General Valuation Information
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 (§§ 39-1-103(5) and 39-1-104(12.3)(a)(I), C.R.S.). Colorado statutes define actual value as that value determined by appropriate consideration of the following approaches to value:
- Cost Approach
- Sales Comparison (Market) Approach
- 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. 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 Assessors' Reference Library, Volume 5, 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.
Three Approaches to Value
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.
Sales Comparison (Market) Approach
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
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.
For more information on the valuation of personal property for property tax assessment purposes, see Assessors' Reference Library, Volume 5, Chapter 3.