November 16. 1964

FROM: Louis J. Schneider. Jr. Tax Commissioner

RE: Computing True Value of Furniture, Fixtures and Equipment of Hotels and Motels

Bulletin No. 124. issued April 8. 1958, Is hereby amended to substitute a valuation method for furniture, fixtures and equipment of hotels and motels. The exhaustion method continues in effect for the valuation of furniture, fixtures and equipment of retail and other establishment where book records are maintained on this method or where book records do not include all such items still on hand and in use or held for use.

Assuming that hotels and motels begin business with a fixed floor area completely furnished, later acquisitions are primarily replacements. If complete and accurate figures are not available, replacement allowance can be computed and substituted for disposal values in the 302 True Value Computation, by the application of standard equipment cost indexes. A replacement allowance percentage, obtained by dividing the former year cost index by the current year cost index, is applied to the cost of the current acquisition to determine the replacement allowance for the property replaced. For example. If a $5, 000 furniture purchase replaces twelve-year-old furniture, and the cost index of twelve years ago is 79% of the cost Index of the current year, the replacement allowance to 79% of $5,000 or $3, 950. Each year's acquisitions are considered as replacements of oldest items not yet offset by prior replacement allowances. By converting the cost of the new items into equivalent costs of the past years, through the cost-index percentage. disposals of old items are credited at the computed replacement allowances. This method to the reverse of the common appraisal practice of computing present replacement costs of property.

The following sample computations and cost Indexes for hotel and motel equipment for the years 1925 through 1963 and the first half of 1964 illustrate the method to be used.

COST INDEXES FOR HOTELS AND MOTELS

Year            Cost Index              Year          Cost Index           Year          Cost Index            Year            Cost Index

1964*               220.3                 1954                174.9               1944            102.7                    1934                  72.9

1963                   219.5                 1953                 174.2               1943             100.8                     1933                  71.5

1962                   217.1                 1952                 172.8               1942             100.1                     1932                  68.5

1961                   215.4                 1951                 173.5               1941               93.6                      1931                  72.8

1960                   214.3                 1950                 160.9               1940              88.8                       1930                  83.3

1959                   212.7                 1949                 153.6               1939              85.2                       1929                  89.1

1958                   210.9                 1948                 160.5               1938              82.8                       1928                  94.8 

1957                   206.7                 1947                 148.6               1937              85.2                       1927                  95.3

1956                   195.8                 1946                 120.6               1936              81.2                       1926                100.0

1955                   181.5                 1945                 103.8               1935              77.7                       1925                107.8

*Six Month Index - 1964

APPLICATION

What was the cost of furniture acquired in 1951 which was replaced in 1963 at a cost of $5, 000 ?

1951 cost index          173. 5 = 79%

1963 cost index           219.5

                                  79% of $5, 000 (1963 cost) = $3,950 as 1951 cost

TRUE VALUE COMPUTATION

December 31, 1963

DEPARTMENT OF TAXATION

      INTER-OFFICE COMMUNICATION

TO :      ALL DISTRICT MANAGERS

DATE:  February 6, 1978

FROM: Thomas R. Nourse, Admin. Asst., Property Tax Division

RE:      County Auditor Bulletin No. 198

ATTN:   Property Tax Supervisors

The following is a summary and update of all the cost indexes established since the issuance of the bulletin, November 16,1964.

                                                 Year                                    Cost Index

TRN/pj

cc: Jim Witzel

Wil Margeson

Chuck Green

Ed Heinke Jr.

Bob Dudgeon

Jack Cook

Chris Whitaker