Ariz. Admin. Code § 15-4-204

Current through Register Vol. 30, No. 24, June 14, 2024

Section R15-4-204 - Cost Approach Procedures for Mines

A. The cost approach estimate for mine property shall include a value for land, supplies inventory, ore reserves, construction work in progress, improvements and personal property. This value shall be based on the theory of reproduction cost new, less all applicable forms of depreciation for the property.

B. Ore reserve value is based on a representative value factor multiplied by units of recoverable metal or mineral that can be expected to be mined during the life of the mine. The value factors are based on an analysis of sales of comparable mineralized bodies in the United States and Canada. Values for land included within the producing unit are based on land values supplied by the county assessor and approved by the Department. Changes in ore reserve factors shall be made available, upon request, by the Department by March 1 of the tax year.

C. Supplies inventory for the mine shall be valued at cost less any appropriate depreciation. Shrinkage shall be considered if the taxpayer supplies quantitative data related to the amount warranted. Physical depreciation for supplies shall be limited to shelf life deterioration and shall not include wear and tear. Functional and/or economic obsolescence shall be considered where the amount of obsolescence was computed on the overall performance of the mine unit or utilizing the "unit concept". Residual or salvage factors shall be applied to nonliquid supplies when residual or salvage values are determinative. Liquid supplies shall be valued at cost in every case except when the taxpayer can show cause for spoilage. Supplies which are totally obsolete shall be valued at salvage. The inventory amounts shall not include any value attributable to metals inventory or other production inventory held for sale.

D. Construction work in progress shall be discounted at the mine's discount rate if completion is expected to be in excess of 1 year. Functional and/or economic obsolescence shall be considered where the amount of obsolescence was computed on the overall performance of the mine unit or utilizing the "unit concept". Residual and salvage factors shall be applied if the residual and salvage values are determinative. Physical depreciation shall not be considered.

E. Improvements and personal property as reflected in the financial statements of the taxpayer shall be valued on a reproduction cost new less depreciation basis. The cost index for valuing mine property shall be derived from the Department's manual unless actual market values are ascertainable. The basis for physical depreciation shall be straight line.

F. Depreciation schedules shall be included in the Department's appraisal manual for mines. Residual value factors shall be applied to equipment still in service after the expiration of its depreciable life. Residual value factors shall be based on resale values for equipment where resale values are available. Appropriate obsolescence shall be applied to residual value. Salvage values for all improvements and personal property shall be derived by applying the Department's factor to the original cost of the improvement or personal property unless actual salvage values are ascertainable. A summary of equipment lives, salvage factors, and an itemized listing of equipment categories shall be included in the manual. For purposes of this cost approach procedure there shall be at least 8 major classes of equipment and improvements:

1. Mining, small scale;

2. Mining, large scale;

3. Milling and leaching;

4. Smelting;

5. Office;

6. Environmental;

7. Shovels and drag lines; and

8. Buildings and improvements.

G. Depreciation in the form of functional or economic obsolescence shall be applied to improvements and personal property where warranted. These forms of obsolescence may be a result of a lack of necessary environmental facilities, technological changes, long-term production curtailments, production performance versus projected performance, or environmental regulations. The mine's financial performance shall be considered as an indicator of obsolescence. Economic and/or functional obsolescence shall be considered on an individual basis for each property and may be related to the life of the ore reserve. Salvage value shall be the controlling limit of the maximum amount of depreciation that may be applied. Economic obsolescence shall be applied when appropriate.

Ariz. Admin. Code § R15-4-204

Adopted effective December 10, 1985 (Supp. 85-6). Amended effective May 24, 1989 (Supp. 89-2).