Business Valuation Ad Valorem Taxes
Ad valorem is a Latin expression that has found its way into English dictionaries. It means "according to value" and is the basis for assessing property taxes in virtually all state and local taxing jurisdictions. Municipal taxing authorities have been hard-pressed to raise ade- quate funds. Sometimes assessing officers are pressured to be aggres- sive in their opinions of the values of taxable properties.
Many sudden and huge increases in property taxes have been levied on such busi- nesses as manufacturers, shopping centers, and motels. In many cases, the economics of the respective businesses have not justified the in- creases. Businesses have often been assessed for real estate values that exceeded the entire going-concern value of the total business, including the real estate. Taxpayers can save millions of dollars by properly valuing busi- nesses in which the business and the physical property are interrelated. Fair market value is the legal standard of value in most ad valorem cases.
The real-world market values such properties on their ability to produce income, which is this book's primary business valuation / Business Appraisal focus. Proper ap- plication of business business valuation / Business Appraisal principles should be able to counteract some methods used in many assessing jurisdictions. These methods sometimes produce values well in excess of the applicable legal stan- dard of fair market value. On the other hand, in many states, ad valorem taxes are applicable only to the value of tangible assets. In these cases, taxpayers may save a lot in taxes by having an analyst separate the total value into the tan- gible and intangible portions, paying tax only on the tangible asset value.