COA Reverses Property Tax Commission and County For Formulaic Valuation of Business Personal Property

In In the Matter of IBM Credit Corp., the COA reversed the Property Tax Commission for signing off on Durham County's formulaic application of a schedule for valuing millions of dollars in computer equipment. Instead, the COA ruled, the County and Commission should have taken into account functional and market obsolescence in determining the equipment's value.

Durham County valued IBM's equipment according to a form schedule, U5, which was developed by the Department of Revenue and ascribed a 5-year life to computer equipment. The County's proper application of U5 was enough to get to a presumption of correctness.

But IBM rebutted the presumption, with, among other things, expert testimony on the computer market and values. IBM showed what I know to be true as I write on my 4-year-old, worth-nothing Mac -- that rapid technological changes in computers cause quick decreases in computer equipment's market value.

The burden then shifted to the County to show that its calculation method did in fact get to the equipment's true value. The County failed to meet that burden, and the Property Tax Commission, in upholding the County's valuation, failed to address key issues (i.e., what is the market value of the property being appraised) and failed to support its conclusions.

The COA noted that the Commission posited that the U5 is legal, used by all of NC's 100 counties, and was applied correctly by the County here. But a tax appeal is not simply a matter of determining whether the right government schedule was used. The COA therefore reversed and remanded, sending the case back to the Commission to get to a correct valuation.