Ohio Department of Taxation Personal Property Tax

County Bulletin

TO: ALL COUNTY AUDITORS - Bulletin No. 124

FROM: Stanley J. Bowers, Tax Commissioner

DATE: April 8, 1958

RE: Computing True Value of Furniture, Fixtures and Equipment of Hotel, Retail. and Other Establishments.

For many years it has been common practice for persons engaged in hotel, retail and certain other businesses to maintain their records on an exhaustion method. 'This exhaustion method entails the write off of the cost and accumulated reserves for depreciation of furniture, fixtures and equipment at the time such sets become fully depreciated. Of course, such a write-off does not necessarily coincide with the actual disposal of the assets and for this reason records so maintained do not lend themselves to a true value computation (302 method) as used by this Department for many years. The accuracy of the 302 method depends upon the availability of costs of all furniture and fixtures physically on hand and in use or held for use.

Experience indicates that some portion of the assets so written off as being fully depreciated are still on hand and in use or held for use. Recognizing that there is no absolute way short of a physical appraisal or an inventory to evaluate such fully depreciated assets still on hand and in use or held for use, this Department has adopted and is using presently, the method outlined in the sample computation affixed hereto.

In summary the method proposed provides that all fully depreciated write-offs be added back at cost by year of acquisition for all years including, a ten year period preceding the year in which the twenty per cent (20%) utility value is reached on the regular 302 method. It is assumed, with respect to such add backs, that an amount equal to ten per cent (100%) of the cost thereof win disappear each year commencing with the year preceding the oldest year of acquisition appearing on the regular 302 computation until a value of zero is reached.

It is to be noted and emphasized that this revised method is only to be used, and will only be followed, in instances where book records are maintained on an exhaustion system or where book records do not include all furniture, fixtures and equipment items still on hand and in use or held for use.

This revised method for determining the true value of items of furniture, fixtures and equipment, which have been written off the book records, but which are still on hand and in use or held for use, does not, under any circumstances, penalize a person recording disposals of assets. On the other hand, it does uniformly value assets which are still on hand but written off of the taxpayers books of records by reason of becoming fully depreciated.

EXHAUSTION METHOD (Bull. 124)

The exhaustion concept assumes that items of property which have aged to the "floor" of the 10% annual allowance are disposed of, thereafter, at a uniform rate of 10% per year.

Since a 10-year "life" is indicated by both the 10% annual allowance and the Class III percentages, the assumed disposal rate is continued in1980 and subsequent returns.

Comparison:

10% Annual Allowance                                                      Class III Percentages

Acq. Year	Disposals	Effective Pct.	Disposals	Effective Pct.
1958	-100%	0
1959	- 90%	2
1960	- 80%	4	-100%	0
1961	- 70%	6	- 90%	1.9
1962	- 60%	8	- 80%	3.8
1963	- 50%	10	- 70%	5.6
1964	- 40%	12	- 60%	7.5
1965	- 30%	14	- 50%	9.4
1966	- 20%	16	- 40%	11.3
1967	- 10%	18	- 30%	13.2
1968		20	- 20%	15.0
1969		22.5	- 10%	16.9
1970		25		18.8
1971		27.5		24.6
1972		30		30.5
1973		35		36.3
1974		45		42.2
1975		55		51.5
1976		65		62.0
1977		75		72.4
1978		85		82.8
1979		95		93.2

Note: *Computation of assumed disposals under the cost-index method is not affected by the change to composite group-lives. The cost-index method relates only to costs and disposalS-not valuation percentages.

Department of Taxation of Ohio

EXAMPLE OF INITIAL TRUE VALUE COMPUTATION – HOTELS RETAIL ESTABLISHMENTS

DEPRECIATING BY EXHAUSTION METHOD - 10 PERCENT DEPRECIATION RATE

1957 Return

#1	#2	#3	#4	#5	#6	#7	#8
Year Acquired	Cost at End 12/31/55	Add Back Fully Depreciated and Unrecorded Disposal Write-Offs at Cost 1935-36	%	Estimated Disposal of Items in #3 During 1956 Cost (3x4)	Estimated Remaining Cost of Items in #3 12/33/56 (3--9)	Sound Value %	Sound Value $
1935		6,000	100	6,000	-0-	20	-0-
1936		67,909	90	61,118	6,791	20	1,358
1937		96,938	80	77,550	19,388	20	3,878
1938		6,891	70	4,824	2,067	20	413
1939		-0-	60	-0-	-0-	20	-0-
1940		6,721	50	3,361	3,360	20	672
1941		15,487	40	6,195	9,292	20	1,858
1942		8,978	30	2,693	6,285	20	1,257
1943		93,241	20	18,648	74,593	20	14,919
1944		6,543	10	654	5,889	20	1,178
SUBTOTAL		308,708		181,043	127,665		25,533
		(A)		(B)	(c)		(D)

 

	Cost at End of 12/31/55	Additions & Transfers in 1956		Disposals & Transfers Out 1956	Cost at End 12/31/56
1945	7,540				7,540	20	1,508
1946	7,593				7,593	22 ½	1,708
1947	6,754				6,754	25	1,689
1948	12,010			9,800 (g)	2,210	27 ½	608
1949	10,928	1,460 (f)			12,388	30	3,716
1950	89,777				89,777	35	31,422
1951	75,766	14,900 (e)		12,000 (g)	89,466	45	40,260
1952	13,758				13,758	55	7,567
1953	23,000			1,300 (g)	21,700	65	14,105
1954	17,773				17,773	75	13,330
1955	8,695				8,695	85	7,391
1956	________	96,323		________	96,323	95	91,507
Subtotal	273,594	112,683		12,300	373,977		214,811
Gd.Total	273,594	421,391		193,343	501,642		240,344

1. Total Add-back of fully depreciated and unrecorded disposal write-offs at original cost.
2. Total estimated disposals.
3. Estimated remaining cost of (A).
4. Sound Value of (C).
5. Add-back of fully depreciated items with less than a 10 year life.
6. Transfer in current year.
7. Recorded disposals – current year.