A company under audit values its timberland using its own employees' appraisals for the property factor in the business allocation percentage; the state's Audit Division wants to use net book value instead. Which method is legally required, or does the Department have to pick one?

Plain-English summary

Union Camp Corporation, then under audit, disputed how to value its timberland for purposes of the property factor used in computing its Article 9-A business allocation percentage. Petitioner argued that appraisals performed by its own company employees should set the property's value; the Department's Audit Division instead proposed basing the valuation on net book value.

Tax Law § 210.3(a)(1) requires the property factor to compare the average value of a taxpayer's in-state real and tangible personal property to its property "wherever situated." The Franchise Tax Regulations (20 NYCRR 4-3.1(b), 3-4.5(a)) specify that "value" means fair market value -- the price a willing, uncompelled seller would sell for and a willing, uncompelled buyer would pay. But neither the statute nor the regulations mandate any single METHOD for arriving at that fair market value: it can be based on original purchase price, net book value, actual sales of the same or similar property, capitalization of income, expert opinion, or some appropriate combination, and determining which method best fits a given asset is inherently a question of fact.

Because Union Camp's own appraisals versus the Audit Division's net book value were competing factual claims about which better captured the timberland's true fair market value, the Department held that choosing between them was "not susceptible of resolution in an Advisory Opinion." It made no determination as to which was more appropriate -- only that NEITHER method is inherently improper as a valuation approach. If the Audit ultimately assessed tax based on net book value and Petitioner disagreed, its remedy was to contest that specific factual determination through a petition for redetermination of a deficiency under Article 27 of the Tax Law, not through an Advisory Opinion.

What this means for you

Businesses disputing property valuation methods with the Audit Division

Don't expect an Advisory Opinion to settle a live factual disagreement over which valuation method (appraisal, net book value, comparable sales, etc.) best reflects your property's fair market value -- that determination happens through the audit and, if necessary, a formal redetermination petition, not through the Advisory Opinion process.

No single "correct" valuation method exists under the property factor rules

If you're computing your own property factor, know that the regulations deliberately leave room for multiple valuation approaches; net book value, expert appraisal, comparable sales, and capitalized income are all potentially legitimate depending on the facts, and the Department may require a different method than the one you used if it finds yours doesn't properly reflect value.

When to expect a framework versus a definitive answer

Like TSB-A-83(7)C (CIT Financial, a receipts-sourcing question also deferred to a pending Audit), this opinion illustrates that the Department will lay out the applicable legal framework but decline to resolve a fact-intensive dispute already under Audit, leaving the number-crunching to that process.

Common questions

Q: Is there one "correct" way to value property for the business allocation percentage's property factor?
A: No. Fair market value can be determined through original purchase price, net book value, comparable sales, capitalized income, expert appraisal, or a combination -- the regulations don't mandate a single method, and which fits best is a question of fact.

Q: What can I do if I disagree with the Audit Division's chosen valuation method after an assessment?
A: File a petition for redetermination of a deficiency under Article 27 of the Tax Law to contest the method's accuracy in producing a factually correct figure.

Q: Can another company with a similar timberland-valuation dispute rely on this Opinion?
A: No. It binds the Department only as to Union Camp's own facts, and in any event resolves nothing about WHICH method is correct -- it only confirms neither method is categorically improper.

Citations and references

Statutes and regulations:

• Tax Law § 210.3(a)(1) (property factor)
• 20 NYCRR 4-3.1(b); 3-4.5(a) (fair market value definition and standard)
• Article 27 of the Tax Law (petition for redetermination of a deficiency)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a82_10c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(10)C
Corporation Tax
July 20, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C810622E

On June 22, 1981, a Petition for Advisory Opinion was issued from Union Camp
Corporation, 1600 Valley Road, Wayne, New Jersey 07470.
The issue raised is the proper valuation of Petitioner's timber land for purposes of computing
the property factor to be used in determining Petitioner's business allocation percentage under Article
9-A of the Tax Law. Petitioner contends that appraisals made by company employees should be
utilized. Petitioner is presently under audit, and the Audit Division of the Department of Taxation
and Finance proposes to base its evaluation on net book value.
Section 210.3(a)(1) of the Tax Law provides for the computation of a property factor, to be
utilized in allocating a taxpayer's entire net income within and without the State, based on a
comparison of the "average value of the taxpayer's real and tangible personal property" situated
within the State to the value of all of the taxpayer's property "wherever situated." Section 4-3.1 of
the Franchise Tax Regulations provides that the term "value" as used in the foregoing statutory
provision means "fair market value." Such regulation goes on to provide that:
"(b) The average fair market value of real property and tangible personal property owned by
the taxpayer is determined in accordance with the provisions of sections 3-4.5 and 3-4.6 of
this Title. This applies to property both within and without New York State and is the same
method as is used to determine the amount of the taxpayer's capital The Tax Commission
may require a taxpayer to use a different method of valuation if it finds that the method used
by the taxpayer does not properly reflect the property values." 20 NYCRR 4-3.1(b).
Section 3-4.5 of the Franchise Tax Regulations, referred to above, defines the term "fair
market value" as follows:
"(a) The fair market value of any asset owned by the taxpayer is the price at which a willing
seller, not compelled to sell, will sell and a willing purchaser, not compelled to buy, will
buy." 20 NYCRR 3-4.5(a).
Neither the Tax Law nor the Franchise Tax Regulations provides for any single method for
determining the fair market value of an asset. The determination of the value of property is a
question of fact, and such value may be arrived at by any of various methods no one of which is
necessarily conclusive. Thus, the value may be arrived at based on original purchase price, net book

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-82(10)C
Corporation Tax
July 20, 1982

value, actual sales of the subject or similar property, capitalization of income, the use of expert
opinion, or any appropriate combination of the foregoing and any other factors relevant in a
particular case. In the present instance Petitioner contends that its appraisers can provide an accurate
estimate of the fair market value of the property in question, while the Audit Division has contended
that net book value provides a more correct basis. Inasmuch as the question of which of these is the
more appropriate figure is one of fact, it is not susceptible of resolution in an Advisory Opinion.
Therefore, no determination is here made as to whether one of these methods is the more appropriate
one. It is determined here merely that neither expert appraisal nor net book value would be an
inherently inappropriate basis for valuation. Thus, if an assessment is issued based on the utilization
of net book value Petitioner would be afforded an opportunity to contest the utility of such method
in arriving at a factually correct figure by filing a petition for redetermination of a deficiency,
pursuant to the provisions of Article 27 of the Tax Law.

DATED: July 20, 1982

LOUIS ETLINGER
Deputy Director
Technical Services Bureau