Laws, Regulations & Annotations
Property Taxes Law Guide – Revision 2014
Property Tax Annotations
660.0000 POSSESSORY INTEREST
660.0351 Valuation. When applying the income approach, the direct income approach is not a preferred valuation method over the indirect income approach. The particular income method should be applied as circumstances permit. Additionally, the use of contract rent (e.g., rent to the lessor) should only be used for valuation purposes if the contract rent provides good evidence of economic rent. If contract rent is used as an indicator of economic rent, the lessor's gross rental income generally should be reduced by both a reasonable vacancy and loss factor and typical management and other operating expenses of the lessor to arrive at the income to be capitalized. Net rental income may be considered the same as gross rental income where a lessee is responsible for all expenses, such as with a "triple net" or "net" lease; however, in general, gross income must always be reduced by various types of expenses to arrive at net income, the income to be capitalized.
There should be a consistent application of the property tax component to the rent income capitalized. If an amount for property taxes is included in the income being capitalized, then a property tax component should be added to the capitalization rate. If, on the other hand, an amount for property taxes is not included in the income being capitalized, then a property tax component should not be added to the capitalization rate. C 7/31/2000.