GAAP).

Financial Records

The financial records and sources that may be of interest to the assessor include the following.

Periodic Financial Statements

Financial statements are documents which indicate the company's profit or loss and net worth. These are sometimes called balance sheets.

General Ledger

The general ledger is the immediate source from which financial statements are prepared. The general ledger provides the overall balances of all personal property, liability, and capital accounts of the company.

Subsidiary Ledgers

Subsidiary ledgers are ledgers that provide detailed, individual balances in support of the general ledger totals such as depreciation schedules for individual pieces of equipment or pooled personal property accounts for depreciating similar equipment purchased at one time.

Books of Original Entry

Books of original entry include sales, purchases, cash disbursements, and general journals from which ledger entries are made.

Primary Source Documents

Primary source documents include documents which serve as the basis for entry in the books of original entry. Examples include sales invoices and supplier's invoices.

Substantiating Documentary Evidence

Substantiating documentary evidence includes documents which support primary evidence. They frequently relate back to the origins of the transaction. Examples include the following:

• Sales orders
• Sales contracts
• Shipping records
• Purchase orders
• Bills
• Receiving records

External Evidence

External evidence includes documents filed with outside governmental or commercial agencies that require detailed information about the company. Examples include the following:

• Federal or state income tax returns
• Fire insurance policies
• Statements for credit reports
• Reports to the Securities and Exchange Commission (10K Report)

Other Company Records

Other company records include documents which outline company policy and practice such as the following:

• Annual reports
• Accounting procedures manuals
• Systems of internal control

Comparing Appraisal and Accounting Records

In comparing appraisal records to accounting records, the assessor verifies that the taxpayer is using original acquisition cost, plus installation, sales/use tax, and freight to the point of use, on the declaration schedule and not net book value, i.e., the cost minus depreciation to date. Net book value is commonly used when a business is sold and may be acquisition cost to the new owner. Refer to Bulk Sale of Personal Property under the Types of Cost topic in Chapter 3, Valuation Procedures. The amount and listing of fully depreciated personal property still owned is obtained or verified.

Property Classification List Reviewed

The property classification list can be reviewed to verify that property has been reported according to the statutory definitions for the following types of property.

• Real property
• Personal property
• Exempt property
• Lessor owned equipment
• Movable equipment
• Taxable property
• Works of art

Acquisition/Disposition Records Analyzed

The assessor compares the current personal property and leased equipment lists with the appraisal records and declaration schedules and notes any discrepancies which may result in either omitted property or double assessments. Analysis of acquisition and disposition records should reconcile with equipment listed in the declaration schedules as added or deleted. The assessor attempts to verify all information on the personal property records with taxpayer accounting records. Discrepancies should be brought to the taxpayer's attention for correction, clarification, or explanation.

Personal Property Review Tests Performed

Certain personal property review tests should be performed to verify the accuracy and completeness of information contained on the declaration schedule.

The goal of these tests is to examine the assessor's information and make certain the taxpayer and assessor are in agreement concerning the property which is listed and valued. The personal property review tests include the following:

High and Low Value Property Test

The assessor selects a few high cost personal property and low cost personal property in the taxpayer's accounting records and double-checks to assure that they are listed in the personal property account. The goal of this test is to verify whether or not all property has been listed in the assessor's records.

Property Category Test

The assessor scans the subsidiary ledgers to determine if the taxpayer has used the proper property categories, e.g., a desk is classified as furniture rather than machinery. This test will help to identify problems associated with use of improper cost factor tables.

Assessment Status Test for Property Owned by Others

The status of property leased or loaned to the business being analyzed should be checked. When a significant amount of leased equipment is listed, the accounts of the lessor need to be checked to assure that they are reporting the equipment as owned on their declaration schedule. If taxpayer records show a large decrease has occurred in the amount of leased equipment, there may be a corresponding increase in the equipment being purchased by the business.

Additional Information

Additional information, necessary to complete the personal property review documentation or to address any areas of concern, should be requested from the taxpayer.

Document Findings and Conclusions

A short written summary/narrative is a key feature of a personal property review program. This narrative documents significant findings and conclusions including areas of discrepancy, their causes, and corrective actions taken. The taxpayer's methodology in preparing personal property declaration schedules should be documented if there is a variance from prescribed standards.

The narrative logically follows the sequence of the working papers. It covers significant points in enough detail so that anyone reviewing the personal property review at a later date can follow the procedures used and the conclusions reached.

The narrative is a short summary of the findings, conclusions, and recommendations derived from the personal property review and field audit. Any opinions or recommendations must be documented. The narrative should be included in the information sent to the taxpayer at the conclusion of the field audit.

Any correspondence should be signed by the assessor, dated for future reference, and filed in the taxpayer's personal property account file.

Reconcile Approaches and Estimate Value

The assessor reviews all information received from the taxpayer and appraises the current actual value of the personal property. In addition, the assessor documents all approaches to value considered in the appraisal of the property and identifies the approach used in the final estimate of value.

Notify Owner of Field Audit Results

When a field audit or examination of accounting books and records is complete, the assessor should notify the taxpayer, in writing, of the results of the personal property review.

Letter Explaining Field Audit Results

The audit, other than an office review, is not complete until the taxpayer has received written notice of the results. The taxpayer should be thanked for the cooperation shown and be made aware of any action that may be taken as a result of the findings. An example results notification letter is included in Addendum 5-B, Sample Letters.

Special Notice of Valuation (SNOV) For Omitted Property

If the field audit results in the discovery of omitted property, the taxpayer is notified of the omitted property value. This is accomplished by using the Special Notice of Valuation (SNOV). Refer to ARL Volume 2, Administrative and Assessment Procedures, Chapter 9, Form Standards, for the SNOV form. The taxpayer is notified in order to preserve the taxpayer's administrative remedies even if the audit has been conducted subsequent to the initial notice of valuation deadline of June 15th.

The penalty for omitted property may be applied under certain circumstances. A complete discussion of this issue is found in Chapter 3, Valuation Procedures.

If the field audit reveals property that may have been scrapped or sold prior to January 1, or property that has been assessed twice, the assessor should inform the taxpayer that an abatement petition can be submitted for taxes paid on assessments for the two prior years. These are clerical errors and should be corrected whether the taxpayer protested the value of the property during the assessment year(s) in question or not. The taxpayer needs to provide documentation demonstrating that the property was scrapped, sold, or double assessed. The incorrect value also should be corrected for current and subsequent years.

It is important to note that the personal property review program is not designed to detect and correct prior errors. It is designed to verify the accuracy of current personal property listings for the taxpayer and to verify the accuracy of personal property valuations made by the assessor from those listings. The assessor should never make statements about valuation errors or changes until potential problems have been thoroughly investigated.

The assessor should develop a personal property audit plan such as the one described in Addendum 5-A, Audit Standards.

Addendum 5-A, Audit Standards

The purpose of this standard is to provide Colorado assessors with recommended topics and criteria for inclusion in the Colorado State Board of Equalization's mandated personal property audit plan. This plan must be updated each year as needed.

Questions regarding the contents of this standard and suggestions for revision are welcome and should be addressed to the Division of Property Taxation.

Topics for Inclusion in the Plan

The following topics should be included in the county audit plan:

1. Purpose of the Plan
2. Personal Property Account Characteristics
3. Plan Time Frame and Interim Progress Review Points
4. Listing of Office Resources Involved in the Audit Program
5. Account Review Selection Criteria and Specific Audit “Triggers”
6. Audit Work Paper and Documentation Guidelines
7. Assessor Signature Page

Recommendations for specific information to be included under each of these topics is listed below.

Purpose of the Plan

This section includes the reasons for the development of the plan:

1. To plan for a comprehensive review and audit program involving personal property accounts to ensure accuracy, equalization, and uniformity of taxpayer reporting, and
2. To comply with the Colorado State Board of Equalization requirement to audit, through physical inspection, personal property accounts selected in accordance to criteria contained within a written plan in place on January 1 of each year.

Additional reasons for inclusion under this section may be incorporated at the option of the county.

Personal Property Accounts Characteristics

The purpose of this topic is to give the reader a general idea of the types, numbers of accounts, and aggregate assessed values of personal property accounts found within the county. Specific totals of personal property accounts should be listed by abstract code along with total assessed values applicable to each code.

The following abstract codes of personal property accounts should be included within the scope of this plan:

1410 - Residential Personal Property
2405 - Gambling Personal Property
2410 - Commercial Personal Property
2415 – Renewable Energy Personal Property
3410 - Industrial Personal Property
54xx - Natural Resource Personal Property (all types)
64xx - Producing Mines Personal Property (all types)
74xx - Oil and Gas Personal Property (all types)

Also suggested for inclusion would be a list of the “top ten” personal property taxpayers, by assessed value, in the county.

Audit Plan Time Frame

Information required under this topic is:

1. The assessment year covered by the audit plan
2. The specific twelve month period in the audit plan cycle

Personal property audits accomplished within this time period will be analyzed by the state property tax auditor for compliance with the completed plan.

Suggested for inclusion in this plan should be at least two interim progress review points to ascertain that the plan is being timely completed and that adequate documentation is being developed.

Listing of Office Resources

Recommended information in this section would be the number of personal property appraisers, appraisal technicians, administrative personnel, and any other assessor office personnel involved in the completion of the audit program. Conversion of personnel resources to a "person-months" unit of comparison is suggested in order to compare resource allocation for this audit program to allocations for subsequent audit programs.

Types of Audit Analyses and Account Selection Criteria

This section includes a brief definition of the types of audits that will be conducted during the audit program, i.e., office review, field review (physical inspection), examination of books and records. In addition, general procedures for conducting each of these analyses may be included as well.

Also this section contains specific criteria for selection of accounts for the audit program and the estimated number of accounts that will be physically inspected in the current audit program. Criteria used to exclude any accounts from the audit program must be listed along with the numbers of accounts and assessed valuations assigned to those accounts.

Specific Program Triggers for Priority Selection

Included in the criteria should be specific "triggers" that would prescribe a high priority for review, such as:

• Non-filing taxpayers that resulted in Best Information Available (BIA) assessments placed on their property
• Accounts with omitted property discovered through the county's business discovery program
• Incomplete declarations or declarations having inconsistent information from year to year
• Accounts that were protested from the prior year where the taxpayer had substantial disagreements with the values assigned to the reported property
• Accounts showing greater than 10% change in the taxpayer's General Ledger account balances but with no additions or deletions
• New businesses filing for the first time
• Accounts having no additions or deletions for three continuous years
• Accounts where discrepancies were consistently found in prior audits

Account Selection Criteria

Suggested selection criteria for the balance of accounts scheduled for review are listed below:

• Analysis of accounts associated with same business type or use
• Accounts located in the highest and lowest quartile of actual value per square foot by business type
• Random sample of accounts not audited within the last five years

Selection of accounts by business types is an especially good method because it allows for review of values for equalization purposes as well as creating a basis for BIA assessments to be applied to non-filing comparable businesses.

Although auditing a minimum percentage of accounts is not required as part of the plan, account criteria should be established to allow for a cyclical review and inspection of all accounts, over a reasonable time frame. Use of a cyclical time frame is consistent with the purpose of the audit program to provide accurate and equalized values and uniform taxpayer reporting of personal property accounts in the county.

Audit Work Paper and Documentation Guidelines

This section should contain procedures for documenting how the audited accounts were selected, the number of accounts selected, and any problems encountered in completing the program.

Also recommended for inclusion are procedures for audit “paper trails,” audit work paper documentation, and any other documentation essential for a functioning audit program.

Assessor Signature Section

The assessor signs and dates the plan to certify that it is the official personal property audit plan for the current assessment year. The plan must be in place by January 1 of each year.

Addendum 5-B, Sample Letters

Addendum 5-B, Sample Letters

Introduction and Legal Basis

Using Chapter 6, Oil and Gas Equipment Valuation, as a guide, Colorado county assessors will be able to uniformly value oil and gas equipment across the state. All surface equipment and submersible pumps and sucker rods are taxable as personal property pursuant to § 39-7-103, C.R.S. For reference, the statute is repeated here in its entirety.

Surface and subsurface equipment valued separately.

All surface oil and gas well equipment and submersible pumps and sucker rods located on oil and gas leaseholds or lands shall be separately valued for assessment as personal property, and such valuation may be at an amount determined by the assessors of the several counties of the state, approved by the administrator, and uniformly applied to all such equipment wherever situated in the state. All other subsurface oil and gas well equipment, including casing and tubing, shall be valued as part of the leasehold or land under section 39-7-102.

§ 39-7-103, C.R.S.

The assessors of the several counties of the state, with input from industry and approval of the Property Tax Administrator, developed an equipment valuation method using Basic Equipment Lists (BELs) and valuation grids. The BELs were developed for the different types of oil and gas wells found in the state, and are used to identify and value equipment common to each particular type of well by basin, depth, production level, and method of production. Addendum 6-C, Additional Installed Equipment List, with corresponding values is provided in this chapter for the purpose of adding specific equipment to the BELs as necessary, depending on the information provided by the operator and from field inspections. Addendum 6-D, Stored Equipment List, is provided in this chapter to value equipment that is located at the wellsite, yard, or warehouse, is not in use, and is not declared as inventory of merchandise by the equipment owner. Addendum 6-E, Communal Equipment List, is provided in this chapter to value shared equipment on multi-well pads, and to value any tanks and additional equipment associated with an injection or disposal well that is not valued with a shared gathering system.

Accompanying each BEL are three valuation grids. The grids place a value on the BEL based on the condition of its equipment and the depth and production of its well. The three grids distinguish between very good condition equipment, average condition equipment, and minimum condition equipment. The procedure for valuing the equipment is discussed beginning with the Approaches to Value section in this chapter. At the end of the chapter, valuation problems that include example worksheets, illustrate the procedure.

Occasionally it may be necessary to modify or add to the BELs. This may occur with changes in technology or production practices. The BELs may be modified or added to if the change in the BEL configuration is significant for the basin affected.

The BEL modification or addition must be documented along with the depth, product, and production method. The assessors of the several counties of the state will determine if the new or modified BEL is appropriate, approve the new or modified BEL, determine an accurate value for such BEL and forward it to the Division of Property Taxation with a recommendation for approval by the Property Tax Administrator for inclusion in the manual.

The Additional Installed, Stored Equipment, and Communal Equipment Lists may also need to be modified. If an assessor believes that equipment needs to be added to the Additional Installed, Stored Equipment, or Communal Equipment Lists, they must submit the list of equipment to the assessors of the several counties of the state. They will determine if the equipment should be included as part of the Additional Installed, Stored Equipment, or Communal Equipment List, determine an accurate value for such equipment and forward it to the Division of Property Taxation with a recommendation for approval by the Property Tax Administrator for inclusion in the manual.

BELs were developed only for production and wellsite processing equipment, which is defined as the equipment necessary to produce, separate, and store fluids from the reservoir to the custody transfer point. Associated buildings and/or other improvements are valued as real property; however they must be valued and abstracted separately from the production value and personal property value of the well.

The custody transfer point for oil is considered to be the inlet of the Lease Automatic Custody Transfer (LACT) Unit or the outlet of the oil storage tank, whichever is appropriate for each lease. The custody transfer point for gas is considered to be the inlet to the gas meter run. If the producer maintains custody of the production beyond the lease line, then the custody transfer point will be considered to be the lease line.

All property beyond the custody transfer point is subject to local assessment by the assessor or unit assessment by the Division of Property Taxation as state assessed property. Equipment located in off-site facilities such as water/gas injection plants, field-wide gathering systems, gas processing plants, and amine production plants is not included or valued in this chapter. Also, CO₂ wells are not included or valued in this chapter. This equipment is subject to local assessment by the assessor or central assessment by the Division's State Assessed Section. Only equipment located on the wellsite, or associated with the wellsite, but stored and not held for resale, is valued using this chapter.

Approaches to Value

In Colorado, assessors determine the "actual value" of taxable personal property. Colorado statutes define actual value as that value determined by appropriate consideration of the following approaches to value:

1. Cost Approach
2. Sales Comparison (Market) Approach
3. Income Approach

The BELs and the valuation grids shall be used to determine the actual value of the production equipment.

Oil and gas equipment valuation is subject to three general personal property exemptions:

1. Exemption of “consumable” personal property.
2. Exemption of $52,000 or less in total actual value of taxable equipment (personal property) on a “per county” basis.
3. Exemption of personal property acquired but not yet put in to first use.

According to § 39-3-119, C.R.S., the Division has established criteria to determine whether or not the personal property qualifies as “consumable.” Please refer to Chapter 2, Discovery, Listing, and Classification, in this manual for specific information regarding consumable personal property.

In accordance with § 39-3-119.5, C.R.S., personal property is exempt from ad valorem taxation if the total actual value of all taxable well equipment (personal property) owned by the taxpayer per county is $52,000 or less. The real property valuation of the leasehold interest, based on well production, must not be combined with the personal property value to determine if the $52,000 threshold has been exceeded. The threshold is determined using only personal property valuation.

Cost Approach

The Cost Approach is described in Chapter 3, Valuation Procedures. To reiterate, the cost approach is based upon the principle that the value of a property equals the cost of acquiring an equally desirable substitute property. It is essentially an estimate of the cost of replacing the subject with a new property that is equivalent in function and utility and then adjusting the RCN value for appropriate depreciation. The current BELs reflect the most appropriate equipment necessary to produce a given amount of fluid from a given depth.

Sales Comparison (Market) Approach

The sales comparison (market) approach to value is based upon the assumption that property value may be measured by analyzing what buyers pay for similar property. The method used in the chapter to determine the market value is the sales comparison method. Market value can be defined as, “The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress” (The Appraisal of Real Estate, 15th Edition, The Appraisal Institute, Chicago, IL, 2020).

The market value for oil and gas equipment is based on many considerations, including, but not limited to:

• Availability of equipment
• Current function of equipment
• Condition of equipment
• Current capacity of equipment
• Age of equipment

The method values the equipment separately from the value of the leasehold. When oil and gas properties having on-site equipment sell, any portion of the sales price that is attributable to on-site equipment may be different than the values listed herein, depending on the value placed on the oil and gas reserves. All values contained within this chapter reflect market value of equipment inclusive of acquisition cost, installation cost, sales/use tax and freight to the point of use.

Income Approach

The income approach to value has limited applicability to oil and gas equipment owned by the operator. However, the income approach can be used to value leased or rented equipment. The annualized net income stream can be capitalized to determine a value by the income approach. Refer to Chapter 3, Valuation Procedures, for additional information on the use of the income approach.

Market Approach Valuation Procedures

The following ten steps are essential to accurately value installed oil and gas equipment in the State of Colorado, using the Market Approach to Value. A detailed discussion of each step follows the list:

Step #1 Develop a detailed inventory of the personal property. This will require a physical inspection and an adequate description of the equipment, condition and ownership.

Step #2 Establish the total production for the lease, including oil, gas, and water production.

Step #3 Determine the depth of the well.

Step #4 Establish which method (flowing or pumping) is used to lift the production from the reservoir.

Step #5 Locate the well in its appropriate geological basin.

Step #6 Select the appropriate BEL based on the factors above.

Step #7 Determine the condition of the equipment.

Step #8 Determine stripper well status. With the above information in hand, a value can now be placed on the equipment for each well. Using the appropriate valuation grid, find the value of the BEL based on the depth and total production level. Add the value of any additional installed equipment. Add the value of any stored equipment. The result is the current actual value of the equipment for the well. Identify and value any shared equipment.

Step #9 Apply level of value (LOV) adjustment factor. To adjust to the specified year's level of value, multiply the current actual value by the specified year's adjustment factor. The LOV adjustment factor is sometimes referred to as the "rollback factor."

The 2024 adjustment (rollback) factor is: 0.95

Step #10 Multiply the adjusted actual value by the appropriate assessment rate for all personal property.

Detailed Discussion of Valuation Steps

Step #1 – Detailed Inventory of Personal Property

Itemized Listing Required From Operators

To use Chapter 6, Oil and Gas Equipment Valuation, the assessor must have a detailed listing of all oil and gas equipment located on each well in the county. Operators of producing oil and gas wells are required to file a production statement and complete listing of all machinery and equipment owned as of the assessment date, by well. This information is submitted to the assessor on the DS 658, Oil and Gas Real and Personal Property Declaration Schedule. These schedules must be completely filled out, signed, and filed with the county assessor.

Extension of filing deadlines beyond April 15 for receipt or postmark of the DS 658, Oil and Gas Real and Personal Property Declaration, and the lengths of these extensions are solely at the discretion of the county assessor pursuant to § 39-7-101(2), C.R.S. If granted, such extensions are without charge to the taxpayer. However, in the absence of the assessor granting such an extension, or after a granted extension period has elapsed, the assessor may impose a late penalty of $100 per calendar day, per schedule, not to exceed $3,000 per calendar year.

Pursuant to § 39-7-101(3)(a), C.R.S., the total amount of all fines assessed against an owner or operator in any calendar year shall not exceed three thousand dollars ($3,000) regardless of the number of leases or units owned or operated by the owner or operator, or the number and length of the willful failures or refusals to comply with an assessor’s request for documentation by the owner or operator.

If the operator has previously rendered a complete list by well name, then the operator will not be required to render such a list in the future. The operator only needs to provide annual additions or deletions.

It is suggested that assessors send a form letter along with the declaration schedule to operators within the county requesting a detailed listing of their oil and gas equipment. The letter should explain that such a listing is required by § 39-5-107, C.R.S., and should include the following information.

1. Listing of all equipment, including but not limited to:
   1. Down-hole equipment including sucker rods and submersible pumps (Casing and tubing should not be listed since they are included in the value of the leasehold)
   2. Wellhead equipment complete with pipes and valves
   3. Surface pumping units with gas engine or electric motor
   4. Treating equipment including separators, heaters, free water knockouts, gas production units, dehydrators, etc.
   5. Storage and loading facilities
   6. Metering devices and equipment, including meter house if owned by the producer
   7. Flow lines and related equipment
   8. Pressure maintenance and secondary recovery equipment
   9. Electric, automatic, and computerized controls
   10. Power lines and poles, transformers, and communication lines
2. A comment noting that the description of the equipment should include the following: manufacturer, model, capacity size, length, diameter, etc.; whether the equipment is installed or stored at the well-site; and any other information necessary for identification and valuation
3. An explanation as to why, on future declaration schedules, the owner will need to furnish only additions and deletions since the assessor can update the original listing from such information

Physical Inventory by the Assessor

The assessor should implement a program for the physical inspection and listing of all oil and gas equipment in the county. This enables the assessor to compare the listings rendered by each operator with the physical inventory obtained by field inspection, determine the equipment missing from the incomplete declarations, and become more familiar with the equipment in the county’s oil and gas fields.

Before making a physical inspection and listing of the equipment, the assessor or appraiser should contact someone with authority for the particular lease, such as the operator, tax representative, production foreman, or pumper. These people are then aware that the appraiser will be present on the lease site, taking inventory.

At the time of inspection, the appraiser, using Addendum 6-B, Equipment Valuation Worksheet, found later in the chapter, should list the following information for each piece of equipment:

1. Type of equipment, such as surface pumping unit, separator, treater, gas production unit, oil storage tank, etc.
2. Make, model, and description, including size, diameter, height, etc., or any other information necessary to adequately describe the equipment
3. Year manufactured or estimated age
4. Condition of equipment
   1. See Step #7 – Condition of Equipment, in this chapter, for the guidelines on evaluating equipment.
5. Whether the equipment is installed, stored, or shared at the well-site
6. Ownership – taxable property in Colorado is generally assessable only to the owner thereof

Step #2 – Production Total

The BELs in this chapter are based on the production of all fluids, both oil and water, or the production of gas. The equipment needed on a lease is directly related to the volume of production. Therefore, it is important to determine the production total.

The actual production total will usually fall between one of the incremental values in the BEL tables. Without evidence to the contrary, always round up to the next highest production total. In theory, equipment used on a well producing 300 barrels of oil would not be adequate if the well were to produce 301 barrels of oil; therefore the BEL value associated with the next highest production total listed should be used.

Request Information From Operator

Oil and gas operators are required to provide the average flow rate of each product produced at each well. The information should include oil, water, and gas production. The flow rates on multiple well leases should be determined by well. However, total production can be divided by the number of wells to determine an average flow rate for each well.

In determining whether any given well should be classified as a “stripper well”, the assessor should request the total number of days that the well was capable of operation. The assessor should then determine the type of well (oil or gas) and calculate the average flow rate per day by dividing the oil or gas production amount declared by the number of days the well was capable of operation. If the resulting number is 10 barrels (Bbls) of oil per day (or less), for an oil well, or 60 Mcf (1,000 cubic feet) of gas per day (or less), for a gas well, then the well should be classified as a stripper well and valued using the minimum condition grid. When a well produces both oil and gas, the average flow rate per day of each product must fall below their respective thresholds to be classified as a stripper well.

To determine the number of days the well was capable of operation, subtract the number of days the equipment was not operated because of maintenance or mechanical reasons from the total calendar days in a year (365).

If the operator fails to submit flow rate information, the assessor should determine the average operating days for other wells within the field and calculate a “Best Information Available” flow rate for stripper well designation and well valuation purposes.

An example of the flow rate calculation for both stripper well designation and the actual well valuation is shown below.

Example:
Stripper Well Designation
Previous calendar year oil production 2,550 Bbls
(product quantity only – no water)
Number of days (365 days – 65 days) 300 days

2,550 Bbls ÷ 300 days = 8.5 Bbls/day

Flow rate per day 8.5 Bbls/day (used to determine Stripper Well classification)

Example:
Well Flow Rate Calculation for Valuation
Previous calendar year fluid production 28,000 Bbls
(oil product and water)
Number of days (365 days – 65 days) 300 days

28,000 Bbls ÷ 300 days = 93.3 Bbls/day

Flow rate per day: 93.3 Bbls/day (used to determine volume (Barrels) in BEL grid)

Verification by Assessor

The assessor can audit the information provided by the taxpayer in the following ways.

1. Request information from the Colorado Energy and Carbon Management Commission (ECMC).
   
   Colorado Energy and Carbon Management Commission
   The Chancery Building
   1120 Lincoln Street, Suite 801
   Denver, CO 80203
   (303) 894-2100
   
   Operators are required to report oil production, water production, and gas production by well to the ECMC on a monthly basis. The information can be accessed on the COGCC website. See ARL Volume 3, Real Property Valuation Manual, Chapter 6, Addendum 6-H, Instructions for Accessing the ECMC Website, for instructions.
    
2. Check for reasonableness by dividing production reported per well in Section C of the DS 658 by 365 days.
   
   The average flow rate should equal or exceed the quotient because the method assumes that there were no days the well was shut down.

Step #3 – Well Depth

Operators are required to provide the depth of each well. This should be the depth of the perforation into the deepest producing reservoir. A well is often drilled deeper than the depth of the perforations to test for additional reservoirs. The assessor can audit the information by requesting completion reports from the ECMC.

The actual well depth will usually fall between one of the incremental values in the BEL tables. Without evidence to the contrary, always round up to the next highest depth. In theory, equipment used on a well that is 5,000 feet deep would not be adequate for a well that is 5,001 feet deep; therefore the BEL value associated with the next highest depth listed should be used.

Some basins have separate BEL tables for shallow wells. If a well is deeper than the greatest depth on the shallow grid by any amount, it is appropriate to move to the lowest depth of the normal grid with the same equipment configuration.

When valuing horizontal wells, the lowest vertical depth should be used since sucker rods and other well site equipment are not utilized in the horizontal section of these wells. For example, a well with a vertical depth of 6,495 feet that extends horizontally an additional 8,000 feet should be valued using a depth of 6,500 feet.

Step #4 – Method of Production

The BELs have been developed based on the method of lift, i.e., flowing or pumping. The operator should provide the information. The assessor can audit the information by reviewing data gathered by the physical inventory. For instance, if a pumping unit is present, the assessor knows that artificial lift is being employed. If the inventory does not meet the test of reasonableness, the operator should be contacted.

Step #5 – Geological Basins

The BELs have been developed after consideration was given to the different equipment necessary to produce oil and gas in the various basins within the state. The American Association of Petroleum Geologists (AAPG) has identified 13 basins in Colorado. In five of these basins, little or no oil or gas activity currently exists. Because of this, corresponding BELs do not exist for these basins. Refer to Addendum 6-A, County/Basin Cross Reference, found later in this chapter, to determine which basin’s BELs to use for valuing equipment in a particular county.

Step #6 – Selection of Appropriate BEL

The correct BEL can now be determined. The BELs are categorized by basin, primary product, and method of lift. Choose the BEL that best conforms to the equipment on the well in question, within the particular basin. If an appropriate BEL cannot be found within the particular basin, the appraiser may use alternate basins to find a BEL that best conforms to the equipment on the subject well. The Division should be advised if alternative basins are used because additional BEL’s may be required for the subject basin.

When determining whether a well should be classified as an oil well or gas well, the assessor should first compare the actual equipment on the wells to the BEL equipment configuration to determine which well type, i.e., oil or gas, exists.

For example, gas wells will generally have a gas production unit (separator) to prepare the gas for insertion into the gas gathering system. On oil well sites, a treater or heater/treater can be found which processes the production emulsion into separate oil and water products. The oil product is then stored in storage tanks, either at the well-site or in a tank battery.

If the assessor is unable to make the appropriate well type determination, the BELs for both an oil well and a gas well should be reviewed, and the BEL that represents the type of well commonly found within the field should be used. If there is still uncertainty about the well type, the assessor should contact the operator to confirm the well classification or contact the Colorado Energy and Carbon Management Commission (ECMC) and use the original well type reported to them.

If the subject well does not share equipment with other wells, then the appropriate BEL will include all equipment required for production. This will generally include the wellhead, flowlines, lifting equipment, separating equipment, and liquid storage, if necessary. It may also be necessary to add equipment to satisfy regulatory requirements (flares, vapor recovery units, etc.), or account for non-uniform use or non-uniform ownership of common items on the lease (measurement equipment, LACT units, etc.). Addendum 6-C, Additional Installed Equipment List, is used to value any additional equipment, which is then added to the subject’s BEL value. Any additional tanks associated with a single well, in addition to those included on the subject’s BEL configuration, are not separately valued. They are considered super adequate and their contribution to value is already included in the BEL, unless the well is an injection well or disposal well. Any tanks or additional equipment associated with an injection well or disposal well are valued using Addendum 6-E, Communal Equipment List, and added to the subject’s BEL value.

If the subject well shares equipment with other wells, then the appropriate BEL may not include all equipment required for production. A wellhead will be included for each BEL; however shared equipment, which can include flowlines, lifting equipment, separating equipment, or liquid storage, may or may not be included in the BEL, depending on the basin. Shared equipment will need to be identified and valued separately using Addendum 6-E, Communal Equipment List. Any unshared additional equipment associated with a single well is valued using Addendum 6-C, Additional Installed Equipment List.

STEP #7 – Condition of Equipment

Three valuation grids have been created for each BEL based on the condition of the equipment and status of the well. The grids establish market values for very good condition equipment, average condition equipment, and minimum condition equipment.

In determining the condition of the equipment the assessor should compare information collected from physical inspections with the information reported by the operator on the declaration schedule. If the assessor discovers discrepancies, the operator should be contacted for clarification. However, new equipment on new wells and equipment on shut-in wells will be valued as either very good or minimum, respectively. The descriptions listed below for equipment condition are intended to be guidelines and are not necessarily the sole criteria. The final determination of equipment condition is the assessor’s responsibility.

The age of installed equipment is calculated based on the time between the assessment date and the first month of production for the well, unless there is evidence that the equipment has undergone major overhaul, substantial reconditioning, or refabrication. If the equipment has undergone reconditioning, refabrication, or major overhaul, the assessor should refer to the declaration schedule filed by the operator, and contact the operator for additional information, to determine an effective age of the equipment. For injection wells and disposal wells, the equipment age is calculated based on the time between the assessment date and the month that the well was converted to an injection well or disposal well.

The condition of stored equipment at the lease site should be determined independently from the condition of the equipment listed on the BEL. The condition of any additional installed or shared equipment should be the same as the condition rating determined for the associated BEL, regardless of the actual age of the additional installed or shared equipment.

Choose the grid, under the appropriate BEL, which corresponds to the condition rating of the equipment. The key is the condition of the equipment in total. The existence of one or two pieces of very good, average, or minimum condition equipment will not necessarily move the overall condition rating in those directions.

Very Good

The equipment is in near-perfect to perfect working condition. It has had limited use and has a long service life ahead. This includes equipment associated with a well that is zero to less than five years old.

Average

The equipment is in good mechanical condition and needs no major repairs or maintenance. This includes equipment associated with a well that is five to less than fifteen years old.

Minimum

The equipment has had a substantial amount of service, a limited amount of use remains. Equipment associated with a well that is fifteen years old or more, or equipment associated with a well that meets stripper well status, should be classified as minimum condition equipment.

Coal Bed Methane Wells (Fair condition rating exception)

Coal bed methane wells normally produce large quantities of water prior to any gas production. For coal bed methane wells, the criteria for rating the equipment very good and average applies as stated. An exception based on the age of the well is made under the minimum category.

For coal bed methane wells, equipment associated with a well that is fifteen to less than thirty years old, that is not associated with a stripper well, is valued using the Fair condition category in the appropriate valuation grids. When using the Additional Installed Equipment List, or Communal Equipment List, the Fair value of any additional installed or communal equipment under this exception is calculated as seventy-seven percent (77%) of the component’s Average condition list value. If such equipment is associated with a well that meets stripper well status, or if the equipment is thirty years or older, then it is valued using the minimum condition category in the valuation grids.

Step #8 – Stripper Well Status (Marginal Production)

Oil wells producing an average of 10 barrels or less per day, or gas wells producing 60 Mcf or less of gas per day, should be designated as “stripper wells” for equipment valuation purposes. When a well produces both oil and gas, and the production volume of either product exceeds its threshold, then the well is not classified as a stripper well. The number of days must be calculated based on days during the year the well was capable of operating. This classification applies to primary, secondary, and tertiary recovery wells and is based on product volumes only, without consideration of water production.

New wells cannot be classified as stripper wells until they have at least 12 calendar months of production data available. New wells may have minimal production when first drilled, but then produce substantially more oil or gas after a short period of time in production.

Equipment associated with stripper wells is to be valued using the minimum condition grid associated with the respective BEL for the well. This also applies to shared equipment, on multi-well pad sites, if the number of stripper wells exceeds the number of non-stripper wells associated with the equipment. Otherwise the condition is to be determined based on a physical inspection and the age of the associated equipment. In all cases, adequate documentation should be developed to support the condition rating assigned.

If any additional installed or shared equipment exists, it is valued using Addendum 6-C, Additional Installed Equipment List, or Addendum 6-E, Communal Equipment List, respectively, based on the same condition rating determined for the associated BEL. Add this value to the BEL value to determine the total value of the equipment on the well. Do not add for any additional equipment not shown on the Additional Installed Equipment List.

If there is stored equipment at the well-site, it is valued based on the age and condition of the equipment using Addendum 6-D, Stored Equipment List. Add this value to the BEL value to determine the total value of the equipment on the well.

The Additional Installed Equipment List, the Stored Equipment List, and Communal Equipment List are statewide lists. They are not basin specific.

Step #9 – Apply Level of Value Adjustment Factor

To adjust to the specified year’s level of value, multiply the current actual value by the specified year’s Level of Value (LOV) adjustment factor. The adjustment factor is sometimes referred to as the “rollback factor.”

The 2024 Level of Value (LOV) adjustment factor is: 0.95

Step #10 – Multiply by the Appropriate Assessment Rate

Waste Oil Recycling Operations

Tanks and separators that are associated with operations, which recycle holding pond oil, are not included in the Basic Equipment Lists (BEL) within this chapter. However, tanks and separators have been added to the Additional Installed Equipment List so that these operations may be valued by summing component values from the Additional Installed Equipment List. The use of tank and separator values on the Additional Installed Equipment List is restricted only to these recycling operations. They are not to be added to any other BEL.

Leased/Loaned Equipment Included in the BELS

If any of the equipment included within a BEL is leased or loaned to the operator, it is recommended that the assessor contact the operator to determine the proper allocation. If there is uncertainty as to how the situation is properly treated, the assessor should contact the Division of Property Taxation.

Care should be taken to determine the location of compressors. If the compressors are used and owned by the owner of the well site equipment, the appropriate additional BEL equipment should be used.

When “Gas Booster Line” compressors on the lease are larger than the additional equipment suggests, the county should work with the operator to establish a value. If the compressor is on the gathering system side of the meter, and is controlled by the gathering system operator, it should be valued with the gathering system.

Basic Equipment Lists and Valuation Grids

Basic Equipment Lists have been developed for the following basins that have been defined by the American Association of Petroleum Geologists:

• Anadarko Basin
• Denver-Julesburg (D-J) Basin
• Green River Basin
• Las Animas Arch Basin
• Paradox Basin
• Piceance Basin
• San Juan Basin
• Las Vegas-Raton Basin

BELs have not been developed for the following basins in Colorado. If a county is in one of these basins, refer to the county-by-county listing in the appendix for the alternate basin:

• Eagle Basin
• San Juan Mountain Province
• North Park Basin
• South Park Basin
• San Luis Basin

Within each basin, BELs have been developed for various types of production including the following:

1. Pumping Oil Well With Tanks
2. Pumping Oil Well Without Tanks
3. Flowing Oil Well With Tanks
4. Flowing Oil Well Without Tanks
5. Pumping Gas Well With Tanks
6. Pumping Gas Well Without Tanks
7. Flowing Gas Well With Tanks
8. Flowing Gas Well Without Tanks
9. Water Injection Well or CO₂/Water Injection Well
10. Water Supply Well

In addition to the ten wellsite configurations listed above, certain basins required new wellsite configurations such as, Coal Seam Gas Wells, Plunger Lift Wells, Progressive Cavity Wells, Electric Submersible Pump (ESP) Wells and Horizontal Gas Wells.

History of the Basic Equipment Lists

Before the Basic Equipment Lists (BELs) were created, all assessors valued oil and gas equipment using the Cost Approach, which required annual submissions of original costs on large inventories of equipment for thousands of wells. The process was very time consuming for industry. Even more time consuming for assessment personnel was verifying data on all the equipment listed, trending to the assessment date, determining physical depreciation, trying to determine if functional or external obsolescence applied to the equipment, and then calculating the value and rolling it back to the level of value for the appraisal date.

The BELs were created and first published in 1990, utilizing the Market Approach, instead of the Cost Approach. The objective was to reduce the workload of both assessment and industry personnel, while recognizing and properly dealing with obsolescence in oilfield equipment. To properly recognize obsolescence, the BELs were based on engineering statistics. A common misconception about the BELs is that they were meant to reflect what is typically found at the wellsite. From their inception, the BELs were designed to reflect what would be typically engineered for a particular wellsite. Engineered configurations indicate what is necessary to produce oil or gas at a given depth, at a given rate of production per day. Any equipment being used on site with greater ability or capacity than that which was engineered to produce such oil or gas is essentially super-adequate to operate the well. By utilizing engineered wellsite configurations in the BELs, super-adequate functional obsolescence is eliminated.

For instance, a 4’ x 15’ vertical heater/treater may be all that is necessary to handle the production of a pumping oil well at a certain depth. However, instead of purchasing a new 4’ x 15’ heater/treater to place at the wellsite, the operator may utilize a 6’ x 20’ vertical heater/treater that the operator has on hand. A 6’ x 20’ unit is a larger, more expensive unit and is super-adequate for the needs of the well. Instead of valuing the 6’ x 20’ unit at the site, the BELs pick up the value of a 4’ x 15’ unit, thus accounting for the functional super-adequate obsolescence of the larger unit.

Note: Using the Cost Approach for the same valuation would require the appraiser to determine the replacement cost new of the unit, deduct for physical depreciation, determine the super-adequate functional obsolescence and then deduct for it, as well. The final outcome would be about the same as the value of a 4’ x 15’ unit, the same age, without functional obsolescence, except that much more work would be required to get there.

Therefore, the operator who is using a 6’ x 20’ unit is assessed at the same level as the operators who have 4’ x 15’ heater/treaters in place. This principle of recognizing obsolescence through the Market Approach in the BELs was accepted and approved by both assessors and industry involved in the first publication of the BELs.

Other BELs have been developed in certain basins where special circumstances warrant additional BELs.

The BEL is a list of the taxable equipment necessary to:

1. Produce the fluid from the reservoir to the wellhead
2. Separate the fluids into the basic components – oil, gas, and water
3. Store and transport the products to the custody transfer point

The custody transfer point for oil is considered to be the inlet of the LACT unit or the outlet of the oil storage tank or tank battery; whichever is appropriate for each lease. The custody transfer point for gas is considered to be the inlet to the gas meter run. If the producer maintains custody of the production beyond the lease line, then the custody transfer point will be considered to be the lease line.

The grids list the value of the equipment based upon a particular range of depths and a particular range of volume produced. Each grid will value the equipment for a particular condition – very good, average, or minimum. Superior or inferior equipment may exist on any given well. However, the most appropriate BEL should be chosen and the corresponding value from the grids assigned to that well. All other oil and gas equipment, e.g., field compressors, are subject to local assessment by the county assessor.

Market Value of Additional Installed Equipment

In addition to the BELs, certain specific equipment, which is atypical to the wellsite, should be listed and valued. The equipment is identified as "Additional Installed or Communal Equipment" on the well. This is the only installed equipment that should be added to the value of the equipment listed on the BEL.

Additional equipment is characterized by its unique nature or its nonstandard ownership. For example, gas meters are included as additional equipment because it has been specifically stated that the BELs list the equipment up to but not including the custody transfer point. However, in some cases the operator owns the gas meter and therefore the value of the gas meter should be added to the total value of the equipment for that particular operator.

When more than one well is drilled on a single pad (multi-well pad), additional equipment (tanks, chemical pumps and tanks, vapor flare systems, etc.) may be “shared” by many wells. In such cases it may be appropriate to designate one “master” well on a multi-well pad and assign all communal equipment being shared on the pad to this master well, in addition to the BEL value for the master well. The remaining wells on the multi-well pad should be valued using the normal BEL procedure. The shared communal equipment assigned to the “master” well on multi-well pads should represent the typically engineered shared equipment configuration for a field or operator. Assessors may also opt to create separate accounts for the value of shared equipment.

Valuation Procedures

The steps for determining the value of additional installed or communal equipment are virtually the same as the steps for determining the value of installed equipment. For more information refer to the Approaches To Value topic at the beginning of this chapter.

The values in the Additional Installed Equipment and Communal Equipment Lists are based on the same condition grading scale as the valuation grids – very good, average, and minimum condition equipment. It should be noted that the values on the lists are statewide and not basin specific, except for the category of "Wellheads."

Wellheads as Additional Equipment

Dual Wellheads

The first two categories of Wellheads listed are: Flanged Wellhead (Total Value) and Threaded Wellhead (Total Value). These values have been supplied so that wells having dual wellheads might be properly valued. Dual wellheads are being used in the extraction of gas from one formation and oil from a second formation located either above or below the first formation. Since the same wellbore is being used, a cost savings is implied. The appropriate BEL to use would be based on the preponderance of production and the type of equipment being used at the wellsite. Please note that values for Flanged Wellhead (Total Value) and Threaded Wellhead (Total Value) are not to be used outside of the dual-well application.

Flanged Wellheads

Flanged wellheads are considered typical for the four basins listed below. Except for the Coal Seam Gas BELs in the San Juan Basin, flanged wellhead market values were included in the development of all the BEL grids in the following basins:

• Green River Basin
• Paradox Basin
• Piceance Basin (including Rangely Oilfield)
• San Juan Basin (except Coal Seam Gas Wells)

Flanged wellheads can be identified by the circle of bolts near the perimeters of both the Casinghead and the Tubinghead.

Threaded Wellheads

Threaded wellheads are considered typical for the remaining basins, which are listed below. Threaded wellhead market values were included in the development of all the BEL grids in these basins:

• Anadarko Basin
• Denver-Julesburg Basin
• Las Animas Arch Basin
• Las Vegas-Raton Basin

Threaded wellheads can be identified by the ability of the Casinghead and Tubinghead to be screwed on to the casing and tubing. There is an absence of bolts. The caps of the Casinghead and Tubinghead have three heavy-duty, exterior prongs that allow them to be tightened by a tool.

Combination Wellheads (Threaded Casinghead/Flanged Tubinghead)

The term “flanged/threaded combo” refers to a wellhead with a threaded Casinghead and a flanged Tubinghead. This combination wellhead is gaining popularity as a safety measure. In the event that a flanged/threaded combo wellhead is discovered or declared on a well in the Anadarko, Denver-Julesburg, Las Animas Arch, or Las Vegas-Raton basin, a “Flanged/Threaded Combo (Differential)” value for the appropriate condition may be added as Additional Installed Equipment. The “Differential” represents the difference between the typical threaded wellhead value and the value of the more expensive flanged/threaded combo wellhead. This “Differential” should be added to the total value of the wellsite equipment. Differential values are not to be used in conjunction with any other basins than those cited in this paragraph.

Atypical Wellhead Use

In the event that a flanged wellhead is discovered or declared on a well in the Anadarko, Denver-Julesburg, Las Animas Arch, or Las Vegas-Raton basin, a “Flanged Wellhead (Differential)” value for the appropriate condition may be added as Additional Installed Equipment. The “Differential” represents the difference between the typical threaded wellhead value and the value of the more expensive flanged wellhead. This “Differential” should be added to the total value of the wellsite equipment. Differential values are not to be used in conjunction with any other basins than those cited in this paragraph.

Vapor Flare/Recovery Systems

In 2004, the Colorado Department of Public Health and Environment (CDPHE) determined that flash emissions from qualifying oil condensate tanks located in the CDPHE designated Eight-hour Ozone Control Area be controlled by one of two methods – by flaring those emissions in a controlled environment or by capturing, compressing, and re-injecting the emissions into a gas system. Note that values for Vapor Flare Systems and Vapor Recovery Systems are not basin-specific and can apply to any tanks having such systems, statewide.

Vapor Flare System (Enclosed Stack)

Currently, oil and gas operators that produce a threshold of 600 barrels per day are required to install an Emission Control Device known as a Vapor Flare System to capture and burn oil condensate tank vapors in an enclosed stack to enhance air quality and prevent further erosion of the ozone layer. Typically, these Vapor Flare Systems are installed on tank batteries that service two or more wells; however, they can be installed on tanks at any given wellsite. A system will generally include 3-inch, interior-diameter pipe attached to the tops of the tanks through which vapors run to a scrubbing unit to remove water, then on to the flare stack for burning/flaring. A typical flare stack is 15 feet high and has from four to six burners, which are located approximately five feet off the ground, to dispose of the vapors.

Vapor Recovery System

The other Emission Control Device being used by some oil and gas operators is called a Vapor Recovery System. Such systems gather emissions the same as the flare systems, except that instead of burning the emissions, these vapors are scrubbed and then compressed so that they can be injected into a standard gas pipeline system. This method achieves the directive to keep flash emissions from damaging the ozone layer, but goes a step further by conserving natural resources. These systems are more costly, because the flare stack is replaced with a compressor, a compressor engine, and sophisticated monitoring equipment.

Add the value of any additional installed equipment to the value of the BEL, along with any stored or shared equipment, to determine the final value for all the equipment at the wellsite. Refer to Addendum 6-C, Additional Installed Equipment List, Addendum 6-D Stored Equipment List, or Addendum 6-E, Communal Equipment List.

Market Value of Stored Equipment

The Stored Equipment List is to be used to value taxable stored equipment located at the wellsite, in a warehouse, or in an inventory yard, which is not listed as inventories of merchandise for sale on a company's books and records. In order for stored oil and gas equipment to be considered inventory held for sale and therefore exempt from property taxation, the owner must provide a detailed listing of the equipment held for sale to the county assessor. In order for any other stored equipment to be taxable, it must have been put into use, by the current owner, at some time prior to the current assessment date and then afterward have been placed into storage. The stored equipment list is never to be used to value installed wellsite equipment.

Valuation Procedures

The steps for determining the value of stored equipment are virtually the same as the steps for determining the value of installed equipment. For more information refer to the Approaches to Value topic at beginning of this chapter. The values in the Stored Equipment List are based on the same condition grading scale as the BEL valuation grids - very good condition equipment, average condition equipment and minimum condition equipment. It should be noted that the values on the list are statewide and not basin specific.

If the stored equipment is located at the wellsite, then add the value of the stored equipment to the value of the BEL and any additional installed or shared equipment to determine the final value for the equipment at the wellsite. For equipment stored in a warehouse or yard, simply total the value of the equipment and place the value on the tax roll.

Wells that have been shut-in and capped or plugged and abandoned will be valued based upon their prior calendar year's production, if any. For shut-in and capped wells without any production during the prior calendar year, the wellhead should be listed and valued and any equipment stored at the wellsite should be listed and valued if it was not held for sale. For plugged and abandoned wells without any production during the prior calendar year, only the value of the equipment stored at the wellsite should be listed and valued if it was not held for sale.

The majority of typical oil field equipment has been included in the Stored Equipment List. However, if the producer declares equipment not listed, or if the assessor cites equipment not listed, then the assessor should determine the value of the equipment in the following manner. If the equipment is in very good condition, then the assessor should contact the operator to determine the cost of the equipment not listed. If the equipment is in average condition or minimum condition then the assessor should contact used equipment dealers in the area and request market value estimates of the equipment. The Division of Property Taxation can also aid in determining equipment market values.

Refer to Addendum 6-D, Stored Equipment List and Addendum 6-F, Examples of Well Equipment Appraisals.

Addendum 6-A, County/Basin Cross Reference

Note: Counties in six basins where little or no oil and gas activity exists at this writing have been placed in appropriate adjoining basins. These counties are noted with an asterisk (*)

Addendum 6-B, Equipment Valuation Worksheet

Addendum 6-B, Equipment Valuation Worksheet

Addendum 6-C, 2024 Additional Installed Equipment List

Addendum 6-C, 2024 Additional Installed Equipment List

Addendum 6-D, 2024 Stored Equipment List

Addendum 6-D, 2024 Stored Equipment List

Addendum 6-E, 2024 Communal Equipment List

Addendum 6-E. 2024 Communal Equipment List

Addendum 6-F, Examples of Well Equipment Appraisals

Example Well Equipment Appraisal #1

You are valuing oil and gas equipment associated with a producing oil well in Prowers County, which is in the Las Animas Arch Basin. The well, which has a depth of 5,300 feet, was completed in 2017 and produces oil, some associated gas, and water. Daily flow rates declared for the well are: oil-450 Bbls per day, water-150 Bbls per day, gas-220 Mcf per day.

The operator has filed a DS 658 declaration listing the following equipment in average condition:

• Wellhead
• Model 320 Lufkin Pumping Unit
• 35 H.P. Gas Engine
• 1,800' of 3/4" Sucker Rod
• 3,500' of 5/8" Sucker Rod
• Rod Pump
• Two 400 Bbl Oil Storage Tanks
• One 210 Bbl Water Storage Tank
• 600' Flowline
• Measurement Equipment
• Vertical Heater/Treater

All equipment was manufactured in 2017 with the following exceptions: heater/treater (2019) and measurement equipment (2022). You have physically inspected the well site and found the equipment, except for the measurement equipment, to be in average condition as described in Step #7 – Condition of Equipment earlier in this chapter. The 2” Meter Run, Sending Unit & RTU appears new and is in very good condition.

Using the BELs listed for the Las Animas Arch Basin, you find that the equipment declared generally conforms with the BEL titled Total Value Pumping Oil Well With Tanks (Pump Drive). Based on the declared and observed condition for the equipment, you determine the average condition grid should be used.

The depth of the well is greater than 5,000 feet but less than 5,500 feet. Using the grid intersection of 5,500 feet and 600 barrels per day, the base equipment value of $187,786 is noted. The measurement equipment is not on the equipment list for the BEL but is noted on the Additional Installed Equipment List. The value for installed measurement equipment in very good condition is $38,660. However, because the BEL equipment is considered to be in average condition, any additional equipment is also considered average. The value under average condition is $29,563.

Adding the base equipment value of $187,786 to the additional equipment value of $29,563 results in a total value of $217,349. The total value of $217,349 multiplied by the specified year’s adjustment factor of 0.95 indicates an actual value of $206,482 for all of the well equipment.

Oil and Gas Equipment Valuation Worksheet Example #1

Example Well Equipment Appraisal #2

You are to appraise the oil and gas equipment on a producing well located in Montezuma County. The operator of the well has reported the following information on this year’s DS 658: the well was completed in 2017 and has a depth of 7,900 feet. The well flows naturally and primarily produces gas with some associated water. The flow rate of the gas is 275 Mcf per day with 4 Bbls per day of associated water. The gas is metered and flows in a gas gathering system. The gas meter is owned by the purchaser.

You have physically inspected the wellsite and have noted the following:

• Wellhead
• Production Unit
• Dehydrator
• 1000' Flowline
• Gas Meter Run

The equipment was new, at the time of installation, and the observed condition, on the date of inspection, was average condition, as defined in Step #7 – Condition of Equipment earlier in this chapter.

Referring to Addendum 6-A, County/Basin Cross Reference, located later in this chapter, the appraiser determines that the subject property is located within the Paradox Basin.

Comparing the listed equipment with the BELs for the Paradox Basin, you determine that the equipment most closely conforms to a Total Value Flowing Gas Well with Dehydrator and Without Tanks. Based on the observed condition for the equipment, you determine the average condition grid should be used. The depth of the well is greater than 7,500 feet but less than 8,000 feet and the gas production is greater than 250 Mcf per day but less than 350 Mcf per day.

Using the grid intersection of 8,000 feet and 350 Mcf per day, the base equipment value is $112,573. The gas meter is owned by the gas purchaser and will not be valued here. However, it should be valued and assessed separately to the gas purchaser. The indicated total value for the well site equipment of $112,573 is then multiplied by the specified year’s adjustment factor of 0.95 for an actual value of $106,944.

Oil and Gas Equipment Valuation Worksheet Example #2

Example Well Equipment Appraisal #3

You are valuing oil and gas equipment associated with a producing coal seam gas well in La Plata County, which is in the San Juan Basin. The well, which has a depth of 3,500 feet, was completed in 2022 and produces gas and water. Daily flow rates declared for the well are: water-557 Bbls per day, gas-356 Mcf per day.

The operator has filed a DS 658 declaration listing the following equipment:

• Wellhead
• Model 320 Lufkin Pumping unit
• 35 H.P. Gas Engine
• 1,155' of 3/4" Sucker Rod
• 2,310' of 5/8" Sucker Rod
• Rod Pump
• Separator
• Water Storage Tanks
• 600' Flowline
• Measurement Equipment

All equipment was manufactured in 2022. You have physically inspected the well site and found the equipment to be in very good condition as described in Step #7 – Condition of Equipment earlier in this chapter. The gas meter run is owned by the operator and is also in very good condition.

Using the BELs listed for the San Juan Basin, you find that the equipment declared generally conforms with the BEL titled Total Value Pumping Coal Seam Gas Well With Tanks. Based on the observed condition for the equipment, you determine the very good condition grid should be used.

Because this is a pumping coal seam gas well, water production flow rates will be used to determine values. The declared water production flow rate is greater than 500 Bbls per day and less than 600 Bbls per day.

Using the grid intersection of 3,500 feet and 600 barrels per day, the base equipment value is $225,689. The gas meter run is included in the BEL as measurement equipment and no additional installed equipment is added to the BEL value.

The total value of $225,689 is multiplied by the specified year’s adjustment factor of 0.95, which indicates an actual value of $214,405 for all well equipment.

Oil and Gas Equipment Valuation Worksheet Example #3

Example Well Equipment Appraisal #4

You are to appraise the oil and gas equipment on a producing well located in Baca County. The operator of the well has reported the following information on his DS 658: the well was completed in 2017 and is 3,300 feet deep. The well is mechanically pumped and produces gas, oil, and water. The flow rate of the gas is 42 Mcf per day with 2 Bbls per day of oil, and 15 Bbls of water per day. The gas is metered and flows into a gas gathering system and the oil is stored in an on-site tank. The gas meter is owned by the purchaser.

You have physically inspected the well site and have noted the following:

• Wellhead
• Pumping Unit
• Electric Motor
• Control Panel
• 600' Flowline
• Sucker Rods to Depth
• Rod Pump
• 210 Bbl. Water Storage Tank
• Gas Meter Run

The equipment was new, at the time of installation, and the observed condition, on the date of inspection, was average condition, as defined in Step #7 – Condition of Equipment earlier in this chapter. The appraiser has also noted that the subject’s well equipment is typical of gas producing wells within the same field as the subject.

Referring to Addendum 6-A, County/Basin Cross Reference, located later in the chapter, the appraiser determines that the subject property is located within the Anadarko Basin. Comparing the listed equipment with the BELs for the Anadarko Basin, you determine that the equipment most closely conforms to a Total Value Pumping Gas Well With Tanks (Pump Drive). The determination is also supported by noting that other equipment in the field is typical of gas production.

Based on the production of 42 Mcf per day of gas, and 2 Bbls per day of oil, the subject well qualifies as a stripper well. Based on the stripper well classification, the minimum condition grid should be used.

The depth of the well is greater than 3,000 feet, but less than 3,500 feet. The total fluid pumped per day is 17 Bbls (add water Bbls to oil Bbls), which is less than 20 Bbls per day.

Using the grid intersection of 3,500 feet and 20 Bbls per day of fluid, the base equipment value is $16,626. The gas meter is owned by the gas purchaser and will not be valued here. However, it should be valued and assessed separately to the gas purchaser. The indicated total value for the well site equipment of $16,626 is then multiplied by the specified year's adjustment factor of 0.95 for an actual value of $15,795.

Oil and Gas Equipment Valuation Worksheet Example #4

Example Well Equipment Appraisal #5

You are valuing oil and gas equipment associated with a producing oil well in the Denver- Julesburg (D-J) Basin. The well, which has a depth of 5,500 feet, was completed in 2017 and produces oil, some associated gas, and water. Daily flow rates declared for the well are: oil-3.7 Bbls per day, water-131.3 Bbls per day, gas-50 Mcf per day.

The operator has filed a DS 658 declaration listing the following equipment in average condition:

• Wellhead
• Model 160 Lufkin Pumping Unit
• 20 H.P. Electric Motor
• 1,870' of 3/4" Sucker Rod
• Rod Pump
• Two 300-Bbl. Oil Storage Tanks
• Control Panel
• 1,000' Flowline
• 3,630' of 5/8" Sucker Rod
• Chemical Pump and Tank

The appraiser noted that the two oil storage tanks are no longer used because the emulsion is flowing to a common tank battery. All equipment was installed and put into service in 2017. You have physically inspected the well site and found the equipment to be in average condition as described in Step #7 – Condition of Equipment earlier in the chapter.

Using the BELs listed for the D-J Basin, you find that the equipment declared generally conforms with the BEL titled Total Value Pumping Oil Well without Tanks (Pump Drive). The equipment is also similar to other equipment located within the field and is typical of producing oil wells. Based on the oil production of 3.7 Bbls per day, and gas production of 50 Mcf per day, the subject well qualifies as a stripper well. Based on the stripper well classification, the minimum condition grid should be used.

The total volume of fluid is greater than 100 Bbls per day, but less than 200 Bbls per day. Using the grid intersection of 5,500 feet and 200 Bbls per day, the base equipment value of $12,870 is noted.

The two 300-Bbl. oil storage tanks are not on the equipment list for the BEL, but are noted in the Stored Equipment List. The operator has indicated the tanks are for future use and are not being held for resale. The value for the storage tanks in average condition is $20,014 each, or $40,028 total.

Adding the base equipment value of $12,870 to the stored equipment value of $40,028 results in a total value of $52,898. The total value of $52,898 is multiplied by the specified year’s adjustment factor of 0.95 indicating an actual value of $50,253 for the well equipment.

The appraiser next needs to determine the value of the communal equipment. Upon physical inspection the appraiser noted that the shared equipment serviced 15 wells, of which 8 wells are categorized as stripper wells. The tank battery was constructed last year with used equipment that appears to be in average condition. The appraiser noted the following equipment shared among the wells:

• Three 300 Bbl. Oil Storage Tanks
• One 300 Bbl. Fiberglass Water Storage Tank
• Recycle Pump
• Horizontal Heater/Treater

Since more than 50% of the wells serviced by the tank battery are stripper wells, the minimum condition values in the Communal Equipment List should be used for valuing the communal equipment. Locate and add the minimum condition values associated with the communal equipment to determine a total shared equipment value. For shared equipment, the appraiser would add the following values: For each 300 Bbl. Oil Storage Tanks, add $5,422; for the 300 Bbl. Fiberglass Water Storage Tank, add $3,233; for the Recycle Pump, add $272; and for the Horizontal Heater/Treater, add $4,251. These values added together result in a total shared equipment value of $24,022.

If this well is designated as the master well, then the shared equipment total value of $24,022 is added to the stored equipment value of $40,028, and BEL value of $12,870, for a total value of $76,920. The total value of $76,920 is then multiplied by the specified year's adjustment factor of 0.95, indicating an actual total value of $73,074 for the complete master well equipment.

If a separate account is created for the shared equipment, then the shared equipment total value of $24,022 is multiplied by the specified year’s adjustment factor of 0.95, for a total value of $22,821.

Oil and Gas Equipment Valuation Worksheet Example #5

Basic Equipment Lists (BELs)

Basic Equipment Lists

Special Administrative Issues

The purpose of this section is to discuss special issues related to personal property administration. This section will be periodically updated to include new special personal property issues as they arise.

Apportionment of Value

Apportionment of value is the distribution of taxable value between two or more counties within the state. Apportionment does not affect the total taxable value of the property.

Personal property valuations are apportioned only in the following instances:

• Movable equipment that is apt to be located in more than one county during the current assessment year in the ordinary course of business
• Oil and gas skid-mounted drilling rigs that were located in more than one county during the preceding calendar year

Movable or Portable Equipment

The statutory requirements and definitions for movable or portable equipment apportionments are found in § 39-5-113, C.R.S.

County of Original Assessment

All persons owning movable or portable equipment, which in the ordinary course of business is likely to be located in more than one county during the current assessment year, must file the following information with the assessor no later than April 15:

1. Kind, description and serial number of the property
2. Counties where the property will be located or maintained during the year
3. The estimated period of time that the property will be in each county

Note: Owners of oil and gas skid-mounted drilling rigs, pursuant to § 39-5-113.3, C.R.S., and owners of special mobile machinery subject to specific ownership tax, pursuant to §§ 42-3-103(1) and 106(1)(e), C.R.S., have different filing requirements. Refer to Oil and Gas Skid-mounted Drilling Rigs, and SMM and Ad Valorem Tax – Form 301, found later in this chapter, for more information.

The taxpayer files this information with the county assessor of the county in which the property was located on January 1 of the current assessment year, or the county in which the property is first located. This county is called the County of Original Assessment (COA).

It is the responsibility of the assessor of the COA to determine the actual and assessed value of the movable property for the entire assessment year. The assessor of the COA is also responsible for making apportionments of value for the other counties listed by the taxpayer. The taxpayer and the other counties must be notified of the actual valuation and the apportioned actual values of the movable equipment. The apportionment is based upon the number of days that the property is estimated to be located in each county.

Auxiliary (Movable) Equipment

Auxiliary equipment can present a special apportionment problem. Examples of such equipment may include upholstery cleaning equipment installed in vans, auxiliary drilling equipment, or seasonal or temporary equipment, such as carnival equipment, hauled by semi-tractor trailers. If this property is likely to move between counties, an apportionment should be requested of the owner as required by § 39-5-113, C.R.S. If no apportionment is received from the owner, the apportionment should be based on the last year's county locations, if available. If the owner does not supply this apportionment, the entire value of the equipment should be listed in the County of Original Assessment (COA) until such time as the owner supplies an apportionment. Apportionments based upon current assessment year planned locations are preferred; however, historical locations should be used to apportion value rather than listing the entire value in the COA.

Example:

Subject Property: Auxiliary Drilling Equipment.
COA: Larimer County
Actual value estimate: $25,000
Times the Factor to Adjust to Specified Level of Value: x 0.95
Adjusted to Specified Level of Value: $23,750

Counties and Time Estimates for Each County:

Actual Value per Day: $23,750 ÷ 365 = $65.068

Apportionment of Value to Each County:

Larimer: 45 days
Apportioned Actual Value: (45 x $65.068) = $2,928.06
Boulder: 65 days
Apportioned Actual Value: (65 x $65.068) = $4,229.42
El Paso: 120 days
Apportioned Actual Value: (120 x $65.068) = $7,808.16
Adams: 135 days
Apportioned Actual Value: (135 x $65.068) = $8,784.18

Total Actual Value: 365 days $23,750 (rounded)

Note that this example reflects a typical 365-day year. During leap years, an extra day must be added. The taxpayer and each of the other three counties are notified of the total actual value and the actual value apportioned to each county, as in the example above, by the Larimer County Assessor. The apportioned assessed value of the movable equipment is included on the abstracts of assessment prepared by each of the four counties. The other counties are required to use the total actual value and the apportioned actual value provided by the assessor of the COA. Any protests of the actual value by the taxpayer are made to the COA.

The total of the county apportionments should be compared to the actual value determined by the COA to ensure that they are identical.

Amended Apportionments

If movable property is moved into a county not listed in the original declaration, or if movable property is located in a county for a different length of time than that originally declared, the assessor of any county so affected may request an amended apportionment from the county of original assessment (COA). This must be done whether the time the equipment is located in the county is shorter than or longer than the period of time used in the original apportionment.

The assessor of the COA, upon receipt of such a request for amended apportionment, shall reapportion the value to all affected counties and send an amended NOV to the taxpayer and the counties. The taxpayer and the affected counties must be notified of any amended apportionments. If there is no request for an amended apportionment by a county assessor, the original apportionment shall stand for that assessment year.

It is Division policy that when a change in apportionment occurs prior to December 10, the assessors must re-certify the valuation to the affected taxing jurisdictions pursuant to § 39-1-111(5), C.R.S. If a change in apportionment occurs after December 10, no amended apportionment is made.

Oil and Gas Skid-Mounted Drilling Rigs

The term "oil and gas skid-mounted drilling rig" means any drilling unit capable of drilling oil and gas wells, except self-propelled rigs subject to the specific ownership tax as required by §§ 42-3-102(1) and 105(1)(f), C.R.S. In addition, the term includes typical auxiliary equipment that is not permanently attached to, but is transported with the rig.

The statutory requirements regarding the apportionment of the valuations of oil and gas skid-mounted drilling rigs are found in § 39-5-113.3, C.R.S. The following procedures are to be used in the valuation of these rigs:

1. County assessors determine those rigs that were operating in their counties during the previous calendar year and mail a DS 656, Oil and Gas Drilling Rig declaration schedule to the owner or agent.
2. The owner or agent submits a declaration schedule, to the county assessor, which lists all of the owner's rigs that were located in the county during the previous year and attaches a copy of the drilling log for each rig.
3. The owner or agent also sends an inventory of each rig's equipment sufficient to determine the valuation for assessment to the assessor of the first county in Colorado listed on each rig's log. This county is the county of original assessment or COA. It is Division policy that this inventory must include the rig's depth capacity and actual working depth; its overall physical condition rating, such as excellent, very good, good, fair, or stacked; auxiliary equipment that may include automated top drives, iron roughnecks, or automated catwalks; and any additional drilling collars and linear feet of drill pipe that are stored at the site. The declaration schedule and associated data must be filed with the assessor no later than April 15.
4. Pursuant to §§ 39-1-103(5)(a) and 39-5-113.3(2), the assessor in the COA determines the value of the rig, including any auxiliary equipment, through consideration of the cost, market, and income approaches to value. The COA assessor then apportions the value among the counties listed on the drilling log according to the number of days the rig was located or stacked in each county as compared to the full calendar year.
   
   Should the rig have been destroyed during the previous calendar year, the same procedures are followed for an adjusted actual value and a shortened calendar year. In this case, the rig value is apportioned to Colorado counties based on the number of calendar days it was located or stacked in each county, prior to the day of its destruction. Refer to the topic Drilling Rigs Removed from State Prior to Next Assessment Date following this list.
    
5. On or before June 15, the assessor of the COA furnishes a copy of the apportionment working papers and an NOV for the apportioned actual value to the owner or operator. Also, on or before June 15, the assessor of the COA sends the total actual value, apportionment working papers, and a copy of the drilling log to every county assessor involved. These assessors must use the actual values as apportioned to their counties by the assessor of the COA and must send their NOVs to the taxpayers on or before June 15.
6. The apportioned rig is assessed at the appropriate assessment rate for all personal property and included in each county's abstract of assessment.

Drilling Rigs Removed or Destroyed Prior to Assessment Date

As stated above, Division policy requires the assessor to base the value of skid-mounted drilling rigs for the current assessment year on rigs operating in the county during the previous calendar year. If a rig was destroyed prior to the current assessment date, but was operating during the prior calendar year, a personal property declaration schedule is mailed to the owner or agent of the rig as soon after the assessment date as possible, as required by § 39-5-113.3(1), C.R.S.

The actual value of the rig is determined by dividing the intact rig value by the number of calendar days in the previous calendar year and multiplying the resulting actual value per day times the number of days the rig existed intact during the prior calendar year, excluding the day of destruction, as shown in the example.

As a check for balancing purposes, it is recommended that the nontaxable value due to demolition also be calculated and added to the apportioned taxable value. The resulting sum should be equal to the total intact rig value.

The assessor in the county of original assessment (COA) values the rig and apportions the value among the counties listed on the drilling log. This apportionment is accomplished by multiplying the calculated total actual value per day by the number of days the rig was located in each county during the previous calendar year. On or before June 15, the assessor of the COA furnishes a copy of the actual valuation of the rig, the apportionment working papers, and the NOV for the COA apportioned actual value to the owner or operator. The assessor of the COA also sends the actual valuation, apportionment working papers, and copies of the drilling log to every county assessor involved. These assessors send their NOV's for their apportioned actual values to the taxpayer on or before June 15. Below is an example of a skid-mounted drilling rig removed from the state on October 1, which is valued for assessment on January 1:

Total Actual Value: $357,140 ÷ 365 = $978.47

Apportioned Actual Value: $978.47 X 274 = $268,101
Nontaxable Value: $978.47 X 91 (Due to destruction or removal of property) = $ 89,041
$268,101 + $89,041 = $357,142

Days in Bent County, CO 54 X $978.47 = $ 52,837.38
Days in Baca County, CO 54 X $978.47 = $ 52,837.38
Days in Prowers County, CO 166 X $978.47 = $ 162,426.02

Total = $268,101

NOTE: This example shows calculations for a typical year. For leap years, the Total Actual Value would be divided by 366 days to arrive at a “per day” figure for apportionment. Final assessed-value rounding errors, either plus or minus, are assigned to the county of original assessment. Stacked days are assigned to the county where the rig is stacked. Travel days are assigned to the destination county.

The repeal of personal property pro-rations described later in this chapter does not affect the apportionment of skid-mounted oil and gas drilling rigs. These drilling rigs can only be valued for the days they were traveling in, were operating within, or were stacked within Colorado.

Proration of Value

Proration, or proportionate valuation, of personal property is a reduction in total taxable value because of the existence of certain circumstances. Proration of value essentially means that property is assessed for less than the full calendar year.

As of January 1, 1996, the only condition that requires a proration of personal property value is the change in taxable status of Works of Art loaned to and used for charitable purposes by an exempt organization.

If other taxable personal property was located in Colorado on the assessment date, it is taxable for the entire assessment year, provided that, if it was newly acquired, it was put into use as of the assessment date. If it was not located in the state on the assessment date, or if it was newly acquired, but was not put into use as of the assessment date, it cannot be taxed until the next assessment year. Personal property exempt on the assessment date retains its exempt status for the entire assessment year except for skid-mounted drilling rigs and for movable equipment, which are apportioned.

Under §39-1-123, C.R.S., real and business personal property that is determined by the county assessor to have been destroyed by a natural cause, as defined in §39-1-102(8.4), may be eligible for a reimbursement of property tax liability for the year in which the natural cause occurred. Please refer to Assessors’ Reference Library, Administrative and Assessment Procedures, Volume 2, Chapter 4, Assessment Math, for procedures regarding this reimbursement.

Works of Art

Any work of art, as defined in § 39-1-102(18), C.R.S., may be subject to proration of its taxable value. The proration provisions are specified in § 39-5-113.5, C.R.S. Detailed criteria pertaining to the qualifying works of art, exempt entities, charitable purposes, and documents required by the assessor are listed in Chapter 2, Discovery, Listing, and Classification.

The proration process is as follows:

1. Determine the actual value (as of the assessment date) of the works of art.
2. Factor actual values to the correct level of value using the appropriate level of value (LOV) adjustment factor for the appropriate year and industry category as found in Chapter 4, Personal Property Tables.
3. Determine assessed value.
4. Prorate the actual value according to the number of days that the property is taxable and exempt compared to the full calendar year.

A cross-check should be completed to ensure that the entire personal property’s actual value has been accounted for by comparing the sum of the taxable and exempt property amounts against the personal property’s total actual value. They should sum to the same total actual value.

The assessor notifies the owner of the works of art of the actual value and the proration no later than June 15. The owner may protest the valuation in the same manner as other personal property.

To take advantage of the works of art exemption, property owners with qualifying personal property must file a signed works of art exemption statement on organization letterhead, with the personal property declaration schedule and proof of the exemption (documentation). Failure to file the appropriate paperwork and documentation may result in forfeiture of a claim for exemption in that calendar year, according to § 39-5-113.5, C.R.S.

SMM & Ad Valorem Tax – Form 301

Mobile machinery and self-propelled construction equipment is designated as Class F personal property and is commonly referred to as Special Mobile Machinery (SMM). SMM is subject to registration and annual specific ownership taxation in lieu of ad valorem taxation as provided in §§ 42-3-103(1) and 106(1), C.R.S. The assessor should list this equipment for ad valorem tax valuation only if the equipment falls under one of the two exceptions to registration listed under Exceptions to Specific Ownership Taxation.

Two agents are authorized to register such equipment and collect the specific ownership tax. The county clerk can register equipment on an annual basis, which is the most common method of registration. Equipment registered by the county clerk must display either an SMM license plate, or more commonly, an SMM decal (Z-tab), which states “(current year) SMM SPECIFIC OWNERSHIP TAX PAID.”

Colorado ports of entry are also authorized to register SMM equipment, but they do so only for equipment that is located in Colorado for less than a full year. This includes equipment coming into the state for less than a full year and equipment based in Colorado that is leaving the state for part of the year. The registration provided by ports of entry is prorated for a period of two to eleven months. Vehicles that receive a prorated registration will not display an SMM license plate or decal. Instead, the owner is provided a Specific Ownership Tax Receipt (SOT). The SOT is an official port of entry form that includes a start date and an end date for the prorated registration. Prorated registration is authorized by § 42-3-107(17).

Because of the specific ownership taxation laws, very little mobile machinery or construction equipment is on the ad valorem tax rolls. Any such equipment discovered which may have escaped specific ownership taxation, or that was registered on a prorated basis for a time period that has expired, is reported to the county clerk's motor vehicle section. Non self-propelled oil and gas drilling rigs are to be listed and valued by the assessor as provided in § 39-5-113.3, C.R.S.

The specific ownership method of taxation is considerably different than that of ad valorem taxation. A graduated, decreasing tax rate is applied to the taxable value of the SMM. Beginning in 1997, the law controlling specific ownership taxation requires calculation of taxable value to be based, in part, on when the equipment was purchased by its current owner. In all cases, the taxable value of SMM, including attachments is calculated exclusive of state and local sales taxes.

Taxable value of the SMM purchased by the current owner on or after 1/1/97 is established in one of the following ways:

• The taxable value is 85 percent of the manufacturer's suggested retail price. When attachments have been added, the total taxable value includes 85 percent of the suggested retail price of the attachments.
• If the manufacturer's suggested retail price is not available, the taxable value is 100 percent of the retail delivered price including 100 percent of the retail delivered price of the attachments.
• If neither of the above is available, the taxable value shall be established by the Property Tax Administrator as 85 percent of the value set forth in a nationally recognized or standard reference for such figures, § 42-3-107(15)(c)(III), C.R.S.

Taxable value of the SMM purchased by the current owner before 1/1/97 is established in one of the following ways:

• The taxable value is 100 percent of the factory list price and, if there are attachments, the taxable value includes 75 percent of the original retail delivered purchase price of the attachments.
• When the factory list price is not available, the taxable value is 75 percent of the original retail delivered price including attachments.
• If none of the above are available, the taxable value is based on the best information available to the Property Tax Administrator, according to § 42-3-107(15)(b)(III), C.R.S.

Taxable value, as determined by one of the owner’s purchase dates described above, is used for all subsequent years during which the special mobile machinery is under the same ownership. A graduated decreasing tax rate is applied to the taxable value as shown in the table below. For most equipment, the manufacturer's suggested retail price is published by the Division in the Mobile Equipment Manual (AH 538). The tax rate schedule, from § 42-3-107(15)(e), C.R.S., is listed below:

The SMM 2% Rental Program is an alternative payment program that allows companies who rent or lease SMM, for at least 30 days in a calendar year, to pay the Ownership Tax on 2% of the rental or lease amount rather than paying the Ownership Tax for a full year. Application must be made at the county clerk and recorder in which the SMM is located to participate in this program. SMM equipment that is enrolled in the 2% Rental Program is required to be registered with the SMM registration and the SMM rental decal expiring concurrently. SMM participating in the 2% Rental Program is required to display the SMM license plate or SMM ownership decal and the SMM rental decal.

Additional information on SMM equipment may be found at the Special Mobile Machinery (SMM) web page.

Exceptions to Specific Ownership Taxation Registration

There are exceptions to registration and specific ownership taxation. See § 42-3-104(3), C.R.S., below:

Exemptions – specific ownership tax registration.

(3) Registration is not required for the following:
(a) Vehicles owned by the United States government or by an agency thereof;
(b) Fire-fighting vehicles;
(c) Police ambulances and patrol wagons;
(d) Farm tractors and implements of husbandry designed primarily for use and used in agricultural operations;
(e) Special mobile machinery used solely on property owned or leased by the owner of such machinery and equipment and not operated on the public highways of the state, if the owner lists all of the machinery or equipment for assessment and taxation under part 1 of article 5 of title 39, C.R.S.
(f) Special mobile machinery not operated on the highways of this state owned by a public utility and taxed under article 4 of title 39, C.R.S.
(g) Special mobile machinery that is covered by a registration exempt certificate issues by the department in accordance with section 42-3-107(16)(e).

§ 42-3-104, C.R.S.

Examples of equipment that do not require registration include: crushers, conveyors, bulldozers, and loaders operating exclusively in a sand and gravel pit; off-highway dump trucks operating exclusively within the boundaries of a mining operation; and fork lifts operating exclusively within a warehouse or lumber yard.

Many owners of equipment that operate solely on property owned or leased by the owner of the equipment elect to register such equipment with the county clerk and pay specific ownership taxes rather than list it with the assessor.

Equipment Moving Through Ports of Entry

SMM registration is usually restricted to machines that have wheels or endless tracks and are self-propelled or capable of being towed. Skid-mounted oil and gas drilling rigs are listed and valued by county assessors. On occasion, equipment such as oil field pumps and compressors has been registered for specific ownership tax purposes. See the Auxiliary Equipment topic earlier in this chapter.

Form 301

A problem develops when mobile equipment that has already been accounted for by the assessor is transported over the highways to a repair facility or to its new owner. This equipment could operate exclusively on property owned or leased by the equipment owner, it may be a piece of equipment that belongs to a skid-mounted drilling rig, or it may otherwise already be accounted for by the local county assessor. If such equipment passes through a port of entry station or a portable weight check station, it may be detained since it does not display an SMM plate or decal and there is no proof that it has already been accounted for by a Colorado county assessor.

To solve this problem, the Division of Property Taxation and Ports of Entry Division agreed to allow movable equipment to pass through check stations if an appropriate form showing proof of current year property tax assessment accompanies the mobile equipment. Form 301 has been approved by both Divisions for this purpose. Form 301 is a three copy, carbonless paper document, which is to be completed in its entirety. There should be no spaces left blank. Movable equipment must be adequately described by year, make, model, common name or description (such as pressure booster pump), serial or identification number (very important), date of purchase, and purchase price.

The certification of assessment must be completed and signed by either the assessor or chief deputy. The document also must be embossed with the county seal. Copies or facsimiles of Form 301 will not be accepted by the Ports of Entry agents. The form is designed so that up to nine separate SMMs may be listed.

Upon stopping at a port of entry, the owner, agent, or driver should present the yellow copy for clearance and point out which of the SMMs listed are being transported at the time. The yellow copy will be returned to the driver. The pink copy is the owner's file copy. It is recommended that, as a matter of public relations, assessors notify owners of assessed mobile equipment about Form 301 and its purpose.

The number of taxpayers involved should be small because use of Form 301 is limited to mobile equipment that may be transported through a port of entry or weigh station and has already been accounted for by a local county assessor’s office. The Form 301 should be furnished by the local county assessor’s office.

A PDF version of the Form 301 may be found on the Division’s website at: Forms Index page.

Business Personal Property Income Tax Credit

As specified in § 39-22-537.5(3)(a), “For income tax years commencing on or after January 1, 2019, a taxpayer is allowed a credit against the tax imposed by this article 22 equal to the property tax paid in Colorado during the income tax year on up to eighteen thousand dollars of the total actual value of the taxpayer’s personal property.” Taxpayers that qualify for this income tax credit must submit a copy of a property tax statement described in §39-10-103, C.R.S., to the Colorado Department of Revenue.

Special Valuation Issues

The purpose of this section is to discuss special issues related to personal property classification and valuation. This section will be periodically updated to include new special personal property issues as they arise.

All Terrain Vehicles (ATVS)

It is recommended that Industry Category (RCN Factor) Table 1 be used for valuing all-terrain vehicles (ATVs). The recommended economic life for ATVs is six (6) years. The ATV category includes: non-licensed three or more wheeled vehicles, snowmobiles, and motorbikes. Note that even though golf carts are not included in the ATV category, they are valued similarly with a recommended economic life of six (6) years.

Cable/Satellite Television Property

The recommended economic life tables, as listed in Chapter 4, Personal Property Tables, contain specific and general categories that adequately cover most personal property used in the cable/satellite television industry. The recommended economic life tables support economic lives ranging from four (4) to eleven (11) years depending on the composition, design, and use of the personal property. The recommended life tables and industry categories should be reviewed to ensure that the appropriate justifiable industry and recommended economic life is assigned to the personal property. If a Colorado industry category where the specific personal property is typically used cannot be clearly determined, “Industry Table 1 – Average of All” should be used for that personal property. Personal property that is not specifically noted in the recommended economic life tables should be classified into the category where it “best fits” with other similar functioning and/or purpose personal property.

The following listing contains examples of categories and types of cable/satellite television personal property and the recommended economic life for each.

1. 4-Year Recommended Economic Life (Technologically Advanced Tables)
   1. Computers – other and stand-alone peripherals
   2. Digital set-top boxes
   3. Encoders and encrypters
   4. Headend personal property (high-tech)
   5. Network controllers and streaming personal property
   6. Modems
   7. Routers
   8. Servers
2. 6-Year Recommended Economic Life
   1. Electronic aggregation personal property
   2. Electronic termination personal property
   3. Electronic transport personal property
   4. Field electronics
   5. Headend personal property (electronic)
   6. Quadrature amplitude modulation (QAM) property
3. 8-Year Recommended Economic Life
   1. Test and service personal property
   2. Oscilloscopes
   3. Spectrum analyzers
   4. Strength meters
4. 9-Year Recommended Economic Life
   1. Microwave systems
   2. Origination personal property
   3. Satellite receiving ground stations
5. 10-Year Recommended Economic Life
   1. Amplifiers
   2. Cable (fiber and coax)
   3. Cable/satellite personal property not otherwise listed
   4. Distribution and subscriber connection property
   5. Drops
   6. Power equipment (including at the node)
6. 11-Year Recommended Economic Life
   1. Converters
   2. Headend personal property (non-high tech/non-electronic)
   3. Modulation equipment
   4. Preamplifiers

Note: The above listing is designed to ensure uniformity in determining reasonable economic lives for cable/satellite television property. It should be used for consistency purposes. Also, note that the list is not an all-inclusive list.

Car Wash Personal Property

A special problem exists with car wash personal property. When a car wash sells, a substantial amount of personal property is included in the selling price. In these cases, an allocation should be requested from the former owner as to the value of personal property included in the transaction. This allocation should be a regular part of the sales confirmation procedure for self-service or automated car washes.

Once a number of these allocations are available, it may be possible to determine the value of personal property, as a percentage of all property transferred for future car wash property transactions. Also, these percentages may be used to help determine BIA valuations for comparable properties and as an office review check tool for other similar account declared costs.

Conditional Sales Agreements vs. True Leases

Questions arise in the responsibility for declaring personal property leased pursuant to a true lease as opposed to a conditional sales agreement or financing lease. In some cases, an agreement identifying itself as a lease may be a conditional sales agreement and vice versa. In Colorado, personal property under a true lease agreement should be assessed to the lessor (owner) of the personal property.

Conditional sales agreements may be assessed to either the lessor or lessee depending on whether legal title to the personal property has passed from the lessor to the lessee. Definitions of a true lease and conditional sales agreement follow:

True Lease

A “true lease” is an agreement under which the owner of personal property gives up possession and use of the property for valuable consideration and for a definite time period. At the end of the time period, the lessor has the right to retake, control, or convey the property. True leases are agreements where there is no intent to transfer ownership from the lessor to the lessee.

Conditional Sales Agreements

Also known as “financing leases,” these are considered to be sales contracts under the Uniform Commercial Code. Specifically, sellers receive periodic payments for the purchase price until full payment is made or until a predetermined date occurs.

Differentiating Between a Lease and a Conditional Sales Agreement

Suggested criteria for differentiating between a lease and conditional sales agreement is shown below:

True Lease

• Lease is cancelable on a monthly or annual basis
• Optional purchase price at the end of the agreement is at market value
• Present value of the lease payments is less than the purchase price of the personal property
• Agreement specifying ownership of the personal property is retained by the lessor
• Lessor is treating the property as a depreciable asset

Conditional Sales Agreement

• Lease period is approximately the same as the economic life of the asset
• Present value of the payments is the same or greater than the purchase price of the personal property
• Lessee is treating the property as a depreciable asset
• Agreement indicates passage of legal title to the lessee with a security interest retained by the lessor until the end of the agreement

Responsibility for the Reporting of Leased Property

Lessors of personal property under true leases are responsible for reporting the installed cost and location of the personal property. In most cases involving conditional sales agreements, the seller retains title to the property for collateral or security purposes during the term of the agreement. In these instances, the seller is considered the legal owner of the property and is responsible for reporting the installed cost and location of the personal property. If, under the provisions of the agreement, legal title is passed to the lessee, it is the lessee’s responsibility to report the location and installed cost to the appropriate county assessor. Note that based on §39-5-104.5, C.R.S., “The owner of taxable personal property on the assessment date shall be responsible for the property tax assessed for the full property tax year without proration.”

Gaming Personal Property

The recommended Industry Category (RCN Factor) Table for the valuation of gaming personal property is Industry Category Table 1–Average of All. The recommended economic lives for electronic gaming personal property, such as slot machines, and most other larger gaming personal property, such as tables, are five (5) years and ten (10) years respectively. However, much of the personal property found in a typical gaming establishment may be consumed during the business year and should be classified as exempt “consumable” personal property. Examples include playing cards, dealer's aprons, and betting chips. It is recommended that a detailed listing of personal property be obtained from each gaming establishment prior to determining taxable status of the business personal property.

Medical Personal Property

The recommended economic life tables as listed in Chapter 4, Personal Property Tables, contain specific and general categories that adequately cover most personal property used in the health care industry. The recommended economic life tables support economic lives ranging from three (3) to ten (10) years depending on the composition, design, and use of the personal property. The recommended life tables and industry categories should be reviewed to ensure that the appropriate justifiable industry and recommended economic life is assigned to the personal property. If a Colorado industry category where the specific personal property is typically used cannot be clearly determined “Industry Table 1 – Average of All” should be used for that personal property. Personal property that is not specifically noted in the recommended economic life tables should be classified into the category where it “best fits” with other similar functioning and/or purpose personal property.

The following listing contains examples of categories and types of medical personal property and the recommended economic life for each.

1. 3-Year Recommended Economic Life (Technologically Advanced Tables)
   1. Computers – personal and accessories
   2. Computers – laptop
2. 4-Year Recommended Economic Life (Technologically Advanced Tables)
   1. Computers – other and stand-alone peripherals
   2. Computer – integrated machinery and equipment
   3. Telecommunication machinery and equipment
3. 4-Year Recommended Economic Life
   1. Lasers (coronary)
4. 6-Year Recommended Economic Life
   1. Anesthesia unit and equipment
   2. Analyzer equipment
   3. Blood pressure devices/machines
   4. Blood warmer machines
   5. Bypass/heart – lung system
   6. Cameras and associated equipment
   7. Cash registers (electronic)
   8. Copiers and duplicators
   9. Defibrillators
   10. Dopplers
   11. Echocardiograph system (EKG)
   12. Electrocardiographs
   13. Electronic equipment, except computers
   14. Electronic charting equipment
   15. Electronic pulmonary equipment
   16. Floor cleaning/polishing machinery
   17. Isotope equipment
   18. Lithotripters, extracorporeal shock-wave (ESWL)
   19. Lasers (positioner, surgical, other not including coronary)
   20. Magnetic resonance imaging equipment (MRI) (Electronic portion)
   21. Mammography units
   22. Monitors (other than those used with a computer)
   23. Optical readers
   24. Scanners
   25. Scopes
   26. Sterilization system equipment
   27. Stretchers (hydraulic)
   28. Telemetry units (cardiac)
   29. Television equipment
   30. Typewriters (electric)
   31. Wheel chairs
   32. X-ray equipment
5. 10-Year Recommended Economic Life
   1. Aspirators
   2. Blanket warmers/dryers
   3. Counters
   4. Conveyor system (used for laundry or trays)
   5. Folding partitions/walls
   6. Forklifts
   7. Furniture (i.e., beds, cabinets, chairs, desks, tables, other)
   8. Lockers
   9. Magnetic resonance imaging equipment (MRI) (Mechanical portion)
   10. Patient lifters
   11. Packaging Machinery
   12. Pneumatic tube system
   13. Pumps, medical
   14. Saws, medical

Note: The above listing is designed to ensure uniformity in determining reasonable economic lives for medical personal property. It should be used for consistency purposes. Also note that the list is not an all-inclusive list.

Personal Property in Storage

All personal property is taxable in Colorado unless specifically exempted by sections 3 to 6 of article X of the Colorado Constitution. Therefore, taxable personal property in storage is still taxable to the personal property owner. However, as maintenance on the personal property may be deferred, the property may suffer from additional physical depreciation, as well as, functional and external obsolescence.

The Division recommends that the county wait until the assessment year following the year that the personal property has been placed in storage to make any related valuation adjustments. During the following assessment year, the owner's intent regarding the personal property should be determined. If the personal property remains in storage and periodic maintenance and/or reconditioning does not take place, the personal property value may be appropriately adjusted. Personal property that is no longer in use and placed into storage to be used as a source of parts for the repair of other personal property with an economic life of one year or less, should be exempted as “consumable” personal property for the assessment year following the date that the personal property was removed from service. The assessor must make these determinations on a case-by-case basis.

Security Systems Classification and Valuation

Residential Property Owner’s Security Systems

Residential security systems, equipment, and devices are included as part of the definition of household furnishings exempt from ad valorem taxation in § 39-3-102(1), C.R.S. Such residential security systems are exempt from ad valorem taxation only if they are not associated with the property owner’s production of income at any time during the tax year.

Examples of security systems, equipment, and devices may include, but are not limited to, the following:

1. Photoelectric sensors
2. Point-area detectors, such as:
   1. alarm systems,
   2. alarm glass (wired),
   3. vibration detectors, and
   4. trip switches
3. Remote annunciators (alarms)
4. Security doors and bars
5. Sound, motion, and stress detectors
6. Cameras and digital video recorders

For security system personal property located in non-income-producing residential property and owned by the residential property owner, the Division recommends that the assessor conduct an analysis of the residential sales in each economic area during each reappraisal year to determine if security devices and systems result in an increase in value in that economic area. If it is determined that they do result in an increase in value, those sales which include the devices/systems should be adjusted to exclude the contributory value of the security system personal property.

Leased Security Systems

Residential security systems come in several different designs and technical capabilities. However, many systems used for security today contain assorted detection sensors installed into a subscriber's premises. This sensor system is affixed to and wired throughout the structure of the subscribers' house and connected to the lessor's alarm system.

Leased residential security systems, equipment, and devices are taxable to the owner (lessor) of the leased personal property. Leased residential security personal property should be reported by the lessor to the county assessor in the Personal Property Declaration Schedule.

Generally, once a security system is installed into the structure of a house, the system cannot be removed without significant damage. If a subscriber chooses to discontinue the service contract, the physical wiring of the system is left intact. Typically, there is no influence on the value of the residential property for the intact wiring.

Service Station Property

According to § 39-1-102(11), C.R.S., service station hydraulic lifts, gasoline pumps, and underground storage tanks must be classified and valued as personal property. Service station canopies fit the definition of real property contained in § 39-1-102(14), C.R.S.

Snow Cats

Snow cat economic life research results support the recommended economic lives as noted in Chapter 4 – Personal Property Tables. Heavy use snow cats (averaging 1,300 or more hours of operation per calendar year) remain economically feasible to operate for six (6) years. Heavy use snow cats include snow cats that are used in a ski resort’s snow grooming operations. Moderate use snow cats (averaging less than 1,300 hours of operation per calendar year) remain economically feasible to operate for ten (10) years. Moderate use snow cats include snow cats that are used for surveying, transportation, and/or in search and rescue operations. It is recommended that Industry Category (RCN Factor) Table 1 be used for valuing snow cats.

Software

Software is defined as the programs used to direct the operation of a computer. Software includes documentation such as manuals, diagrams, and operator instructions. It also includes operating systems software, compilers, assemblers, translators, interpreters, and application programs. These programs are intangible personal property and, therefore, exempt under § 39- 3-118, C.R.S.

The following definitions are given as an aid in understanding what constitutes a computer and various forms of software.

A computer is defined as a programmable electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention. It usually consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities.

Included are those production computers which are an integral part of other equipment, such as computers used primarily for process or production control, switching, channeling, and automating distributive trades; and production services such as point of sale (POS) computer systems. Software controlling such production equipment and services is exempt, provided the devices are actually controlled by software rather than hard-wired printed circuit boards.

The following definitions are generally from the Dictionary of Computer and Internet Terms, 12th ed. (Barron’s Business Guide, 2017).

Application program: a computer program that performs useful work not related to the computer itself. Examples include word processing programs, desktop publishing programs, spreadsheets, database management programs, CAD and CAM systems, web browsers, presentation programs, such as Power-Point, and accounting systems.

Assembler: a computer program that translates assembly language into machine language.

Basic Input Output System (BIOS): a set of procedures stored on a ROM chip inside PC-compatible computers. These routines handle all input-output functions, including screen graphics, so that programs do not have to manipulate the hardware directly….The BIOS is not re-entrant and is therefore not easily usable by multitasking programs.

Compiler: a computer program that translates C, C++, BASIC, Pascal, or a similar high-level programming language into machine language. The high-level language program fed into the compiler is called the source program; the generated machine language program is the object program.

Interpreter: a program that executes a source program by reading it one line at a time and performing the specified operations immediately.

Operations or systems programs: control the hardware itself and allow it to compile, assemble and process application programs. This definition is from The Prentice-Hall Standard Glossary of Computer Terminology, Robert A. Edwards (Prentice-Hall, Inc. 1995).

Operating System: a program that controls a computer and makes it possible for users to enter and run their own programs….Under the control of the operating system, the computer recognizes and obeys commands typed by the user. In addition, the operating system provides built-in routines that allow the user’s program to perform input-output operations without specifying the exact hardware configuration of the computer.

Printed circuit (board) is an electric circuit in which the conducting connections are formed by depositing a conducting metal, such as copper in predetermined patterns on an insulating substrate, e.g., a plastic coated fiberboard: other materials, especially semiconductors, are deposited to form various electronic components. This definition is from The American Heritage Dictionary, Second College Edition (Houghton Mifflin Co. 1985). Printed circuit boards are hardware and therefore do not qualify as software.

Translator: a program that exchanges data between application programs.

Utility: a program that assists in the operation of a computer but does not do the main work for which the computer was bought. For instance, programs that compress data or defragment disks are utilities.

Software programs can be custom-built or canned. Canned programs are also referred to as shelf or generic programs.

All software programs, with one exception, are intangible and exempt from ad valorem taxation. All software is exempt except for software that is required to make the personal property work for its intended end user purposes (as an integral part of the hardware). One example of this is the operations or systems programs including machine language that is automatically initiated during the computer startup. This includes the basic input-output system (BIOS), Extensible Firmware Interface (EFI), Unified Extensible Firmware Interface (UEFI), and other types of firmware. It is never stated as a separate part of the computer because without this program the computer cannot function.

When a taxpayer lists a computer on the declaration schedule, they should not include the cost of exempt software. If the taxpayer indicates software was part of the cost, but not a separately priced part, the assessor should work with the taxpayer and/or utilize third-party sources to determine what amount must be deducted from the computer cost to arrive at the original installed cost of the computer hardware.

Contributory value of software that has been included in the computer hardware costs can be valued using the following procedures:

• Cost Approach - The cost approach is applied by determining the original cost of the software to the purchaser, including any installation costs, and applying an allowance for depreciation. Typically, the value of custom software will be based upon its original installed cost, less depreciation. In the case of custom software written in-house, development costs can be used in lieu of acquisition costs.
  
  Custom software programs, (not printed circuit boards, which are hardware), which may be found in products including:, telephone switching systems, computers used primarily for process or production control, robotics, and video games, must have the software portion of the valuation deducted from the total costs. However, the value deducted should be provided by the taxpayer in the form of an invoice from the manufacturer. If an invoice or other acceptable proof of software value is not available, no deduction should be made.
  
  Since most software is short-lived because of rapid technological advances, a four-year average economic life is to be used. The cost approach is generally the most appropriate for appraising computer software.
   
• Market Approach - The resale market for software is limited. However, publications exist which indicate resale values of popular canned software programs, such as Excel and Windows. Typically, customized software does not have an easily discernible resale market value.
• Income Approach - In the income approach, net income attributable to the software is capitalized over an appropriate life cycle. This approach may be appropriate in appraising mainframe software, which is often leased rather than purchased.

When software programs are individually listed on a declaration schedule, the assessor must remove any documented value attributed to the exempt software before determining the taxpayer's personal property value.

Technologically Advanced Personal Property

The Division of Property Taxation has reviewed the published Industry Categories (RCN Factors) and economic lives assigned to computers, other computer personal property and stand-alone computer peripherals, computer-integrated personal property, and telecommunication personal property. As a result, the following technologically advanced personal property categories have been established:

• Personal Computers (PCs) and Accessories
• Other Computers and Stand Alone Peripherals
• Computer-integrated Personal Property
• Telecommunication Personal Property

Personal Computers (PCS) and Accessories

This category of personal property includes stand-alone desktop, laptop, or other related personal computer systems, and accessories. Examples include:

• Central processing units (CPUs)
• Motherboards
• Random access memory (RAM)
• Video cards
• Power supply units
• Hard disks
• Optical drives
• Disk drives
• Computer (PC) modems
• Computer docking stations
• Keyboards
• Computer mice
• Tape storage units
• Monitors

This is not an all-inclusive list. In determining whether to include computer related personal property under this category, the general rule is to include any personal property or accessory that is used in conjunction with the personal or laptop computer and will generally be disposed of at the same time as the computer.

In order to better estimate the effects of technological obsolescence and rapidly changing economics inherent in the personal computer segment of the computer industry, we have assigned personal computers and accessories to Industry Category (RCN Factor) Table 13 (no RCN trend) and to a three (3) year economic life. A separate depreciation table incorporating a seven (7) percent residual value for personal computers and accessories has been developed and can be found in Chapter 4, Personal Property Tables.

Other Computers and Stand Alone Peripherals

This category includes all computers and stand alone peripherals and other listed high technological personal property that is not classified as personal computers and accessories. Examples include:

• Mainframe and Supercomputers
• Card readers (including point of sale (POS) and credit card readers)
• Servers
• Data entry and storage devices
• Copiers
• Desktop/office printers
• Keypunch machines
• Magnetic tape feeds
• Global positioning system (GPS) receivers
• Digital cameras
• Minicomputers
• Bar code scanners
• Personal data assistants (PDAs), personal information managers (PIMs), and smartphones
• Optical character readers
• Plotters
• Kiosks (i.e., DVD vending and CD burning, except for the structural housing)
• Terminals (including LOTTO, except for the structural housing)
• System modems
• Scanners
• TV transmission and receiving personal property systems (i.e., set-top boxes, sound blockers, remote controls, etc.)
• Automated Teller Machines (computer/electronic components/portion excluding the structural housing of the ATMs which should be valued using a ten (10) year economic life)
• Multi-purpose, office computer-based personal property that has two or more separate functions (facsimile, printer, scanner, and/or telecommunication).
• Telecommunication personal property

In order to better estimate the effects of technological obsolescence inherent in this category of personal property, we have assigned Other Computers and Stand Alone Peripherals to Industry Category RCN Factor Table 13 (no RCN trend) and to a four (4) year economic life. A separate depreciation table incorporating a seven (7) percent residual value for Other Computers and Stand Alone Peripherals has been developed and can be found in Chapter 4, Personal Property Tables.

Excluded Personal Property

Examples of personal property excluded from this category include:

• Adding and accounting machines
• Calculators
• Vending machines (not including high tech kiosks)
• Electronic desk calculators
• Printing presses
• Production equipment²
• Typewriters
• Video arcade games³

The above noted personal property is assigned the appropriate industry category based on its use.

²Production equipment that is integrated into other personal property is generally excluded from this category. Examples of this type of personal property include: equipment used primarily for process or production control, switching, channeling, and automating distributive trades as with computerized material conveyance and handling systems, drill and punch presses, wood and metal turning lathes, and similar personal property. See the Computer-integrated Machinery and Personal property topic found later in this chapter.

³ Video arcade game personal property used primarily for amusement or entertainment of the user also is excluded from this category. Refer to the topic Video Arcade Games in this chapter.

Use of Market Guides to Value Computer Personal Property

The market value of used computer personal property reported in published market guides may be substituted for RCNLD actual value estimates, if it produces a lower value than the RCNLD value. These market guides contain sales information on many types and brands of used computer personal property. However, values obtained from these guides must include an allowance for sales/use tax, freight charges to the point of use, and any installation costs.

Computer-Integrated Personal Property

In recent years, computers and/or computer-based controls have become integrated into a variety of personal property categories. This category includes all personal property wherein a computerized control system is built into or incorporated with the components of the personal property in such a way that the computer component is a permanent and necessary part of the personal property.

Personal property is categorized as Computer-Integrated Personal Property if all of the following category criteria are met:

1. The personal property is purchased and/or constructed to function as a single unit. If the original sales invoice or other property sales information separates the computer portion from the mechanical portion of the personal property, then the computer portion should be valued as a stand-alone computer and given a four (4) year economic life. The mechanical portion of personal property should be given the appropriate economic life for personal property that is not computer-integrated. Please refer to the Computer- Integrated v. Modular Computer Personal Property topic later in this chapter.
2. The computer portion is not designed to perform functions outside the personal property and the personal property cannot function without the computer.
3. The personal property is controlled by a programmable central processing unit that is physically integrated within the structure of the personal property.
4. The total cost of both the computer portion and the other parts of the personal property is depreciated as a unit for income tax purposes.
5. The capabilities of the personal property cannot be expanded by substituting a more complex computer for the original. The capability of upgrading operating software will not disqualify personal property from being included in this category. In addition, typical industry practice for the personal property demonstrates that when either the computer or mechanical component of the personal property is no longer functional, the entire property is retired, scrapped, and/or sold for parts.

Computerized lathes used in research and development are one example of computer-integrated personal property.

If one or more of the criteria are not met, the personal property is to be placed in the appropriate category and assigned the appropriate Industry Category (RCN Factor) and economic life. When evaluating a complete manufacturing line or process, each piece of personal property within the line or process must be separately examined to determine whether it meets the computer-integrated personal property criteria.

Computer-integrated personal property should be valued using Industry Category (RCN Factor) Table 13 (no RCN trend), a four (4) year economic life, and the general percent good table with a 15 percent residual. To access the applicable depreciation tables for computer-integrated personal property, please refer to Chapter 4, Personal Property Tables.

Computer-Integrated v. Modular-Controlled Personal Property

Assessors should understand that much of the personal property used in industry today has modular electronic and/or computer controls that direct the operation of the property. These modular controls can be replaced by new controls or updated with new hardware and circuitry as needed by the personal property owner. The modular computer controls typically are not physically integrated with the personal property in such as way that the personal property meets the definition as computer-integrated personal property.

When modular computer-controlled personal property is found, the assessor should classify and value the computer portion as Other Computers and Stand-Alone Peripherals and the mechanical portion at the appropriate economic life assigned for that type of personal property. When modular electronic-controlled personal property is found, the assessor should classify and value the electronic portion as electronic personal property and the mechanical portion at the appropriate economic life assigned for that type of personal property. The taxpayer must provide information and documentation to help the assessor determine a reasonable allocation of the personal property’s original installed costs so that each portion of the personal property may be assigned the appropriate economic life for valuation.

Telecommunication Personal Property

Examples of telecommunication personal property in this category include:

• Internal customer telecommunication systems
• Fax machines
• Key systems
• Teletypes
• PBX systems
• Small telephone systems
• Telephone handsets
• Cell phones

Telecommunication personal property is to be valued using Industry Category RCN Table 13 (no RCN trend) and a four (4) year economic life. The “Other Computers and Stand-Alone Peripherals” depreciation table incorporating a seven percent (7 percent) residual value should be used to value personal property in this category. To access the applicable depreciation table, please refer to Chapter 4, Personal Property Tables.

Personal Property Excluded from This Category

Examples of personal property excluded from this category include:

• Aerial wires
• Antenna
• Cable
• Microwave systems
• Pole lines
• Towers
• Underground conduits

Excluded personal property should be valued using the Industry Category (RCN Factor) Tables that are applicable to the type of personal property. Procedures for the classification and valuation of towers are located in this chapter.

Towers

Discovery and Classification

Towers are defined as personal property designed to facilitate electronic transmissions or relay technologies. Towers are classified as personal property under § 39-1-102(11), C.R.S.

Identifying ownership of towers may be accomplished by discussion with the owner of the land on which the tower is erected or by reviewing construction permits that may contain the tower owner’s name. Current ownership information is necessary to send a declaration schedule and assign tax liability.

Determination of ownership may also be aided by the Federal Communications Commission (FCC) Antenna Structure Registration Listing.

Additional ownership and other related tower information may be found at the Tower Source website and American Tower.com website.

Towers may be owned by either a state assessed company or by a company whose property is subject to local assessment. The Division’s State Assessed Section have incorporated requirements for state assessed companies to list all towers on their Annual Statement of Property (ASOP) rendition.

Both state assessed and locally assessed personal property may be attached to the tower. If the personal property is owned by a state assessed company, it is typically included in the company’s ASOP rendition to the Division. If the personal property is owned by a non-state assessed company, it should be listed on the owner’s declaration schedule that is filed with the local county assessor where the equipment is located on the assessment date. Taxable personal property that is listed on the declaration schedule should be valued by the local county assessor.

Valuation of Towers

Valuation of towers may be accomplished using either factored historical costs or a cost service such as Marshall Valuation Service. If factored historical costs are used, Industry Category Number 1, “Average of All” trending factors and a recommended economic life of twenty years are to be used. If a cost service is to be used, the service’s recommended economic life for towers should be considered.

According to § 39-1-103(13), C.R.S., the cost approach shall establish the maximum value of personal property, if all costs incurred in the acquisition and installation of the property are fully and completely disclosed by the owner to the assessor. Therefore, the market and income approaches may only be employed in the valuation of towers if a value lower than that indicated by the cost approach is indicated.

If subject to state assessment, towers are not subject to local assessment. However, non-state assessed towers are subject to local assessment even if they lease space for equipment to a state assessed company.

Locally assessed electronic transmitting and receiving equipment installed on towers has a recommended economic life of four years.

Associated buildings and/or other improvements are valued as real property.

Video Arcade Games

While there are some similarities, video arcade games are not computers. Video arcade games should be placed in Industry Category Number 1, “Average of All.” Video arcade games should be given a recommended economic life of six (6) years.

Hard-wired circuit boards that control the operation of most video arcade games are not software programs. Thus, there should be no deduction for software when these circuit boards are valued.

However, video arcade games that use interchangeable cartridges to control their operation are using a type of software-based game program cartridges, which is intangible personal property and, therefore, exempt. The value of these cartridges should be deducted, if it is included in original acquisition costs or market values. See the Software topic in this section for a discussion of procedures to determine software deductions.

Renewable Energy Property Assessment

Locally Assessed Renewable Energy Property

Colorado assessors are required to discover, classify, list, and value all locally assessed taxable renewable energy property.

Valuation of real and personal property that produces alternating current electricity from a renewable energy source.

(1) (a) Except as provided in paragraph (b) of this subsection (1), on and after January 1, 2008, all real and personal property used to produce two megawatts or less of alternating current electricity from a renewable energy source shall be valued by the assessor in the county where the property is located in accordance with valuation procedures developed by the administrator.

[…]

(2) In developing the valuation procedures specified in subsection (1)(a) of this section:
(a) Except as set forth in subsection (2)(b) of this section, the administrator shall utilize the procedures adopted for determining the actual value of a renewable energy facility as specified in section 39-4-102(1)(e); and

(b)For a facility that would qualify as a solar energy facility as defined in section 39-4-101(3.5) but it generates and delivers less than two megawatts of energy, the administrator shall utilize the procedures for determining the actual value of a solar energy facility as specified in section 39-4-102(1.5) for property tax years commencing on or after January 1, 2021.

§ 39-5-104.7, C.R.S.

Discovery

Current ownership information is necessary in order for the assessor and staff to send a declaration schedule and assign tax liability. A few of the most readily available renewable energy discovery tools include the local media, area canvassing, permits, and the Internet. Identifying the ownership of renewable energy property may be accomplished by discussion with the owner of the real property on which the renewable energy property is located. Local zoning permits, county approval documents, and property transfer documents may contain the renewable energy property owner’s name and contact information. Legal documents including power purchase agreements (PPA), leases, and contracts should be reviewed as a part of the process.

Classification

Most locally assessed renewable energy property meet the criteria to be classified as personal property under § 39-1-102(11), C.R.S. Refer to Chapter 2, Classification.

Fencing, associated support buildings, and/or other improvements are classified and valued as real property.

For Colorado property taxation purposes, all personal property used to produce two (2) megawatts or less of alternating current (AC) electricity from a renewable energy source is locally assessed. This includes solar energy property (e.g. photovoltaic panels, community solar gardens) used to produce two (2) megawatts or less of AC electricity and wind energy property (e.g. wind turbines) used to produce two (2) megawatts or less of AC electricity are locally assessed. In addition, locally assessed renewable energy property includes small or low impact hydroelectric facilities, geothermal energy facilities, and biomass energy facilities as defined in 39-4-101, C.R.S., used to produce two (2) megawatts or less of AC electricity and placed into service prior to January 1, 2010.

All renewable energy systems with greater than two (2) megawatts of AC electricity generation capacity are valued as public utility property by the State Assessed Properties Section of the Division of Property Taxation (Division). Small or low impact hydroelectric facilities, geothermal energy facilities, and biomass energy facilities, as defined in § 39-4-101, C.R.S., that are put into use on or after January 1, 2010, and not primarily designed to supply electricity for consumption on site, are state assessed regardless of AC generation capacity.

Community Solar Gardens

Pursuant to § 40-2-127(2)(b)(I)(A), C.R.S., a community solar garden is defined as "a solar electric generation facility with a nameplate rating within the range specified under subsection (2)(b)(I)(D) of this section that is located in or near a community served by a qualifying retail utility where the beneficial use of the electricity generated by the facility belongs to the subscribers to the community solar garden. There shall be at least ten subscribers. The owner of the community solar garden may be the qualifying retail utility or any other for-profit or non-profit entity or organization, including a subscriber organization organized under this section, that contracts to sell the output from the community solar garden to the qualifying retail utility."

Section 40-2-127(2)(b)(I)(D), C.R.S., specifies that the nameplate rating for a community solar garden is five (5) megawatts or less. Additionally, on or after July 1, 2023, the Public Utilities Commission may adopt rules to approve community solar gardens with a nameplate rating of up to ten (10) megawatts.

Community solar gardens with a nameplate rating of two (2) megawatts or less (in AC) are locally assessed properties in accordance with § 39-5-104.7, C.R.S. Any community solar garden with a nameplate rating greater than two (2) megawatts (in AC) is considered a state assessed renewable energy facility and classified and valued under §§ 39-4-101 and 102, C.R.S.

Section 39-3-118.7, C.R.S., exempted from the levy and collection of property taxes the percentage of alternating current electricity capacity of a community solar garden that was attributed to residential or governmental subscribers, or to subscribers that were organizations that were granted property tax exemptions pursuant to §§ 39-3-106 to 39-3-113.5, C.R.S. This exemption covered tax years beginning January 1, 2015 and ending before January 1, 2021.

Community Geothermal Gardens

Pursuant to § 40-2-127.5(2)(a)(I), C.R.S., a community geothermal garden is defined as: "a geothermal facility that produces electricity from the earth’s heat with a nameplate rating within the range specified under subsection (2)(b)(IV) of this section that is located in or near a community served by a qualifying retail utility where the beneficial use of the electricity generated by the facility belongs to the subscribers to the community geothermal garden. There must be at least ten subscribers. The owner of the community geothermal garden may be the qualifying retail utility or any other for-profit or nonprofit entity or organization, including a subscriber organization organized under this section, that contracts to sell the output from the community geothermal garden to the qualifying retail utility."

Section 40-2-127.5(2)(a)(IV), C.R.S., specifies that the nameplate rating for a community geothermal garden is five (5) megawatts or less. Additionally, the Public Utilities Commission may adopt rules to approve community geothermal gardens with a nameplate rating of up to ten (10) megawatts.

Community geothermal gardens with a nameplate rating of two (2) megawatts or less (in AC) are locally assessed properties in accordance with § 39-5-104.7, C.R.S. Any community geothermal garden with a nameplate rating greater than two (2) megawatts (in AC) is considered a state assessed renewable energy facility and classified and valued under §§ 39-4-101 and 102, C.R.S.

Agrivoltaics

Agrivoltaics are defined in § 35-1-114(4)(a), C.R.S., as "one or more solar energy generation facilities directly integrated with agricultural activities, including crop production, grazing, animal husbandry, apiaries, cover cropping to improve soil health or insect habitat benefits or carbon sequestration, or production of agricultural commodities for sale in the retail or wholesale market."

Taxability

Renewable energy property in the state is taxable unless specifically exempted by the Colorado Constitution.

Renewable energy personal property that is located on a residentially classified property, owned by the residential property owner, and produces energy that is used by the residential property, is exempt from Colorado property taxation under the household furnishings exemption contained in § 39-3-102, C.R.S. In order to qualify for the household furnishings exemption, residential renewable energy personal property cannot be used to produce income at any time. Pursuant to § 39-3-102(1), “For property tax purposes only, rebates, offsets, credits, and reimbursements specified in section 40-2-124, C.R.S., shall not constitute the production of income.”

The Division recommends that the assessor conduct an analysis of the residential sales with renewable energy personal property in each economic area, during each reappraisal year, to determine if renewable energy personal property results in an increase in value in that economic area. If it is determined that they do result in an increase in value, then those sales that include exempt residential renewable energy personal property should be adjusted to exclude the contributory value of the renewable energy personal property.

Independently owned residential solar electric generation facilities (photovoltaic solar systems) that meet criteria listed in § 39-1-102 (6.8), C.R.S. are exempt from Colorado property taxation under § 39-3-102, C.R.S. To qualify for the exemption the solar electric generation facility must be located on residential real property, used to produce electricity from solar energy primarily for use in the residential improvements, and have a production capacity of no more than one hundred (100) kilowatts of AC electricity.

Pursuant to § 39-3-122(3), C.R.S., on or after January 1, 2024, but before January 2, 2029, machinery or equipment that is part of a solar energy generating system that is used for agrivoltaics is exempt from personal property taxes. In addition to being used for agrivoltaics, the personal property must also:

• incorporate novel designs, technologies, or configurations that significantly expand the potential for agricultural activities, including by:
  • elevating the bottom edge height of the panels at least six feet above the ground;
  • utilizing translucent panels or panels with tubular or other innovative panel geometry that supports agrivoltaics;
  • incorporating alternative solar tracking algorithms that are tailored to optimize vegetative growth;
  • incorporating extended row or panel spacing in a manner that enables agricultural activities;
  • incorporating modified wire management systems that support livestock, including raising, lowering, or burying wiring;
  • incorporating innovative photovoltaic racking structures, including tensioned wire racking systems, suspension-based systems, or other dynamic photovoltaic racking systems or arrangements;
  • incorporating agricultural infrastructure that is typically found on a farm or ranch operation, such as agricultural fences, water sources and distribution, water troughs and tanks, corrals, livestock pens, or produce handling equipment; or
  • incorporating agricultural structures that are typically found on an agricultural operation, such as a tractor shed, a barn, or structures for equipment storage, produce washing, storage, processing, or chilling and packaging;
• be constructed in a manner that minimizes soil compaction underneath and in between panels; and
• be constructed to incorporate design strategies that are planned with the intent to minimize the negative environmental impact of photovoltaic energy production facilities on ecosystems, native vegetation, state and federally listed species, wildlife migration corridors, and the species, habitats, and ecosystems of greatest conservation need.

Abstract of Assessment

Locally assessed renewable energy personal property is assigned to a 2415 subclass code. Associated renewable energy real property is assigned to 2117 (land) or 2217 (improvements). Any other real property is assigned to the appropriate subclass code based on its use as of the January 1 assessment date. State assessed renewable energy property is assigned to 8252 (real property) or 8452 (personal property). For more information on assigning abstract codes for renewable energy property, see Assessors' Reference Library, Volume 2, Chapter 6.

Valuation

Under the provisions of article X, section 3, of the Colorado Constitution, assessors must consider the cost, market, and income approaches to value in their appraisal of taxable personal property. Section 39-5-104.7(1)(a), C.R.S., states that locally assessed renewable energy property, except for solar energy property described in § 39-5-104.7(2)(b), C.R.S., “shall be valued by the assessor…in accordance with valuation procedures developed by the administrator” utilizing the procedures described in § 39-4-102(1)(e), C.R.S.

In accordance with § 39-4-102(1)(e), C.R.S., the Property Tax Administrator has established the following valuation procedures to determine actual value for renewable energy personal property.

The replacement cost new (RCN) estimate is developed based on the following information:

1. The cost per kilowatt of AC electricity published by the Division of Property Taxation, and
2. The AC electricity generating capacity of the property.

With this information, the RCN is developed by multiplying the cost per kilowatt of AC electricity times the AC electricity generating capacity of the subject. The RCN estimate represents the reasonable costs of acquisition and installation of comparable non-renewable property as of the June 30 appraisal date. The RCN estimation method will be applied to all locally assessed renewable energy property except certain solar energy property described in § 39-5-104.7(2)(b), C.R.S.

Renewable energy property cost per kilowatt in AC electricity information is provided under the Renewable Energy section of the Division of Property Taxation website at the Renewable and Clean Energy Assessment web page.

Annual depreciation, based on the age of the system, will be applied utilizing Industry Category 14 (Renewable Energy Personal Property) with a twenty (20) year economic life using the

Division’s “Renewable Energy Percent Good Table” and “Level of Value (LOV) Adjustment Factor” as published in, Chapter 4, Personal Property Tables.

The cost that must be applied for the current tax year valuation is $615 per kilowatt of AC electricity generation capacity.

The steps for utilizing the cost approach to value renewable energy property follow:

1. Ascertain the AC electricity generation capacity (e.g., 30 kilowatts) by adding the generation nameplate capacity of each panel/module together. Also determine the year of acquisition and installation of the renewable energy property. This information comes from the declaration schedule completed by the owner or from additional information requests and contacts, if necessary. If the generation capacity is declared in DC, an AC inverter/transformer rate adjustment must be applied. If the taxpayer does not provide a reasonable documented inverter/transformer rate adjustment, then the National Renewable Energy Laboratories (NREL) PV Watts source may be considered. See the PVWatts® Calculator.
2. Multiply the kilowatt AC electricity generation capacity of the system by the rate per kilowatt for the current tax year. The resulting number represents the estimated replacement cost new of the property as of the assessment date.
3. Adjust for depreciation by multiplying the estimated replacement cost new by the percent good based on the age of the system. The percent good is based on the Renewable Energy Percent Good Table published by the Division of Property Taxation in Chapter 4, Personal Property Tables. The result represents the replacement cost new less depreciation (RCNLD) of the renewable energy property as of the assessment date.
4. Multiply the estimated RCNLD by the Industry Category 14 level of value (LOV) adjustment factor to derive the estimated actual value as of June 30 of the most recent previous even year.

An example of the valuation process is shown below:

During the previous tax year, a roof-mounted thirty (30) kilowatt of AC electricity photovoltaic (PV) solar panel system was installed on a restaurant. The system was installed and in use in the previous tax year and therefore the property is valued for the current tax year as one (1) year old. The energy from the system is consumed on site.

Valuation of the PV system is calculated as follows:

30 Generation capacity in AC electricity (in kilowatts) 
x $615 Rate per kilowatt of AC electricity (current tax year rate)
= $18,450 Estimated RCN 
x 0.95 Percent good from the Renewable Energy Percent Good Table
=$17,528 Estimated RCNLD (rounded) 
x 1.00 Level of value adjustment factor (current tax year LOV)
=$17,528 Estimated actual value as of the June 30 previous even year

The Division has developed and posted a locally assessed renewable property Excel worksheet at the Renewable and Clean Energy Assessment web page. To access the worksheet, click on “Renewable Energy” and then click on the appropriate worksheet. With the appropriate input, the worksheet may be used to apply the above noted formula to calculate the renewable property actual value.

The above valuation methodology only applies to the personal property used to generate alternating current electricity from a renewable energy source (§ 39-5-104.7(1)(a), C.R.S.). Battery storage may be included in this valuation methodology if the battery storage system is part of the renewable energy facility.

Pursuant to § 39-5-104.7(2)(b), C.R.S., for solar energy property that would qualify as a solar energy facility as defined in § 39-4-101(3.5), C.R.S., but generates and delivers less than two (2) megawatts of energy, the Property Tax Administrator is required to established separate valuation procedures in accordance with § 39-4-102(1.5), C.R.S., for property tax years commencing on or after January 1, 2021.

Qualified solar energy property is valued using the income methodology outlined in § 39-4- 102(1.5), C.R.S., and utilizes a “tax factor” which is multiplied by the gross revenues from the sale of energy at the interconnection meter to determine the actual value of the property.

The valuation formula for these facilities is:

Actual Value = Gross Revenues x Tax Factor

For more information on calculating the tax factor, see the “Locally Assessed Tax Factor Template” available on the Renewable Energy section of the Division’s website here: https://dpt.colorado.gov/renewable-energy

Assessment of Renewable Energy Credits by County Assessors

Renewable Energy Credits (RECs), also known as “green tags” or “renewable energy certificates,” are tradable environmental commodities that represent proof that one (1) megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource. These certificates can be sold and traded and the owner of the REC can claim to have purchased renewable energy.

RECs are classified as intangible personal property and, exempt pursuant to § 39-3-118, C.R.S., so they cannot be valued separately by the county assessor.

State Assessed Renewable Energy Systems

All renewable energy systems with greater than two (2) megawatts of AC electricity generation capacity are valued as public utility property by the State Assessed Properties Section of the Division of Property Taxation. Small or low impact hydroelectric facilities, geothermal energy facilities, and biomass energy facilities, as defined in § 39-4-101, C.R.S., that are put into use on or after January 1, 2010 and not primarily designed to supply electricity for consumption on site, are state assessed regardless of AC generation capacity.

Energy storage systems and clean energy resources, as defined in § 39-4-101, C.R.S., are also state assessed properties and valued in a manner similar to renewable energy property. Solar energy facilities, as defined in § 39-4-101(3.5)(a), C.R.S., include agrivoltaics and floatovoltaics, as defined in §§ 35-1-114(4)(a) and 37-60-115(12)(c)(III), C.R.S., respectively.

Pursuant to §39-4-102(1.5)(c), C.R.S, “The location of a small or low impact hydroelectric energy facility, a geothermal energy facility, a biomass energy facility, a wind energy facility, or a solar energy facility on real property shall not affect the classification of that real property for purposes of determining the actual value of that real property as provided in section 39-1- 103.”

Renewable Energy Incentives

Colorado does not have any general statewide property tax incentives for renewable energy. However, §§ 30-11-107.3 and 31-20-101.3, C.R.S., allow county and municipal governments to “offer an incentive, in the form of a [county/municipal] property tax or sales tax credit or rebate, to a residential or commercial property owner who installs a renewable energy fixture on his or her residential or commercial property.”

Local governments can enact incentive payments or property tax rebates under certain circumstances related to economic development. A county, municipality, or special district can enter into negotiations for an incentive payment with owners of new business facilities. A county, municipality, or special district may also negotiate an incentive payment or credit with owners of existing business facilities, located in their jurisdiction, based on verifiable documentation demonstrating that there is a substantial risk that the owner of the existing business facility will relocate it out of state. The incentives cannot exceed 100 percent of the personal property taxes paid to the county, municipality, or special district. For agreements made prior to August 6, 2014, the agreement cannot last more than ten years. For agreements made after August 6, 2014, the agreement may not last longer than thirty-five years, §§ 30-11- 123, 31-15-903, and 32-1-1702, C.R.S. Additional incentives are available through income tax credits, real property tax incentives, and sales tax refunds. For further information on these incentives refer to §§ 39-30-105.1 and 107.5, C.R.S.

Pipeline Classification and Valuation Procedures

Statutory References

In 1998, the following statute was enacted to classify pipelines, as well as other types of property installed through an easement, right-of-way or leasehold, as personal property.

Definitions.

(11)Except as otherwise specified in articles 1 to 13 of this title, any pipeline, telecommunications line, utility line, cable television line, or other similar business asset or article installed through an easement, right-of-way, or leasehold for the purpose of commercial or industrial operation and not for the enhancement of real property shall be deemed to be personal property, including, without limitation, oil and gas distribution and transmission pipelines, flow lines, process lines, and related water pipeline collection, transportation, and distribution systems. Structures and other buildings installed on an easement, right-of-way, or leasehold that are not specifically referenced in this subsection (11) shall be deemed to be improvements pursuant to subsection (6.3) of this section,

§ 39-1-102, C.R.S.

Specific policies and procedures developed to implement this statute are contained in the sections below.

General Policy Provisions

This policy and associated procedures cover classification and valuation of all oil and gas gathering, transmission, and distribution pipelines located in Colorado.

With respect to classification, both locally assessed gathering and transmission pipeline systems and systems that are state assessed as pipeline companies, gas transmission carrier companies, and gas companies are to be considered personal property. However, since valuation of state assessed property is specifically determined using the “unitary valuation concept” the pipeline valuation procedures contained herein do not apply to state assessed companies.

Examples of property that would be classified as personal property and covered under these procedures are:

• Pipeline Tubulars inclusive of installation cost
• Cathodic Protection Units, Compressors
• Pipeline Controls, Regulators, and Meters
• Gas Measurement Devices such as orifice, turbine, and venturi meters
• All other assets and articles, exclusive of buildings and structures, installed within the pipeline right-of-way.

Examples of property that would be classified as real property and covered under these procedures are:

• Land owned by the pipeline company
• Buildings, structures, fixtures, and fences classified as improvements pursuant to § 39-1-102(6.3), C.R.S.

Other components of the pipeline system may fall under one of the two examples as either real or personal property. For further clarification and guidance, contact the Division of Property Taxation.

Although flow line and piping located at oil and gas wellsites and tank battery sites are also similar to the types of pipeline property listed above, the value of flow line and piping is included in the market values published in Chapter 6, Oil and Gas Equipment Valuation, and should not be valued under this policy. Each Basic Equipment List (BEL) configuration created for the various basins in Colorado contains a value for the pipe and flow lines.

Definitions

Most oil and gas pipeline systems fall into one of three groups: gathering, trunk/transmission, or distribution. For the purpose of this policy and associated procedures, the following definitions will be used.

Pipeline System

A pipeline system is defined as a collection of pipeline facilities used to transport oil, natural gas, or NGLs from a source of supply (generally well site tanks) to the end user (natural gas) or final processing at a petrochemical refinery (crude oil and NGLs). The system may include gathering systems, transmission lines, distribution systems, and related facilities for compression, treatment, and processing the oil and/or gas during its journey through the system.

Gathering System

A gathering system is defined as a network-like system of pipelines that transport crude oil and natural gas from individual wellsites to a compressor station, treating or processing plant, or main transmission line. Gathering lines are generally short in length, operate at a relatively low pressure, and are small in diameter. The "Gathering" Percent Good Table should be used for pipe diameters less than 6 inches. In contrast, gathering lines of 6-inch diameter are considered as gathering “trunk” lines, despite their length. In the valuation process, the "Trunk/Transmission" Percent Good Table should be used for 6-inch, or more, diameter pipe.

Product Transmission System

A product transmission system is defined as pipelines designed and constructed for transporting product from principal supply areas to distribution systems, larger volume customers, other transmission lines, or petrochemical refineries. Transmission lines generally have a linear configuration, larger diameter pipe, operate at a relatively high pressure, and traverse long distances. Pipe diameters can be as small as 6 inches, but are generally 10 to 12 inches, or more. The “Trunk/Transmission” Percent Good Table should be used for these pipelines.

Distribution System

A distribution system is defined as a network-like system of pipelines that transport natural gas from a transmission line to end users’ service lines or to other distribution lines. Generally large pipelines are laid in principal streets, with smaller lateral lines extending along side streets and connected at the ends to form a grid or brought to a dead end.

Pipeline Classification Policies

Classification of Pipelines as Personal Property

Under the provisions of § 39-1-102(11), C.R.S., pipelines are to be classified as personal property. Land owned by the pipeline company, buildings, and structures located within the right-of-way or easement are to be classified as real property. The value of pipeline rights-of-way and easements is included as part of the value of the assets of the pipeline and associated machinery and equipment. No separate assessment of pipeline rights-of-way or easements is to be done.

State Assessed vs. Locally Assessed Pipelines

The Division of Property Taxation - State Assessed Section relies on the following general criteria when determining applicability for state assessment:

• The intent of statutory language contained in article 4 of title 39 of the Colorado Revised Statutes
• Existing Colorado case law
• Whether the entity owning the property is regulated by the Colorado Public Utility Commission (PUC), Federal Energy Regulatory Commission (FERC), or other governmental agency
• Whether the property crosses county and/or state boundaries
• Comparison of the subject property to assessment practices of other companies that are currently state and/or locally assessed.

If a question exists as to whether a pipeline property will be state or locally assessed, contact the State Assessed Section of the Division of Property Taxation for a determination.

Gathering Pipeline Systems vs. Trunk/Transmission Pipeline Systems

The final determination as to whether a pipeline should be designated as a gathering system pipeline (14 year economic life) as opposed to a trunk or transmission pipeline (22 year economic life) should reflect the judgment of the assessor based on the facts as they apply to the specific pipeline system under appraisal. Assessors are strongly encouraged to examine the physical characteristics and purpose of the pipeline when determining whether it is a gathering or trunk/transmission pipeline.

It is possible that larger diameter “trunk” lines, from 6 inches to 30 inches, could be used in the gathering system. Typically, such large-diameter pipe has a longer economic life than the smaller-diameter lines used in the rest of the gathering system. In this instance, if the trunk line measures 6 inches or more, it would be considered a gathering system “trunk/transmission” line and would be valued using a 22-year economic life for trunk/transmission lines.

Pipeline Valuation Procedures

As personal property, Colorado statutes require that the cost, market, and income approaches to value be considered in the valuation process. However, § 39-1-103(13)(a), C.R.S., mandates that the value determined using the cost approach to appraisal shall set the maximum value for the pipeline if all costs incurred in the acquisition and installation of the pipeline have been provided to the assessor. Additionally, all forms of depreciation are to be considered when establishing a final actual value for the pipeline. The assessment rate for pipeline systems is 27.9%.

For gathering systems, the primary approach to value will generally be the cost approach. However, market and income approaches are to be considered and applied if sufficient comparable sales or actual income and expense information exists. Assessors should be aware that few gathering systems sell or operate separately from the oil and gas reserve and/or gas processing plant to which the gathering system is connected. Total values determined from market and/or income approaches to value must be allocated to the various components of the total system so that separate values for each component are determined.

For product transmission and distribution systems, all three approaches are to be considered. Assessors should request income and expense information upon which to analyze net operating income. When sales of transmission and/or distribution systems occur, assessors need to confirm the sales price and terms of the sale and ascertain the allocated sales price for each component (transmission system v. other oil and gas assets) contained in the sale.

Cost Approach Valuation Procedures

When utilizing the cost approach to value, assessors may consider historical installed costs as well as replacement costs in establishing the cost new prior to application of depreciation. However, consideration of all forms of depreciation (physical, functional, and economic) is required when applying the cost approach.

Based on typical Federal Energy Regulatory Commission (FERC) filings from July 1, 2022 to June 30, 2023, the average breakdown of costs for onshore pipelines is shown as follows:

Based on information compiled by the Oil and Gas Journal, an average investment breakdown for crude oil and products pipelines is also listed below.

These percentages are overall industry averages and may not reflect exact cost allocations for a specific pipeline project in Colorado. Assessors should be aware of any substantive differences between the industry averages and information provided by the taxpayer and are encouraged to discuss with the pipeline owner any significant differences between the above cost allocation percentages and actual costs reported to the assessor.

Establishing Original Installed Cost:

For these procedures, the primary basis of the cost approach is the Original Installed Cost of the pipeline system. When possible, the assessor should obtain actual pipeline construction costs for each pipeline system in the county.

Research and discussions with industry indicates that there is no “typical” or “representative” pipeline system as far as installed cost is concerned. Construction costs depend on geographical area, size of the pipeline, number and size of pump and compressor stations, and general economic conditions.

Components of Historical Cost:

Examples of typical types of costs incurred when constructing a pipeline system are:

1. Right of way
2. Damages
3. Land survey
4. Pipeline materials and labor
   1. Cost of pipeline tubulars (e.g., line pipe and fittings)
   2. Installation costs
   3. Pipeline coating
   4. Cathodic protection
5. Engineering inspection
6. General overhead and contingencies
7. Regulatory and Legal fees
8. Cost of other services
9. Telecommunication equipment

Depending on the size and purpose of the pipeline, not all of the above costs may be separately listed by the pipeline owner. Assessors are strongly encouraged to solicit an accurate cost of the pipeline from the pipeline owner.

Costs used for valuation purposes are generally those costs that have been classified as assets and are capitalized and depreciated on the books and records of the company. However, pipeline right-of-way (ROW) acquisition costs should not be separately valued when valuing the assets of a pipeline, as original ROW acquisition costs are associated with land or its use. Since the pipeline could not exist without the Right-of-Way, the value of the Right-of-Way attributable to the pipeline is assumed to be included in the total actual value of the pipeline, once that value is determined. Damage costs paid to the landowner for damage caused by installation of the pipeline system are expenses, not capitalized assets, and are not to be valued with the pipeline or separately from it.

In general, the longer a pipeline is, the lower its cost per mile. A pipeline a few miles long will cost considerably more per mile than a pipeline several hundred miles long even though both are the same diameter and are laid out in similar terrain. Pipeline costs are often compared on an “inch-mile” basis to make the comparison less dependent on pipeline size. To convert to inch-miles, multiply the pipeline interior diameter by the number of actual miles of the pipeline.

Capitalized installed costs incurred to replace a component of the pipeline system can be accounted for by one of two methods. The first is to show the cost of replacement as a separate cost, trend this cost to reproduction cost new (RpdCN) as of January 1 of the assessment year, and depreciate the RpdCN as any other pipeline asset cost. However, a reduction in the original historical cost for the replaced component must be made to account for the fact that the original component is no longer a part of the pipeline system. Normal maintenance and repair costs that do not increase the economic life of the pipeline system should not be considered as capitalized replacement costs under this procedure.

The second method for the accounting of replaced equipment is to increase the percent good of the pipeline system to account for the added economic life due to replacement of the pipeline component. If this method is employed, the assessor should validate with the pipeline owner any measurable change in the remaining economic life of the system. In valuing the pipeline under the cost approach, the adjusted economic life (and resulting percent good) is used as the basis for recognizing normal physical depreciation.

Establishing Current Reproduction Cost New:

Once historical pipeline costs have been obtained, they must be trended to reproduction cost new (RpdCN) as of January 1 of the assessment year. When trending historical cost, the result is considered to be Reproduction Cost New (RpdCN), because it represents what was actually installed when the pipeline was new.

The Division has developed Cost Trending Factors to trend original installed costs to costs as if new as of the assessment date. These trending factors are based on “Total Transmission Plant” gas utility construction cost trends listed in Table G-5 of the Handy-Whitman Index of Public Utility Construction Costs by Whitman, Requardt and Associates. The trending factors for pipelines are also applicable to compressor station equipment, as well as measuring and regulating equipment. Since the factors in these tables have been calibrated to include the level of value adjustment factor, pipeline values do not require the use of a Level of Value (LOV) adjustment or “Rollback” factor. Put another way, the LOV Factor will always be 1.00.

The table containing the trending factors is found in Addendum 8-A, Cost Trending Factors and Percent Good Tables at the end of this chapter. A basic illustration on the use of the factors in the valuation of a gathering system for the 2024 assessment year is shown below:

The resulting reproduction cost new (RpdCN) figures represent the estimated cost to build the pipeline as if new as of the January 1 assessment date.

Special Rule Regarding the “Freezing” of the Cost Trending Factor:

When a component of pipeline personal property has reached its minimum depreciated value (15 percent), the applicable Cost Trending Factor in use at that time is "frozen," and will remain frozen until the component is permanently taken out of service. If this rule were not established, pipeline values would increase as they got older. This situation does not realistically happen in the marketplace.

An exception to this rule applies when the property has been reconditioned to extend its remaining economic life. In this instance, the assessor may substitute a later ‘year acquired’ thus increasing the cost approach value of the pipeline to reflect the additional value attributable to a longer remaining economic life.

The next step is to apply depreciation to the trended reproduction costs new in order to calculate reproduction cost new less depreciation (RpdCNLD).

Calculation of Depreciation

Depreciation calculations should consider the economic life of the pipeline, the economic life of the oil and gas reserve served by the pipeline, any loss in value due to super-adequacy of pipeline capacity or loss in functional utility, and economic obsolescence due to market forces affecting the oil and gas industry.

Types of depreciation that are recognized in the cost approach valuation of pipelines:

• Normal Physical Deterioration (due to normal wear and tear over the economic life of the pipeline).
• Extraordinary Physical Deterioration due to excessive physical deterioration from soil conditions or transportation of corrosive materials over and above the loss in value due to normal wear and tear.
• Functional/Economic Obsolescence due to lower than normal pipeline “throughput” in relation to operating design capacity.

Each of these forms of depreciation is discussed in greater detail below.

Normal Physical Deterioration:

Normal physical depreciation is accounted for through the use of depreciation tables. The depreciation tables are based on Iowa State University Retirement and Survivor Curve Studies for various types of commercial and industrial assets.

For trunk/transmission pipeline systems, the table is based on a 22 year economic life. For gathering systems using less than 6-inch pipe, the table is based on a 14 year economic life. These tables are identical to tables used for the valuation of other personal property components having the same economic lives.

Please note that the Iowa State University studies extend the minimum depreciated value floor from 14 to 17 years for gathering systems and from 22 to 30 years for trunk/transmission pipeline systems.

This table is found in Addendum 8-A, Cost Trending Factors and Percent Good Tables at the end of this chapter. An example of this procedure using the 14-year life table (Gathering System Pipeline) for the 2024 assessment year is shown below:

The percent good numbers listed in the Percent Good Table reflect normal depreciation assigned to the pipeline assets, excluding ROW costs, over the economic life of the pipeline.

Extraordinary Physical Deterioration:

Extraordinary forms of physical deterioration can exist from exposure to caustic or corrosive products transported within the pipeline as well as soil conditions that shorten the economic life of the pipeline.

Allowance for extraordinary deterioration can be made in one of two ways:

1. Allowance of additional physical deterioration can be measured by deducting the net “cost-to-cure” relating to the condition causing the extraordinary physical deterioration. Net cost-to-cure is determined by the total cost-to-cure less the current depreciated cost of the pipeline component being replaced.
2. Reduction of the remaining economic life of the pipeline causing a higher percentage of depreciation (lower percent good) to be applied to the reproduction cost new.

Generally, incurable extraordinary physical deterioration can be accounted for by reducing the percentage good assigned to the pipeline through the use of the depreciation table in Addendum 8-A, Cost Trending Factors and Percent Good Tables at the end of this chapter. This adjustment has the effect of lowering the remaining economic life of the pipeline or pipeline component that is affected by the condition.

The assessor should work closely with the pipeline owner to determine the reason for reducing the remaining economic life of the system. The adjusted economic life (and resulting percent good) serves the basis for application of normal physical depreciation and no additional adjustment for extraordinary depreciation is allowed.

For example, assume a gathering system pipeline with a normal remaining economic life (REL) of 10 years is suffering from advanced corrosion due to sulfuric acid created by excessive hydrogen sulfide gas (H₂S) in the natural gas stream. Although the pipeline owner had applied an interior coating to the pipeline to protect it from corrosion, the pipeline has only five (5) years left until the corroded section will have to be replaced or a new line installed.

The assessor may recognize this additional loss in value by decreasing the percent good obtained from the gathering system depreciation table found in Addendum 8-A, Cost Trending Factors and Percent Good Tables.

Functional/Economic Obsolescence:

After a pipeline system has begun operation, functional/economic obsolescence may become evident. This obsolescence may be caused by a drop in “throughput” (amount of product shipped through the pipeline) due to reduced oil or gas reserve estimates, super-adequacy of the system based on current supply, the shut-in (shut down) of wells due to economic conditions making production uneconomical, or other functional problems or economic conditions affecting the pipeline system.

Because of the time needed to connect wells and/or gathering systems to a new pipeline system, functional/economic obsolescence should be considered only after either of the following two conditions are met:

1. All of the wells and/or gathering systems for which the system was constructed to handle have been connected, or
2. Two full assessment years have passed since the pipeline began operation.

Calculation of functional/economic obsolescence should be done using the following formula:

An example calculation of physical depreciation and functional/economic obsolescence is shown below.

Example:

A natural gas gathering system, acquired in 2004 with regulators and structures constructed in 2006, experienced a drop in pipeline utilization (throughput) during the previous calendar year due to several gas wells being “shut-in” by outside producers that were connected to the pipeline. The previous year’s throughput was 12,000,000 MCF and the system’s capacity for which it is currently designed is 20,000,000 MCF.

Note: It is important to perform the mathematical calculations in proper order. Functional and economic obsolescence are to be applied to the physically depreciated value. Application of depreciation should be made in the following manner:

Depreciation calculations (inverse of table)

¹ Field line physical depreciation $2,345,250 x 0.56 = $1,313,340

Field structures physical depreciation $246,880 x 0.18 = $44,438

² Field line functional/economic obsolescence $1,031,910 x 0.113 = $116,606

Field structures functional/economic obsolescence $202,442 x 0.113 = $22,876

The value illustrated above represents the actual value of the pipeline including the value of the right-of-way attributable to the pipeline. In addition to the field pipe and field structures values, any other real and personal property used in conjunction with the pipeline must be valued and assessed separately.

Special Procedures for Newly Acquired Used Pipeline Personal Property:

In valuing used pipeline personal property, if the actual historical age of the personal property at the time it was acquired by the current owner either meets or exceeds the age corresponding to 15% Good in the Percent Good Tables for pipeline systems, the current owner’s actual acquisition cost is to be treated as the Reproduction Cost New, Less Depreciation (RpdCNLD). The actual used-property acquisition cost is "frozen" at that value until that component is permanently taken out of service. Cost Trending Factors and percent good tables do not apply to “frozen” values.

In valuing used pipeline personal property, if the actual historical age of the personal property at the time it was acquired by the current owner was less than the age corresponding to 15% Good in the Percent Good Tables for pipeline systems, the used personal property is treated as if new. The current owner’s actual acquisition cost is subject to depreciation as if the property’s economic life for ad valorem tax purposes had begun at the time it was acquired.

In both of the above circumstances, the resulting value should be compared to the sales comparison (market) value for the component, if sales are available.

Depreciated Value Floor for Pipelines (15 percent):

When using the cost approach to value pipelines, the minimum percent good inclusive of physical, functional, and/or economic obsolescence will be 15 percent (15 percent) of the pipeline’s reproduction cost new (RpdCN).

This floor may be exceeded when the market or income approach indicates a lower value or when the pipeline has been abandoned and no longer is capable of being used. Any pipeline value established from the use of the cost approach should be crosschecked with sales comparison (market) and income information sources, if possible, and the appropriate value used.

Income Approach Valuation Procedures

In accordance with Colorado constitutional and statutory provisions, the income approach to appraisal must be considered when establishing a value for a pipeline system.

The income (and market) approaches have applicability for valuation of both gathering systems and product transmission and distribution pipeline systems. Most gathering system values are tied to the economic life and economic viability of the oil and gas production field and/or processing plant that is connected to the gathering system. Allocation of income and expenses to the various components may be difficult. If an overall “system” income value is calculated, additional analysis of the relative worth of the various components may be required to arrive at a value of the pipeline property.

For product transmission and distribution pipeline systems, the income approach should be considered in determining actual value. When utilizing the income approach to value for transmission and distribution pipelines, the following steps should be followed:

Step #1 Obtain an Income and Expense Statement for the pipeline operation. A minimum of three (3) calendar years should be obtained.

Step #2 Determine Net Operating Income (NOI)

Step #3 Determine the Appropriate Capitalization Rate

Step #4 Capitalize the NOI to an Actual Value Estimate

Step #5 Allocate the Total Actual Value into Real and Personal Property Components

Each of these steps is more specifically discussed below.

Step #1 - Obtain an Income and Expense Statement:

Crucial to using the income approach to value is obtaining income and expense information about the pipeline. In many cases, the pipeline company may be able to provide the assessor with a financial statement listing income and expenses. It is recommended that at least three calendar years of income and expense history be obtained in order to stabilize estimate revenue and expense amounts to what would typically be experienced by the pipeline operation.

Gross income (revenue) estimates are based on the transportation revenue paid to the pipeline company for transporting the product. In some cases, the pipeline company may have a published (or unpublished) tariff that sets forth the fees and charges for transporting the oil and gas product. If a tariff or other form of transportation agreement exists between the producer and pipeline company, the assessor should request it. Because unpublished tariffs and transportation agreements may be proprietary and confidential in nature, the assessor must treat all such tariffs and agreements as confidential according to § 24-72-204(3)(a)(IV), C.R.S.

A list of typical expense categories that may be found in a pipeline income and expense statement are:

Operations Expenses

• Supervision and engineering
• System load and control dispatching
• Communication system expenses
• Compressor station labor & expenses
• Fuel and power costs
• Rents and leased equipment costs
• Compression of gas by others
• Other transmission expenses
• General overhead and administrative

Maintenance Expenses

• Supervision and engineering
• Maintenance costs for: structures and Improvements
• Transmission mains
• Compressor equipment
• Measuring and regulating station equipment
• Communication equipment
• Other equipment expenses

For the above categories, general types of expenses would be:

• Salaries, wages, and benefits paid to employees in the operation and maintenance of transportation mains, equipment and facilities
• Fuel and utility costs
• Materials and supplies including chemicals and lubricants
• Non-capitalized repairs, labor, materials, and supplies directly related to the transportation mains, equipment, and facilities
• Real and personal property taxes
• Insurance and payroll taxes
• Arm's-length rental, leasing, or contract service costs for operation and maintenance of the equipment and facility
• Allocated direct general and administrative overhead costs, e.g., headquarters personnel, telephone service, payroll taxes, employee benefits, vehicle expenses, office supplies, etc., that represent typical expenditures that are directly related to the operation and maintenance of the pipeline system, equipment, and improvements. Assessors should request a copy of the allocation methodology for any on-site or offsite general and administrative costs that are allocated and deducted.
• Book depreciation of the pipeline system assets that is calculated on a straight-line basis over the assigned economic life of the asset.

The assessor should evaluate all taxpayer-provided income and expense information and allow those expenses as a deduction from gross revenue that are directly related to the pipeline operation.

Step #2 - Determine Net Operating Income:

Net operating income is defined as the income remaining after deduction of operating expenses, maintenance expenses, and annual depreciation expense from gross revenue received by the pipeline. Depreciation must be calculated as a straight-line (non-accelerated) deduction from the capitalized remaining undepreciated balance of pipeline assets over its assigned economic life.

After appropriate expenses are deducted, the remaining income is termed net operating income (NOI).

Step #3 - Determine an Appropriate Capitalization Rate:

The Division of Property Taxation annually publishes capitalization rates for use in valuing locally assessed oil and gas pipelines. For 2023, the capitalization rates by pipeline type that must be used are:

This capitalization rate must be applied to the NOI of the pipeline. Because the overall rate applicable for gathering systems is tied to the economic life of the field or processing plant, this rate must be determined locally.

Step #4 - Capitalize Net Operating Income to an Actual Value Estimate:

Capitalizing net income estimates to actual value is calculated by dividing the net income estimates by the capitalization rate. An example of this calculation for a gas transmission pipeline is shown below:

$100,000 Net Operating Income (NOI)
÷ 0.1092 Published capitalization rate (Gas Transmission Pipelines)
$915,751 Actual Value Determined Through the Income Approach

The final step is to allocate the above pipeline system value to various real and personal property components.

Step #5 - Allocate Value into Real and Personal Property Components:

The actual value estimate determined from capitalization of net income represents the value of the entire pipeline system including land, rights of way, line pipe, structures, and personal property. To arrive at a reasonable value for the line pipe and attached fixtures, an allocation of the total actual value to the various components is required.

Allocation by original acquisition cost of the various pipeline system components can be considered. The assessor should request actual original acquisition costs from the company’s financial records for each of the pipeline system components such as rights of way, other lands, transmission mains, pipeline structures, compressor and pumping equipment, and other real and personal property components that are included in the system value of the pipeline. Right-of-way acquisition costs should be excluded from the allocation, as original ROW acquisition costs are associated with land or its use. Since the pipeline could not exist without the Right-of- Way, the value of the Right-of-Way attributable to the pipeline is assumed to be included in the total actual value of the pipeline, once that value is determined. Damage costs paid to the landowner for damage caused by installation of the pipeline system are expenses, not capitalized assets, and are not to be valued with the pipeline. Any intangible personal property will also have to be excluded before the final value is considered in the reconciliation process.

In determining allocation percentages, the original acquisition cost of all pipeline system assets, exclusive of right-of-way acquisition costs and damage costs to landowners, are totaled and percentages calculated for each asset as part of the total (100%). These percentages are applied to the indicated income approach value to determine the contributory value of each component of the pipeline system. If oil and gas reserves are included in the overall value of the pipeline system, qualified engineering studies will have to be obtained from the taxpayer to support the allocation of the overall system income value to the contributory value of the reserves. For the purposes of this methodology, it is assumed that each component of the pipeline system contributes equally to establish the total value of the pipeline system from the income approach.

The income (or market) value of personal property can only be considered if it is less than the value determined by the cost approach to value, § 39-1-103(13), C.R.S.

Market Approach Valuation Procedures

In accordance with Colorado constitutional and statutory provisions, the market (sales comparison) approach to value must be considered when establishing a value for a pipeline system.

The market (and income) approaches have applicability for valuation of both gathering systems and product transmission and distribution pipeline systems. Most gathering system values are tied to the economic life and economic viability of the oil and gas production field and/or processing plant that is connected to the gathering system. Allocation of the sales price paid for an integrated system into various components may be difficult.

If an overall “system” market value is calculated, additional analysis of the relative worth of the various components may be required to arrive at a value for the pipeline property. As stated earlier in these procedures, the cost approach typically is the primary method of value for gathering systems. However, for product transmission and distribution pipeline systems, the market approach should be considered in determining actual value.

Discussions with independent appraisal industry sources indicate that a considerable amount of sales information is unpublished and must be gathered directly from the seller or buyer. In addition, other sources of market sales information are industry reports and Security and Exchange Commission (SEC) 10-K reports for publicly traded companies.

If a product transmission pipeline sells within Colorado, the assessor should confirm the sales price paid and obtain additional information about the pipeline, such as:

1. Allocation of the pipeline sale price to the component values for rights-of-way, line pipe, improvements, and personal property, if possible. If non-pipeline assets such as oil and gas wells, gathering lines, or a gas processing plant were included, portions of the sale price attributable to each component of the pipeline system should be allocated.
2. Description of the pipeline operation including type of product transported.
3. Pipeline operational and physical characteristics, such as:
   1. Pipeline design capacity in MMcfd (million cubic feet per day)
   2. Average daily pipeline throughput in MMcfd for prior year(s)
   3. Type of product transported
   4. The length of the pipeline converted to inch-miles. To convert to inch-miles, multiply the pipeline interior diameter by the number of actual miles of the pipeline
   5. Age of the pipeline and buyers or sellers estimate of the remaining economic life
   6. Has any major rehabilitation or replacement of the pipeline been done since construction?
4. Does the sale price represent 100% ownership of the system?
5. Are the seller and buyer related parties?
6. Is there any intangible property included in the sale? (e.g., goodwill, tradename, workforce in place, etc.)

Each of the above questions and answers is useful in determining the comparability of the sold pipeline to the pipeline system under appraisal.

Making Market Adjustments to Comparable Pipeline System Sales:

Each pipeline system exhibits specific operating characteristics that will allow the appraiser to analyze sales of other pipeline systems similar to the subject property. These characteristics can be used as a unit of comparison when analyzing comparable pipeline system sales.

If a pipeline transports crude oil or natural gas, comparable pipeline sales could be analyzed on a barrel (Bbl) or million cubic feet (MMcf) per day actual throughput as a unit of comparison. Other areas of comparison that should be considered are:

• Age of the pipeline system
• Location in relation to proven oil and gas reserves
• Inclusion of non-pipeline assets such as oil and gas reserves, gathering systems, and product processing facilities

It must be pointed out that the valuation determined by the market approach encompasses all of the real and personal property of the pipeline system: land, rights of way, line pipe, buildings, structures, and personal property. It may also include intangible assets such as longterm transportation contracts as well. Intangible personal property must be excluded before the final value is considered in the reconciliation process.

Determining Market Values for Pipeline Systems Using Comparable Sales:

Because of the wide variance in pipeline design and product throughput volume, obtaining sufficient truly comparable sales may be problematic. The wide variety of pipeline locations, pipeline types and sizes, type of product transported, and pipeline operating characteristics requires a large database of sales with similar characteristics to ascertain comparability.

If determining a market value estimate is contemplated, it is suggested that a market range based on confirmed sales prices divided by the actual throughput in MMcf per day be attempted. Comparison of this range with other approaches to value will enable the appraiser to determine if the value is reasonable and defensible.

Reconciliation of Valuation Approaches to a Final Estimate of Value

In textbook examples of the reconciliation process, the cost approach, market approach, and income approach are weighed carefully to determine, in the appraiser's opinion, the final market value of the property. The reconciliation is the attempt by the appraiser to explain or reconcile differences that may exist between the various indicators of value and to review the strengths and weaknesses of each approach.

The final value conclusion is subjective, but is based on the indicators plus general overall value influences. Where the appraiser has adequate and reliable data, the greatest reliance is placed on this data in the reconciliation process. For newer pipeline systems in Colorado, the historical cost less depreciation approach is typically considered as the most reliable indicator of value. When the assessor is made aware of additional obsolescence based on functional and/or economic concerns, these adjustments should be considered.

However, as a pipeline ages, the cost approach becomes less reliable. Pipelines that are 15 - 20 years old typically generate higher values through the capitalization of net income than would be represented by the depreciated historical cost approach. However, uses of the income and market approaches carry with them some additional cautions regarding allocation of the indicated value into real and personal property components. Careful allocation of the market and/or income approach values must be done in order to estimate the representative market or income value attributable to the real property assets.

The actual value estimate determined from sales comparison analysis of comparable pipeline sales or from the capitalization of income approach will generally represent the value of the entire pipeline system including land, rights of way, line pipe, structures, and personal property. To arrive at an allocation of value between pipeline real property and personal property, allocation of the pipeline components by original acquisition or installation cost of the various pipeline system components can be considered.

The assessor should request actual original acquisition costs from the company’s financial records for each of the pipeline system components such as rights of way, other lands, transmission mains, pipeline structures, compressor and pumping equipment, and any other real or personal property components included in the pipeline system. Please note that intangible personal property will have to be excluded before the pipeline components are analyzed. Note also that right-of-way acquisition costs and damage costs paid to landowners are to be excluded from the analysis.

In determining allocation percentages, the original acquisition costs of all pipeline system assets are totaled and percentages calculated for each asset as part of the total (100%). These percentages are applied to the market approach value and/or income approach value(s) to determine the contributory value of each component of the pipeline system. For the purposes of this methodology, it is assumed that each component of the pipeline system contributes equally to establish the total value of the pipeline system from the income approach. Finally, each component is then classified as real or personal property in accordance with Colorado statutes and these procedures. According to § 39-1-103(13)(a), C.R.S., the market (or income) value of personal property can only be considered if it is less than the value determined by the cost approach to value.

If oil and gas reserves are included in the overall value of the pipeline system, qualified engineering studies will have to be obtained from the taxpayer to support the allocation of the overall system market value to the contributory value of the reserves.

Locally Assessed Pipelines

Level of Value Adjustment (Rollback) Factor

As required by § 39-1-104(12.3)(a)(I), C.R.S., the current actual value determined each year for personal property must be adjusted to the level of value applicable for real property. The procedure involves the multiplication of the current actual value estimate by the appropriate factor for the type of property being valued. Each year, the Division of Property Taxation researches and publishes these adjustment factors for use by all Colorado Assessors.

However, since the Cost Trending Factors for Pipeline Systems have been calibrated to include the Level of Value (LOV) adjustment (Rollback) factor, pipeline values do not require the use of a LOV factor. Put another way, the LOV factor will always be 1.00.

Best Information Available (BIA) Valuation of Pipelines

If a taxpayer is unable or unwilling to supply basic historical cost and/or income information for the valuation of the pipeline system, the assessor may determine a BIA valuation for the property. Two possible sources for BIA values can be used:

1. Comparable pipeline values per mile based on other pipeline assessments within the county or in other neighboring counties. Age of the system, pipeline throughput, and pipe size are important units of comparison when establishing BIA values. Assessors within the same oil and gas production basin are encouraged to discuss pipeline assessment practices and provide comparative assessment information to be reviewed by all assessors.
2. Section 62, page 6, of the Marshall Valuation Service manual should also be considered as a source of BIA assessments. Make sure you read the explanatory paragraph under “Pipeline Costs” associated with the typical costs per mile so the appropriate rate can be assigned. (As with most sections of the Marshall Valuation Service manual, local multipliers may be applicable to the section. Final figures may need to be adjusted to the appropriate level of value using Marshall’s own indices for such data.) You will also have to add costs for compressor/pumping equipment.

It is important that the BIA value be based on comparable pipeline cost information, assessment information, or other source of information related to the pipeline industry.

Bibliography of Sources

The following sources may contain additional information regarding how oil and gas pipelines are constructed and used:

• Fundamentals of Oil and Gas Accounting - 3rd. Edition
• “Gas Handling and Field Processing,” Plant Operations Training text, Penwell Books
• Modern Petroleum - A Basic Primer of the Industry, Penwell Books
• Oil and Gas Pipeline Fundamentals - 2nd Edition, Penwell Books
• Natural Gas Desk Book, published by Mobil Natural Gas Inc.

Assessors are encouraged to obtain one or more of the reference texts for use in understanding pipeline terminology and other intricacies of pipeline operations.

Example Valuation of an Oil and Gas Gathering System

The subject property is a 12.00-mile natural gas gathering system owned by B & B Production Company that encompasses 100 oil and gas wells in the Allentown gas field in Carbon County, Colorado. Also included is a pre-engineered metal field office (20’x40’) with concrete floor, four (4) field measurement and regulation station structures that contain regulation and measurement equipment, and two field compressors. For the purpose of this example, the field structures are portable and are classified as personal property.

Right-of-way acquisition cost for construction of the line was $350,000. Damage costs paid to landowners were included in the right-of-way acquisition cost. A pipeline site map was requested by the assessor and supplied by the taxpayer.

As of January 1, the gathering system consisted of the following assets:

Although the system has been in place for seven years, the taxpayer indicates that as of the January 1 assessment date, the line was not at normal operating capacity and that this condition had existed during the prior year. Discussion with the pipeline operator revealed that price negotiations had deteriorated between the pipeline company and a few large field owners and many gas wells were selling to local users, instead. This economic condition existed as of the assessment date. Design operating throughput for the pipeline is 25MMcf per day. Daily average throughput for the prior year was 12MMcf per day. The taxpayer did not indicate that any other forms of obsolescence were affecting the pipeline system.

Valuation of Subject Gathering System

Valuation of this gathering system will be based on the cost approach to value with additional consideration given to functional/economic obsolescence due to diminished throughput. The cost approach will be calculated using published factors and economic life depreciation guidelines. These factors and depreciation guidelines are included as Addendum 8-A, Cost Trending Factors and Percent Good Tables at the end of this chapter.

Valuation of Gathering System Field Line and Right of Way:

Since the pipelines are of different diameters both the 14 year-life and the 22 year-life tables will be used. If there are different years of construction, each year must be considered separately.

For pipeline valuation, Reproduction Cost New Less all Depreciation (RpdCNLD) is also termed the Actual Value of the pipeline. This is because pipeline Cost Trending Factors include the Level of Value Adjustment in the factors. Note also that the Right-of-way acquisition cost of $350,000, (which included damage costs paid to landowners) is excluded before the pipeline components are analyzed. Pipeline right-of-way (ROW) acquisition costs should not be separately valued when valuing the assets of a pipeline, as original ROW acquisition costs are associated with land or its use. Since the pipeline could not exist without the Right-of-Way, the value of the Right-of-Way attributable to the pipeline is assumed to be included in the total actual value of the pipeline, once that value is determined. Since damage costs are expenses and not assets, they should not be valued as part of the pipeline system.

Determination of Functional/Economic Obsolescence:

The analysis of gathering system throughput for the prior year indicates the pipeline is not operating at design capacity. This economic condition was caused by adverse contract negotiations causing lesser quantities of gas to enter the pipeline than expected. Recognition of the above condition is in the form of obsolescence and is calculated using the following formula:

Calculation of the actual obsolescence number is shown below:

Note: It is important to perform the mathematical calculations in proper order.

This calculation takes into account the loss in value for the gathering system assets due to diminished use.

Valuation of Field Structures:

Field structures typically include small, shed-like structures used to enclose meters or field regulators attached to line pipe. They may or may not be attached to a concrete foundation. Since the field structures are closely tied to and considered part of the line pipe, for convenience purposes they should be classified and valued as personal property using the same factors and depreciation tables as the line pipe.

Valuation of the Field Office

Since the field office is a pre-engineered metal improvement, it must be classified and valued as real property according to § 39-1-102(14)(c), C.R.S. To determine the cost approach value of the improvement, the Marshall Valuation Service commercial cost manual was used. Specifically, May 2021 base costs for Class S, average quality Light Commercial – Commodity Warehouse (104) utility buildings were used.

These costs are found in Section 17, page 11, of the Marshall Valuation Service manual. Using Section 98, page 5, the base costs were adjusted to reflect June 30, 2022, level of value by using the appropriate cost multiplier for the Western Region to trend the May 2021 base costs to the June 30, 2022, level of value.

Marshall Valuation Service recommended 25-year life and the depreciation table applicable for the improvements were used. The depreciation table is located in Section 97, page 8 of the Marshall Valuation Service manual. The field office was installed in 2008 and has an effective age of 16 years.

Field Office 800 Sq.Ft. (20’ x 40’) $24.25 x 1.744
x $42.29
= 6/30/2022 RCN $33,832
x 0.79 Percent Good (100% - 21% deprec.)
Actual Value $26,727

Total Valuation of Gathering System Assets

Valuation of all the pipeline assets is summed as follows:

Market Approach to Value

Under the Colorado constitutional and statutory provisions, the market (sales comparison) approach to value must be considered along with the cost approach when establishing a value for this gathering system.

In this example, there were no arms-length sales of pipeline gathering systems within the county or within Colorado. As such, this approach to value was considered but not used.

Income Approach to Value

According to Colorado constitutional and statutory provisions, the income approach to value must be considered when establishing a value for a gathering system.

In this example, the gathering system was operated as part of an integrated oil and gas production, processing, and transportation venture. There was no actual sale of the product upon which to complete an income and expense analysis. As such, this approach to value was considered but not used.

Consideration of lost revenue due to underutilization of the pipeline is accounted for in the functional/economic obsolescence analysis portion of the cost approach procedures.

Addendum 8-A, 2024 Cost Trending Factors and Percent Good Tables

Please note that while gathering systems have a 14 year economic life, they do not reach their fully depreciated fifteen percent good residual floor until year 17. Also note that while trunk/transmission pipeline systems have a 22 year economic life, they do not reach their fully depreciated fifteen percent good residual floor until year 30. The Iowa State University studies support the application of the above tables and residuals. The RCN Trending Factors are displayed in the same order as the Percent Good Tables allowing a straight-edge to be applied at the bottom of any particular Year’s row will reveal the correct Trending Factor, the Effective Age for that Year of Acquisition and the appropriate Percent Good for either a Gathering System or a Trunk/Transmission System.