depreciation effective age equalization GIS greenbelt improvement

depreciation

effective age

equalization

GIS greenbelt

improvement

income approach

market

approach

personal property

discount rate

public utility

real property

parcel identification number

common carrier

discount rate

public utility

state assessed properties

unit method

Administrative Law Judge

contested case hearing

certified tax rate

tax increment financing

agreements

Assessment Appeals Commission

major federal program

modified opinion

assessor of property

appeal

appraisal

ad valorem

arm’s-length transaction

payment in lieu of tax

cadastral map

classification

cost approach

depreciation tax rate

common carrier

unitmethod

reappraisal

greenbelt

improvement

incomeapproach

marketapproach

parcel

Defining Tennessee

Property Assessments

A Glossary of

Property Assessment Terms

VOLUME I / 2018

Justin P. Wilson, Comptroller of the Treasury

Defining Tennessee

Property Assessments

A Glossary of

Property Assessment Terms

VOLUME I / 2018

Justin P. Wilson, Comptroller of the Treasury

Preface

One of the important functions of the Comptroller’s Ofce is

ensuring effective administration of property assessments and

property taxes. Our ofce carries out a host of responsibilities in

this area, such as:

• helping local governments with their reappraisal

programs and providing them with data processing and

mapping services,

• ensuring the assessment of property for taxes is done in

compliance with the state constitution and state law,

• conducting annual appraisals, assessments, and audits of

public utility and transportation properties, and

• administering the state’s Property Tax Relief Program.

The technical terms and language of property assessment can

impede understanding, even among those who are experienced

policy makers. In furtherance of our ofce’s mission to make

government work better, we have created this glossary with

denitions of commonly-used terms and their relevance to

property assessments conducted in the State of Tennessee.

The glossary contains over 230 entries covering many essential

property assessment-related terms, from appraisal to tax increment

nancing to public utility.

We hope you find this publication to be a helpful resource

when considering property assessment-related matters. An online

version of this glossary is also available on our ofce’s website.

Sincerely,

Justin P. Wilson

Comptroller of the Treasury

Jason E. Mumpower

Chief of Staff

accelerated amortization

Accelerated amortization refers to the accruing of greater

depreciation expense for income tax purposes in the early years of

a property’s life and less in later years. Such authority stems from

Defense Plant Certicates (see Section 168 of Internal Revenue

Code) accounting depreciation.

accelerated depreciation

Accelerated depreciation is any method of calculating the

decrease in value of an asset that allows for greater deductions in

the earlier years of the life of an asset. (Compare this with straight

line depreciation, which spreads the depreciation evenly over the

life of an asset.) This method assumes that an asset will be used

more during the early years and will therefore depreciate more

during this time. As an asset ages, the assumption is that it will be

used less and therefore will lose value more slowly. Two methods

of accelerated depreciation are (1) sum of the years’ digits and (2)

double declining balance.

See also:

• straight line depreciation

accrual accounting

Accrual accounting refers to recording the revenues and

expenses based on amounts due or owed during the report period,

regardless of whether the payment was made or received. In accrual

accounting, expenses and revenues are counted at the time of the

transaction, not at the time of actual cash transfer. This method

counts transactions during the report period when the transaction

occurred, regardless of when the payment was made. This is the

opposite of cash accounting, which counts a transaction only when

there is an exchange of cash. Accrual accounting is a more complex

method of accounting, but it provides a more accurate picture of

current nancial status.

acre

An acre is a unit of measurement for tracts of land. One acre is

equal to 43,560 square feet of area, which may be in any shape. One

acre is about three-fourths the size of a football eld.

ad valorem tax

A tax levied in proportion to the value of taxable property.

administrative law judge

Administrative law judges are responsible for hearing and

deciding initial contested case proceedings led before the State

Board of Equalization (contested case hearings are proceedings

in which a taxpayer appeals a judgment by a county board of

equalization). The judge performs independent, complex legal

work in conducting contested case hearings pursuant to the

Uniform Administrative Procedures Act and property tax code

before the State Board of Equalization, and rules upon and decides

evidentiary and procedural law questions prior to and during

contested cases.

Administrative law judges are employed by the Secretary of

State’s Administrative Procedures Division. They are professional

administrative judges who resolve disputes between citizens and

governmental agencies in an impartial manner.

See also:

• appeal

• board of equalization

• contested case hearing

• county board of equalization

• State Board of Equalization

advance payments for gas

Gas exploration and production companies may make cash

payments to producers to nance exploration for gas. If any gas

is discovered, the company making the advance payment has the

right to bid on or buy all or part of the discovered gas. Repayment

of the advance is taken in the form of delivered gas.

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

agricultural land

Agricultural land is one of three categories of land that may

qualify for use value assessment under the Agricultural, Forest, and

Open Space Land Act of 1976, known as greenbelt. In Tennessee,

for purposes of greenbelt classication, agricultural land must be

at least 15 acres, including woodlands and wastelands. In addition,

the land must also meet one of two requirements: (1) the land is

currently engaged in the production or growing of agricultural

products, or (2) the land has been farmed by the owner, the owner’s

parent or the owner’s spouse for at least 25 years, and is now used

as the residence of the owner and not for any purpose inconsistent

with an agricultural use. If the land is both 15 acres and one of

the two conditions is met, the assessor must determine whether

the claimed farming activities represent the primary purpose for

which the property is/was used.

Qualifying agricultural land is assessed for its value based on

the current agricultural activities, not what a willing buyer would

pay for the property if its use was not restricted and it could be

developed for residential or commercial purposes. Agricultural

property in Tennessee is commonly referred to as greenbelt

property.

See also:

• forest land

• greenbelt

• open space land

• use value

allowance for funds used

during construction (AFUDC)

Allowance for funds used during construction (AFUDC) is the

process of capitalizing interest expense on funds used during

the construction period. As property does not generate earnings

during construction, the capitalized interest expense represents

imputed earnings. The capitalized interest becomes part of the

total cost of the project.

amortization

Amortization is the systematic allocation of the cost of an

intangible asset (e.g., patent, trademark, or computer software)

over its useful life. For example, if something valued at $100 is to

be amortized over 10 years, the nancial reports will include an

expense of $10 for each of the 10 years.

annotation

An annotation is a note on a map that describes a specic item,

such as the acreage on a parcel of land.

annuity

Annuity refers to regular payments over a xed period of time

(for example, payments every month or year for a dened number

of years or for life).

anticipation

Anticipation is an appraisal principle which refers to the

perception that value is created by the expectation of future

benets.

According to the principle of anticipation, a property’s value is

based on the value that is anticipated in the future. Any expectation

of future benets (for example, future rental income) can affect the

appraisal of property in the present time.

antipollution controls

In general, antipollution controls are government regulations

aimed at preventing the contamination of clean air and water

supplies. Tennessee has enacted several statutes to regulate

pollution within the state, including the Water Quality Control Act

and the Air Quality Act.

appeal

The appeal process involves a disputed assessment on locally

assessed (all property other than public utility and transportation

property) and/or centrally assessed (public utility and

transportation property) property, which can be initiated by a

taxpayer, entity, attorney, representative of entity/taxpayer, or

county ofcial.

For locally assessed property, the review process begins in early

spring at the local county assessor level. There are additional

administrative appeal rights after this at the county board of

equalization, the State Board of Equalization, and the Assessment

Appeals Commission. After an appellant has exhausted these

administrative appeal rights, they may seek further review before

a Chancery Court.

For centrally assessed property, the informal review process

begins May through June before the Ofce of State Assessed

Properties. The additional administrative appeal rights begin

within 10 days after the rst Monday in August in which exceptions

may be led with the Comptroller’s designee. On or before the rst

Monday in September, the Comptroller les with the State Board of

Equalization the assessments made, and at this point appeals can

be made to the State Board of Equalization for hearing before an

administrative law judge. After the company has exhausted these

administrative appeal rights, it may seek further review before the

Court of Appeals.

See also:

• administrative law judge

• county board of equalization

• Ofce of State Assessed Properties

• State Board of Equalization

Appeals Handbook

The Comptroller’s Ofce publishes an Appeals Handbook

to provide assessors’ ofces with guidance in the handling of

appeals before county boards of equalization and the State Board

of Equalization.

The Appeals Handbook includes interpretations of law by

legal staff with the Comptroller’s ofce, discussions concerning

valuation methodology prepared by both the Comptroller’s legal

staff and appraisers with the Division of Property Assessments,

and guidance on common legal and appraisal issues faced by

assessors in the appeals process.

apportionment to intrastate

jurisdiction

Apportionment to intrastate jurisdiction refers to the process

of assigning a portion of a state value, state statistic, or company

statistic to geographical areas, usually tax levying districts or codes

within the state.

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

appraisal

An appraisal is the process by which the appraised value of

property is determined. An appraised value is the estimate of the

most probable selling price of a property. In the appraisal process,

physical characteristics are listed (dimensions, construction

type, age and condition of buildings, size and features of land)

and computer resources are used to assist in the analyses and

calculations required to determine the appraised value. An

assessor’s experience and appraisal judgment are a factor in any

appraisal.

See also:

• computer-assisted mass appraisal (CAMA)

appraisal ratio

Appraisal ratio is a ratio based on a comparison of appraised

values recorded for real property and recent sales and/or expert

appraisals.

The appraisal ratio indicates generally what percent of market

value is represented by the appraised value of a property.

The median appraisal ratio is used to achieve equalization.

This ratio is an adjustment factor applied to appraised values of

property already recorded at full fair market value.

The appraisal ratio is adopted by the State Board of Equalization

for every county on an annual basis.

See also:

• equalization

appraisal ratio report

An appraisal ratio report outlines the difference between

appraised value and market value. The Division of Property

Assessments publishes an annual real estate appraisal ratio

report, which provides the overall median ratios for all assessed

real property by county. The division has a legal responsibility to

conduct appraisal ratio studies in all counties in Tennessee at least

once every two years. The division coordinates all phases of the

study including data collection by assessors, sales data review by

division eld personnel, and analysis. Ratio studies are conducted

primarily to determine the accuracy of assessments within each

assessing jurisdiction, to disclose the full value of taxable property,

to aid in the development of reliable measurement standards, to

guide the equalization process, and to indicate any nonuniformity

in assessment.

appraisal report

Appraisal reports are the oral or written communications of an

appraiser’s ndings once an appraisal is complete. In Tennessee,

taxpayers often use private appraisal reports when appealing

property assessments to county boards of equalization and the

State Board of Equalization.

appraised value

The appraised value for each taxable property in a county is

determined by the county property assessor. This amount is an

estimate of the most probable selling price of a property. The

appraised value is multiplied by the assessment ratio to determine

the assessed value.

See also:

• assessed value

• assessment ratio

arm’s-length transaction

An arm’s-length transaction is any sale between two unrelated

parties (buyer and seller) who are seeking to maximize their

benets from the transaction and are not under any outside

pressure or inuences.

assess

To assess is to value property for the purpose of taxation.

assessed value

The value of a property for tax purposes is the assessed value.

A property’s assessed value is different from its appraised value.

See also:

• appraised value

• assessment ratio

assessment

An assessment is the process by which an assessed value is

determined. The assessed value is the value of a property to which

the adopted property tax levy or rate is applied to determine the

amount of property taxes related to the property.

A property’s assessment is distinct from its appraisal. The

appraisal comes rst and the assessment process follows. The

assessment process starts by classifying the property (e.g.,

residential, farm, commercial and industrial, etc.). The assessed

value is then calculated by taking the assessment percentage

for that classication from the appraised value. The Tennessee

assessment percentages are set out in state law:

Residential real property 25%

Farm real property 25%

Commercial and industrial real property 40%

Public utility real and personal property 55%

Business personal property 30%

Example: A residence appraised at $100,000 would have an

assessed value of $25,000

See also:

• intangible personal property

• real property

• tangible personal property

Assessment Appeals

Commission

The Assessment Appeals Commission is a subsidiary board

appointed by the State Board of Equalization. The Commission

may hear and act on all complaints and appeals regarding the

assessment, classication, and value of property for purposes of

taxation. Actions taken by the Commission are considered equal

to the actions of the State Board (i.e., both render nal decisions);

however, the State Board has the discretion to review decisions of

the Appeals Commission within 45 days.

See also:

• appeal

• State Board of Equalization

assessment change notice

In Tennessee, a yearly assessment change notice is mailed to each

property owner when there is a change in property classication

or a change in the property’s assessed value from the previous tax

year. The change could be due to modications like a new addition

to a home, adding a driveway, or removing a run-down structure.

The change could be permanent, as in the case of an addition, or

temporary, for something like re damage. Tennessee residents

can contact someone in their property assessor’s ofce about the

change in assessed value.

assessment date

For tax purposes, the appraised values reect the status of the

property as of the assessment date. In Tennessee, the assessment

date is January 1 unless otherwise provided for.

assessment ratio

The assessment ratio is the relationship of the property’s assessed

value to appraised value in the assessor’s records. It reects the

constitutional assessment classication percentage. Tennessee

calculates property taxes by rst establishing the appraisal value of

the property (this is the value of the property as determined by the

county property assessor). Then, the appraisal value is multiplied

by a percentage set by Tennessee law based on the property class.

This statutory percentage is the assessment ratio.

For example, residential property has an assessment ratio of 25

percent. The appraisal value is multiplied by the assessment ratio

to determine the assessed value. For a residential property with

an appraised value of $100,000, the assessment ratio is 25 percent,

and the assessed value would be 25 percent of $100,000, or $25,000.

See also:

• appraised value

• assessed value

assessment roll

The assessment roll is an ofcial list of properties that are

assessed for property tax purposes within a given jurisdiction.

The assessment roll normally includes a unique identier for

each property, the name and address of the owner of record, the

appraised and assessed values of the land and improvements, the

classication of the property, and the assessment level. It is the

basis on which the property taxes are allocated among property

owners.

assessor designations

Property assessors in Tennessee may receive a designation

after completing necessary courses of study and training related

to the eld of appraisal and valuation. The following levels of

designations may be obtained by assessors or deputy assessors

who have completed the necessary training:

• AAS (Assessment Administration Specialist), a

professional assessment designation of the International

Association of Assessing Ofcers

• CAE (Certied Assessment Evaluator), a professional

assessment designation of the International Association

of Assessing Ofcers

• Certied General Real Estate Appraiser, issued by the

Tennessee Real Estate Appraisal Commission

• CMS (Cadastral Mapping Specialist), a professional

assessment designation of the International Association

of Assessing Ofcers

• MAS (Mass Appraisal Specialist), a professional

assessment designation of the International Association

of Assessing Ofcers

• PPS (Personal Property Specialist), a professional

assessment designation of the International Association

of Assessing Ofcers

• RES (Residential Evaluation Specialist), a professional

assessment designation of the International Association

of Assessing Ofcers

• TCA (Tennessee Certied Assessor), a designation issued

by the State Board of Equalization

• TMA (Tennessee Master Assessor), a designation issued

by the State Board of Equalization

assessor of property

As stated in the Tennessee Constitution, each county elects,

for a four-year term, an assessor of property. His or her role is to

accurately identify, list, appraise, and classify all taxable properties

in preparation of the annual assessment roll. An assessor is also a

resource to property owners regarding the appraisal and appeal

processes.

asset

An asset is a resource with monetary value that an individual,

corporation, or government owns (or has the rights to) that

is expected to have future benets. Assets can be tangible or

intangible. A copyrighted idea or a patented process are examples

of intangible assets.

band-of-investment technique

The band-of-investment technique is used to compute a

capitalization rate. The respective rates for debt and equity are

weighted by the portions of the capital structure represented by

debt and equity. Mathematically, it produces the weighted average

of the rate for debt and rate for equity.

See also:

• capitalization rate

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

base-home approach

Base-home approach is a method of appraising single-family

residential properties. The appraiser determines the value of the

residence by judging it against another residence, called the base

home, that has a known value and common characteristics. The

appraiser compares the properties in terms of condition, size,

number of garages, etc.

base-lot method

Base-lot method is a method of appraising land parcels in which

each parcel to be appraised is compared with another parcel (the

base lot) having common characteristics and a known value. The

appraiser determines the value of the lot being appraised by

judging it against the base lot in terms of size, shape, topography,

etc.

base taxes

Base taxes are amounts of property taxes levied by a county or

city the year prior to the date a tax increment plan becomes effective

(base year) and limited to the specic parcels now subject to a tax

increment plan (redevelopment plan or economic impact plan).

Per state statute, base taxes cannot include any portion of taxes

used to pay debt service, and for the duration of a redevelopment

or economic impact plan, the respective governments will receive

their set base tax amounts.

With a redevelopment plan, base taxes are calculated on base

year assessed value of tax increment parcels and the current tax

rate. With an economic impact plan, base taxes are calculated on

base year taxes payable on tax increment parcels. In neither case

could the base tax exceed the actual tax levied on tax increment

parcels the year before the base year.

See also:

• industrial development board (IDB)

• tax increment nancing (TIF)

board of equalization

A board of equalization is a public body (other than a court) with

jurisdiction over property tax assessments to ensure constitutional

and legal compliance.

All counties in Tennessee have a local board of equalization

authorized by law to hear appeals of current year property tax

assessments from taxpayers and local governmental entities.

At the state level, the State Board of Equalization hears appeals of

decisions made by local boards of equalization and, among other

duties, ensures property tax assessments comply specically with

the Tennessee Constitution and state law.

See also:

• county board of equalization

• State Board of Equalization

bundle of rights

The bundle of rights are the six basic rights linked to private

ownership of property. They are the right to use, sell, rent or lease,

enter or leave, give away, and refuse to do any of these.

See also:

• ownership

cadastral map

A map that displays property ownership boundaries is called a

cadastral map. It includes the dimensions of each parcel, a parcel

identier, survey lines, and easements.

capital lease

Capital leases are typically long-term agreements for the use

of an asset that has a long economic life, where ownership of the

asset usually transfers to the lessee at the end of the lease term.

In practice, capital leases are a way to purchase expensive assets

over time, and lessees must count the item leased as an asset on

their books. Machinery, equipment, and airplanes are examples

of assets commonly leased using a capital lease because they are

expensive and not likely to become obsolete during the lease term.

Capital leases are the opposite of operating leases, which are for

shorter terms and do not transfer ownership to the lessee at the end of

the lease term. Operating leases are more common for assets that tend

to become obsolete quickly, such as computers or ofce equipment.

See also:

• operating lease

capitalization

Capitalization is a process in which future expected income and

anticipated rate of return on an investment is used to estimate

current value. This process is often used when determining the

value of commercial property.

capitalization rate

Also called the cap rate, the capitalization rate describes the

probable return on investment for properties that produce income,

generally through renting and leasing.

Recently sold properties, with comparable characteristics to the

property being evaluated, are used to determine the capitalization

rate. The net operating income of those properties is divided by

the relative selling prices.

For example, a comparable building purchased for $1,000,000

that produces $100,000 in positive net operating income (the

amount left over after all costs are subtracted from the gross

income) during one year would have a capitalization rate of 10

percent. The calculation is as follows:

$100,000 / $1,000,000 = 0.10 = 10%

See also:

• direct capitalization

• equity capitalization rate

cartography

Illustrating the natural and social features of the earth through

maps is called cartography.

cash ow

Cash ow is the difference between dollars coming in and dollars

going out. Cash coming in would be the money from customers

or clients who are buying or renting products or services. This

would also include cash from collections of accounts receivable.

Cash going out would include costs like rent or a mortgage, loan

payments, or taxes.

certied tax rate law

The Tennessee certied tax rate law, sometimes called “truth-in-

taxation,” requires local governments to conduct public hearings

before adopting a property tax rate that generates more taxes

overall in a reappraisal year than were billed the year before at the

previous year’s lower values. The law requires counties and cities

to determine a tax neutral rate using the new reappraisal values

after adjusting for either new properties or properties removed

from the tax base since the prior year.

Truth-in-taxation is intended to make sure higher reappraisal

values do not automatically result in a tax increase. The certied

tax rate law is the closest thing Tennessee has to a prohibition on

property taxes being higher in a year of reappraisal.

chattel

A chattel is an item of tangible personal property that may be

easily moved. Chattels are the opposite of xtures, which are

permanently attached to the structure (or too heavy to move) and

cannot be easily removed.

The distinction between chattel and xture is important when

selling property; the seller typically removes all chattels but leaves

all xtures when moving out.

classication

Tennessee’s Constitution was amended in 1972 to provide for a

classied or fractional system of assessment that computes taxes

at different levels of assessment based on current property use.

As implemented in Tennessee law, classication is based on the

current use of property and, if the property is vacant or unused,

on the immediate most suitable use as determined by the county

assessor.

The value of property, as opposed to its classication, is based

on the appraisal concept of highest and best use, meaning that

a property valuation may ignore the current use of property if a

likely purchaser would put the property to a more intensive use to

maximize its value.

In Tennessee, for purposes of taxation, all property is divided

into three classes: (1) real property, (2) tangible personal property,

and (3) intangible personal property.

The three classes are then subdivided into four main subclasses:

(1) public utility property, (2) industrial and commercial property,

(3) residential property, and (4) farm property.

coefcient of dispersion (COD)

The coefcient of dispersion (COD) is a measure of the uniformity

of appraisals or assessments within a taxing jurisdiction — the lower

the coefcient of dispersion, the higher the degree of uniformity

in appraisals and assessments. Certain CODs are considered

acceptable depending on the type of property. The COD is one of the

many calculations used by the Division of Property Assessments to

create the appraisal ratio studies.

See also:

• appraisal ratio report

common carrier

A common carrier is a business that transports people or freight

for other people as the basis for its business. Examples of common

carriers include trucking companies, airlines, railroads, FedEx, and

the United States Postal Service. Non-exempt common carriers

are examples of public utility property designated by Tennessee

statute for central assessment by the Comptroller’s Ofce of State

Assessed Properties rather than county assessors of property.

See also:

• Ofce of State Assessed Properties

comparable

Properties that share the same physical, economic, or other

characteristics are said to be comparable. Property assessments

use comparable properties in the same locale to help determine

value, as comparable properties should have comparable values.

computer-assisted mass

appraisal (CAMA)

A computer-assisted mass appraisal (CAMA) system is any

automated system used to maintain property data, value property,

communicate with property owners, and ensure fairness in

taxation.

In Tennessee, the Integrated Multi Processing of Administrative

and CAMA Technology (IMPACT) system is the CAMA software

used across the state. IMPACT allows authorized state and county

users to manage property records in a consolidated, statewide

system.

condemnation

Condemnation can mean one of two things:

(1) Condemnation, also called eminent domain, is the

right of governments to take private property for

public use, with payment of compensation.

(2) Condemnation can also be a declaration by an

authority that a structure is unt or dangerous to

persons or other property. The authority often limits

or prohibits occupancy of condemned property or

can require demolition.

condition

To determine the condition of property, an assessor must make

a judgment of the depreciation of an improvement. Forming this

judgment is difcult because although the condition of the subject

is known, it is difcult to know how differences in condition affect

the selling prices of similar assets. Assessors may investigate

the condition of comparable properties in determining a given

property’s condition.

conservation easement

A conservation easement is a legal agreement between a

landowner and a qualied private land conservation organization

(often called a “land trust”) or government (municipal, county,

state, or federal) in which the landowner can voluntarily restrict

the use of a designated piece of land. Conservation easements are

a tool to preserve scenic land, historic sites, cultural resources, or

other types of property indenitely or for a specic period of time.

An easement “runs with the land,” meaning it is applicable to both

present and future owners of the land and becomes a part of the

chain of title for the property.

The qualied private land conservation organization or

government is charged with monitoring the use of the property

and ensuring that the property is being used according to the

conservation easement’s terms. In Tennessee, conservation

easements are governed by the Conservation Easement Act of 1981.

consideration

In real estate, the consideration is what each party gives the

other party as part of a deal. When buying a house, for example,

buyers usually give an agreed-upon amount of money as their

consideration, and sellers transfer ownership of the property as

their consideration. The consideration, however, can be any other

valuable goods or services on which a buyer and a seller agree.

consistent use

Property appraisals are based in part on the property’s use,

and the principle of consistent use states that a property must be

appraised using a single use for the entire property.

contended value

A contended value is a gure or amount that is in dispute during

a property tax appeal. If the parties disagree over the accuracy of

an amount, percentage, rate, or any other value, it may be referred

to as the contended value to identify that value as being in dispute.

contested case hearing

All property tax exemption and value appeals led with the

State Board of Equalization are considered contested cases and are

subject to the hearing requirements of the Uniform Administrative

Procedures Act. Generally, contested case hearings are held before

an administrative law judge either employed by the Tennessee

Secretary of State or the Executive Secretary to the State Board of

Equalization acting as an administrative law judge.

See also:

• administrative law judge

contribution

The principle of contribution requires an appraiser to measure

the value of any improvement to a property by the amount it

contributes to market value, not by the cost of the improvement

itself.

cost approach

The cost approach is one of the three approaches to valuation

and is based on the principle of substitution. In other words, this

method assumes that a buyer would pay only the amount it would

cost to build a comparable replacement for a given property.

Therefore, the cost of land plus construction (taking depreciation

into account) is the main metric of market value in the cost

approach.

See also:

• income approach

• sales comparison approach

county board of equalization

The county board of equalization is authorized by law to receive

and hear appeals of current year property tax assessments as xed

by the county assessor of property. Generally, an assessment must

be appealed to the county board of equalization to preserve the

taxpayer’s right to further appeal, and the county board meets as

few as six days during an annual session.

See also:

• board of equalization

• equalization

current value updating

Current value updating in Tennessee resulted from legislation

enacted in 1993, often called the “90 percent law.” Current value

updating is used to keep values current in areas where there is

substantial growth in the real estate market and to correct any

gross inequities in property appraisals. In the third year of a six-

year reappraisal cycle, in accordance with Tennessee law, all real

property values should be updated if the overall level of appraisal

for the jurisdiction is less than 90 percent of fair market value as

outlined in the annual appraisal ratio report.

See also:

• appraisal ratio

• appraisal ratio studies

• reappraisal cycle

date of sale (date of transfer)

The date on which the sale is nalized is the date of sale. This

is most often the date the deed, or other instrument of transfer, is

signed.

deed

A document (or written legal instrument) that transfers property

rights between two parties.

deed of trust

A deed of trust is similar to a mortgage, and is a mechanism by

which a third party puts a lien on a property so that if a borrower

is unable to meet the requirements outlined by the loan agreement,

the third party can use the sale of the property to recover funds for

the lender. The home buying process typically starts with a buyer

securing a loan, which the lender then protects with either a deed

of trust or a mortgage. In Tennessee, lenders use deeds of trust. A

lender using a deed of trust rather than a mortgage does not have

to go through the court system to sell the home.

In the case of foreclosure, the third party, named as the trustee

in the deed of trust, forecloses on the property without court

involvement. In Tennessee, foreclosures must be advertised at

least 30 days before the sale, held between the hours of 10:00 a.m.

and 4:00 p.m., and sold to the highest cash bidder.

Deeds of trust are led with a county’s register of deeds, which is

a constitutional ofce established by the Tennessee state legislature

as the custodian of legal documents pertaining to real property.

A deed of trust is distinct from a warranty deed.

See also:

• deed

• warranty deed

depletion allowance

Depletion allowance refers to the reduction in federal taxes on

property with natural resources, such as timber, mining, oil, or gas.

As the natural resource is removed from the land (for example,

cutting timber), the assessed value of the property goes down.

Depletion allowance refers to the amount allowed by the IRS of

the reduction in value from removing the natural resource.

depreciation

Depreciation is a loss in value of an object or resource.

Depreciation is sometimes subdivided into three types: physical

deterioration (wear and tear), functional obsolescence (not keeping

up with current technologies or tastes), and economic obsolescence

(changes in the neighborhood or economy outside of the owner’s

control).

depreciation schedules

Tables used in mass appraisal that show the typical loss in value

at various ages or effective ages for different types of properties.

direct capitalization

Direct capitalization is a method of calculating the present value

of a property based on anticipated income (such as rent) for the rst

year of ownership. In other words, direct capitalization is a method

used to convert an estimate of a single year’s income expectation

(or annual average of several years of income estimates) into an

indication of value in one step. This is accomplished by dividing

the income estimate by an appropriate rate or by multiplying the

income estimate by an appropriate factor. This method allows

anticipated earning potential to determine the present value of

a property. Direct capitalization is commonly used to evaluate

whether a piece of property is a good investment at the current

sales price.

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

discount rate

The discount rate is a rate of return on capital to convert future

payments or receipts into present value. In other words, it is used

by investors to calculate how much a series of future payments or

receipts is worth as a current single lump sum value.

See also:

• capitalization

• discounted cash ow analysis

discounted cash ow analysis

A common method of estimating the present value of income-

generating property, discounted cash ow analysis is a procedural

process in which the appraiser analyzes the quality, variability,

timing, and duration of periodic income, as well as the quality and

timing of reversions and discounts of each to its present value at a

specied yield rate. This method is based on the concept that $100

in the future is worth less than $100 today, so a future cash ow of

$100 must be discounted to the equivalent value today (something

less than $100). Investors use this valuation to determine if the

sales price is a good investment.

See also:

• discount rate

discovery

In property assessment, discovery is the process in which an

assessor identies all taxable property in the jurisdiction and

ensures that it is included on the assessment roll.

easement

An easement is a right given to a person or entity to cross or use

land that is owned by someone else for specic purposes. Most

residential properties have easements that are used generally for

utility access. Another common example of an easement is the

right of a property owner with no street access to use a segment of

a neighbor’s land to gain access to the road.

economic development

agreement

An economic development agreement is an agreement between

a private entity and a local government agency that permits the

use of specied property owned by the local government (or its

agencies) for business or commercial purposes of the private entity.

Economic development agreements are designed to promote

local economic development by reducing property taxes on such

property below amounts that would be due if the property were

owned by the private entity.

In Tennessee, economic development agreements include, but

are not limited to, leases or other agreements with private entities

under the industrial development program and redevelopment

plans and agreements containing tax increment nancing

provisions (including development authorities created by private

act).

See also:

• industrial development board (IDB)

• tax increment nancing (TIF)

economic (external)

obsolescence

Economic, or external, obsolescence is when an asset, on a

given property, loses value due to factors outside the property’s

boundaries. An asset may experience economic obsolescence due

to decreasing demand for a product, changes to the economy, a

transformation of the surrounding neighborhood, instability in the

labor market, or other factors.

economic life

For property assessment purposes, the economic life of a tangible

asset is how long it is expected to contribute positively to the

value of the total property. This period is typically shorter than

its physical life, which is the period during which the asset could

physically be left on the property. For example, an updated kitchen

adds value to the home only until it becomes outdated again.

economic rent

Economic rent is generally used synonymously with the term

market rent. Economic rent is the average amount of rent charged

for a similar property found in a similar market. Economic rent

may or may not be the same as the rent paid pursuant to lease

terms, as an individual lessee may pay over or under the economic

rent rate. Economic rent is the market value of rental income used

to calculate a property’s appraisal.

See also:

• market rent

effective age

Effective age of a structure is an appraisal measurement that

determines the age of a structure relative to the amount of time

until the structure no longer adds value to a property. The level

of maintenance employed by owners or occupants can inuence

the effective age of a building. For example, if a building is better

maintained than other buildings in its market area, the effective

age of the building will be less than its actual age.

effective date for property tax

exemptions

If the State Board of Equalization approves an application for

property tax exemption before May 20, the exemption will be

effective as of January 1 of the year of application, or as of the date

the exempted use of the property began, whichever is later. If the

application is made after May 20, the exemption may be approved

for a portion of the year.

effective gross income (EGI)

The effective gross income is a measurement used to evaluate

the value of investment properties. It is determined by taking

the amount of income produced by the given property, plus any

miscellaneous income and subtracting vacancy costs and collection

losses.

See also:

• vacancy and collection loss

effective interest rate

The effective interest rate takes into account the frequency

period for compounding interest and provides a more accurate

calculation of the amount of interest to be paid over the life of an

investment or debt.

effective tax rate

The effective tax rate shows what percent taxes are of the

appraised value of property. Taxes are, however, levied using the

assessed values of property and different subclasses of property are

assessed at different levels: real property for farms and residential

property is assessed at 25 percent of appraised value, and

industrial and commercial property at 40 percent. The effective tax

rate, therefore, is a calculation used to summarize the relationships

among appraised value, the assessment level, and the tax rate.

For example, in a jurisdiction with an effective tax rate of 1.00 for

a class of property, the annual taxes on that property are equal to 1

percent of its market value for the year it was appraised.

See also:

• tax rate

eminent domain

Eminent domain is the government’s power to take private

property and convert it for public use or public necessity. Acquiring

property through eminent domain requires the government to go

through a legal process to purchase the private property at fair

market value.

encumbrances

Encumbrances are hindrances that could affect the value of

real property because the rights of an owner to change, dispose

of, or use the property is restricted. These restrictions are due to

contractual obligations, such as easements, condominium controls,

or subdivision restrictions.

enterprise GIS

An enterprise GIS is a geographic information system that is

unied throughout an entire organization, or enterprise, and is

used for a variety of purposes. A geographic information system

is an assemblage of software and data used to view and manage

geographic data.

entrepreneurial prot

In real estate appraisal, entrepreneurial prot is the difference

between the cost of a property (purchase price plus cost of

developments) and the market value of the property after any

improvements or developments are nished. This difference

represents the prot (or loss) to an entrepreneur for investing in a

property development.

equalize

The equalization process is designed to ensure that all properties

in a jurisdiction have been assessed fairly. An appraisal ratio

is developed for each county by comparing appraised values

recorded for real property to recent sales and/or appraisals. The

median appraisal ratio is used to achieve equalization by serving as

an adjustment factor to be applied to appraised values of property

already recorded at full market value.

According to Tennessee law, an appraisal ratio study for every county

is conducted at least every two years, primarily to determine the overall

level of appraisal within each assessing jurisdiction in the state.

The basic principle of the sales ratio is measuring the difference

between appraised value and market value. On the appraisal date,

January 1 of the year of reappraisal, these values, market and

appraised, should be similar. As time passes between reappraisals

the disparity between these values may increase. This disparity

is what creates an assessment ratio or sales ratio. The appraised

value divided by the sales price produces the sales ratio.

See also:

• county board of equalization

• State Board of Equalization

equity

Equity is the market value of a property minus any debt the owner

has against the property, such as a mortgage or lien. As a property

owner pays down the debt on a property, the equity increases. If a

property owner has no debt against the property, then the equity is

equal to the market value of the property. Equity may also increase

or decrease as the value of the property appreciates or depreciates

over time due to market changes.

In property assessments, the term equity may also refer to

fairness in taxation.

equity capitalization rate

Equity capitalization rate reects the relationship between a

single year’s pre-tax cash ow expectation (or an average of several

years’ pre-tax cash ow expectancies) and the equity investment.

The equity cap rate, as it is commonly called, incorporates debt

(such as a mortgage or other types of nancing) and property

expenses to provide an accurate estimate of how much prot an

investor can expect per year.

See also:

• capitalization rate

• direct capitalization rate

equity yield rate

The equity portion of a property value is the market value minus

any debt the owner has against the property, such as a mortgage.

The equity yield rate represents the return on investment a buyer

would have based on the value of the equity.

See also:

• equity

escheat

Property escheats (reverts) to the state when there is no rightful

owner and the title automatically reverts to the state. For example,

when a property owner dies, and no heir is identied or located,

the title may automatically revert to the state. This is a different

process than foreclosure, which reverts property to another party

other than the state (for example, a bank).

Executive Secretary (State

Board of Equalization)

Under the direction of the State Board of Equalization, the

Executive Secretary has the following statutorily enumerated

powers and duties:

(1) Keep written minutes of all meetings of the State

Board setting forth all actions of the state board,

which shall be open to public inspection during

regular ofce hours;

(2) Conduct preliminary hearings and make

investigations for the State Board regarding any

appeals before the board from assessments of

property, other than assessments made by the

Comptroller of the Treasury;

(3) Obtain evidence, information, and statistics relative

to the value, classication, and assessment of

property for assistance to the State Board in its duties

of equalization;

(4) Require assessors of property to furnish reports

under oath, giving specic information relating to

assessments and other facts concerning properties

and such other information as may be required by

the state board;

(5) Prepare an annual report, approved by the State

Board, which shall be made available to the

General Assembly with an appropriate summary of

information regarding assessments of property in

each county of the state;

(6) Conduct such studies of the relationship between

existing assessments and the value as set out in state

law of such property or classes of property as may be

directed by the State Board;

(7) Study and investigate the tax laws of other states

and policies of federal and state agencies relating to

assessments of property;

(8) Approve applications for exemption from property

taxation, subject to review by the State Board;

(9) Give assistance to local boards of equalization on

matters affecting the equalization of assessments

and the interpretation of laws relating to assessment,

classication, and valuation of property; and

(10) Carry out all policies, rules, and regulations that are

adopted by the State Board.

See also:

• State Board of Equalization

exempt property

The Tennessee Constitution states that all property is subject to

taxation, but allows the Tennessee General Assembly to make an

exception for, among other things, government-owned property

and religious, charitable, scientic, literary, or educational

institutions.

The State Board of Equalization is responsible for making

exemption determinations related to all religious, charitable,

scientic, and nonprot educational property.

fair market value

Fair market value is the likely selling price for an item of value

(for example, property) that would be agreed on by well-informed

buyers and sellers who are not under duress.

See also:

• market value

fee appraisal (single property

appraisal)

A fee appraisal, or single property appraisal, is an appraisal done

by a professional appraiser for a fee, usually for individuals or

investors who are considering purchasing a property.

fee simple

There are different types of property ownership with different

rights and restrictions. Fee simple ownership is when the holder of

a title has full rights to occupy and use the property, now and in the

future, for an innite duration. There are no deed restrictions on

how the property may be used (although zoning laws or subdivision

restrictions may still apply). Property owned in fee simple may be

sold or inherited without limitation. Fee simple ownership accords

the owner with the greatest amount of rights, and fee simple is the

most common (and preferred) type of property ownership.

eld review

A eld review is when a property assessor views properties in

question, sometimes by examining the inside of structures, but more

often by simply looking at the exterior. Changes to the property

discovered during review may be added to, or subtracted from,

the property value. The assessor’s ofce performs a systematic

eld review of a portion of the county each year so that during a

reappraisal cycle all parcels of property are reviewed.

See also:

• appraisal cycle

nal decision and order

Once an administrative law judge issues an initial decision and

order in a contested case hearing, either party may appeal the

initial decision and order to the Assessment Appeals Commission.

If neither party les an appeal before the deadline, then the initial

decision and order will become a nal decision and order.

See also:

• administrative law judge

• Assessment Appeals Commission

• contested case hearing

• initial decision and order

forest land

Forest land is one type of greenbelt land. Greenbelt is the common

term for the properties outlined in the Agricultural, Forest, and

Open Space Land Act of 1976. Forest land must be at least 15 acres

and have tree growth in such quantity and quality that it constitutes

a forest. The assessor may request the advice of the state forester

in determining whether the tree growth is sufcient to meet this

requirement. In addition, a forest management plan is required for

land to qualify as a forest.

Forest lands are assessed at use value (i.e., the property’s current

use) as opposed to market value. In other words, a property that

qualies as a forest would be assessed for its value assuming it

remains a forest. This assessment would likely be less than the

price of the property if it could be developed as commercial or

residential property.

Land that qualies as forest land but also contains a home site

can still qualify as forest land. The assessor would simply value

the home site at market value and the remaining acreage would be

classied and valued as forest land.

See also:

• agricultural land

• greenbelt

• open space land

• use value

Form 10-K report

Required by the Securities and Exchange Commission (SEC), the

annual report on Form 10-K provides a comprehensive overview

of a company’s business and nancial condition, and includes

audited nancial statements. Form 10-K is distinct from the annual

report to shareholders, which a company must send to shareholders

when it holds an annual meeting to elect directors.

Form No.1 and No. 2 reports

Required by the Federal Energy Regulatory Commission (FERC),

Form No. 1 is a comprehensive nancial and operating report

submitted annually for electric rate regulation, market oversight

analysis, and nancial audits by major electric utilities, licensees,

and others.

Form No. 2 is a compilation of nancial and operational

information from major interstate natural gas pipelines subject to

FERC jurisdiction. The form contains data for a calendar year.

Forms R-1 and R-2

Required by the Surface Transportation Board, Forms R-1 and

R-2 are annual lings for business operations of certain classes of

railroads.

fractional assessments

Fractional assessments are when properties are, by law or

by practice, assessed at less than 100 percent of their market

value. In Tennessee, properties are assessed at a percentage of

their appraised value based on preset assessment percentages.

The Tennessee Constitution provides for the following preset

assessment percentages:

Residential property 25%

Farm property 25%

Commercial and industrial property 40%

Public utility property 55%

Business personal property 30%

Example: A residence appraised at $100,000 would have an

assessed value of $25,000

fractional method

The fractional method of property assessment is the valuation

of the parts of a whole operating property independently of the

whole property’s value.

frontage

The frontage of a given parcel of land is the section that is along

a street, road, river, or other trafc artery on which the parcel is

said to face.

functional obsolescence

Functional obsolescence is when a loss in value of a property is

caused by an outdated feature that usually is not easily updated.

As there are changes in tastes, preferences, technical innovations,

or market standards, certain features can become undesirable and

negatively affect the value of a property. For example, if a property

cannot easily connect to new technologies, it will encounter the

effects of functional obsolescence.

geocoding

Geocoding is the process of converting a description of a

place, such as a name or address, into a geographic location.

This allows information to have both a descriptive element and

a corresponding map location. Geocoding is commonly used to

place multiple pieces of data into a single map for easy reference;

for example, geocoded customer addresses can show a company

where its customers are distributed throughout the state.

geodatabase

A geodatabase is a database used to store, query, and manipulate

spatial data, created through geocoding. Geodatabases store

geometry, a spatial reference system, attributes, and behavioral

rules for data.

geographic information

system (GIS)

GIS, or geographic information system, is an assemblage of

software and data used to view and manage geographic data.

greenbelt

Greenbelt is the common term for the Agricultural, Forest, and

Open Space Land Act of 1976. Greenbelt properties are assessed

at use value (i.e., the property’s current use) as opposed to market

value. For example, a family farm would be assessed based on the

use of the property as a farm, not based on the higher price the

property would sell for if purchased for commercial development.

See also:

• agricultural land

• forest land

• open space land

• recapture

gross income

Gross income is the total amount of income generated by

a property or services before anything is subtracted (such as

operating costs). Gross income, gross earning, and gross revenues

are frequently used interchangeably.

gross income multiplier

A gross income multiplier is a quick way to estimate the

appraisal value of commercial property. To calculate the gross

income multiplier, divide the property’s sale price by its gross

annual rental income. This method is more simplistic than other

methods of estimating the value of commercial property, such as

the capitalization rate or discounted cash ow methods, but it is

also much simpler and therefore easier to calculate.

health, education, and housing

facility board (HEHB)

Health, education, and housing facility boards (HEHBs) are

similar in structure to industrial development boards (IDBs), but

have different goals. The goal of health, education, and housing

facility boards, also called corporations, is to encourage and

promote the improvement and maintenance of health and living

conditions in a locality. HEHBs are public, nonprot corporations

organized under the laws of Tennessee.

These boards use revenue bonds and other nancing to fund

the acquisition, construction, development, rehabilitation, and

improvement of health, educational, and multifamily housing

facilities. Examples of eligible projects under state law include

hospitals, universities, nonprot schools, and multifamily housing

developers.

Like industrial development boards, the boards can also enter

into payment in lieu of tax (PILOT) agreements that would reduce

the property tax burden for organizations and businesses. Only

organizations or businesses that provide health, education, or

housing benets to the municipality are eligible to enter into

PILOT agreements with HEHBs.

Tennessee law requires businesses, such as hospitals, that are

leasing property from HEHBs to report annually to the State Board of

Equalization concerning the leased properties by October 1 each year.

See also:

• industrial development board (IDB)

• payments in lieu of taxes (PILOT)

• tax increment nancing (TIF)

highest and best use

Highest and best use is a principle of appraisal and assessment

that requires each property to be appraised as though it were

being put to its most protable use (highest possible present net

worth), given probable legal, physical, and nancial constraints.

The principle involves identifying the most appropriate market

and use within that market. The concept is most commonly used

when discussing underutilized land.

homebelt assessment

Tennessee law allows long-term owners of residential properties

that have signicantly increased in value and are zoned for

commercial use (and subject to the correspondingly higher tax rate

for commercial properties) to apply for a homebelt assessment.

The homebelt assessment is designed to prevent long-term owners

of residential property from having to sell their residence because

they cannot afford their current tax assessment.

improvement

An improvement is anything done to raw land with the intention

of increasing its value. Building a structure, for example, is one

common type of improvement. Other improvements may include

paving, adding fences, or improving drainage.

income approach

Income approach is one of the three approaches to value. The

income approach uses capitalization to convert the anticipated

benets of the ownership of property into an estimate of present

value.

See also:

• capitalization

• cost approach

• sales comparison approach

industrial and commercial

property (tax classication)

Industrial and commercial property is a tax assessment

classication that includes all property of every kind used,

directly or indirectly, for any commercial, mining, industrial,

manufacturing, trade, professional, club (whether public or

private), business, or similar purpose. Industrial and commercial

property may be conducted for prot or not. All real property that

is used for dwelling purposes that contains two or more rental

units is also classied as industrial and commercial property.

Tennessee assesses industrial and commercial property at 40

percent of appraisal value.

industrial development

board (IDB)

In Tennessee, industrial development boards (IDBs) have

broad statutory rights to nance, acquire, own, lease, or dispose

of properties so that corporations may maintain and increase

employment opportunities, increase the production of agricultural

commodities, or increase the quantity of housing available in

affected municipalities. IDBs also have a role in controlling and

eliminating pollution that results from commerce and industry

that is essential to the economic growth of the state.

A city, county, or coalition of local governments can create an

IDB. Two common tools used by IDBs to promote industry are tax

increment nancing (TIF) and payments in lieu of taxes (PILOT).

Tennessee law requires businesses leasing property from IDBs to

report annually to the State Board of Equalization concerning the

leased properties by October 1 each year.

See also:

• payments in lieu of taxes (PILOT)

• tax increment nancing (TIF)

initial decision and order

If an administrative judge or hearing ofcer hears a case alone,

the administrative judge or hearing ofcer must render an initial

order (ruling), which becomes a nal order unless reviewed by the

State Board of Equalization.

A nal order and an initial order or decision must include

conclusions of law, the policy reasons for those conclusions, and

ndings of fact for all aspects of the order, including the remedy

prescribed and, if applicable, the action taken on a petition for stay

of effectiveness. Findings of fact, if set forth in language that is no

more than mere repetition or paraphrase of the relevant provision

of law, shall be accompanied by a concise and explicit statement of

the underlying facts of record to support the ndings.

The nal order, initial order, or decision must also include a

statement of the available procedures and time limits for seeking

reconsideration or other administrative relief and the time limits

for seeking judicial review of the nal order. An initial order or

decision shall include a statement of any circumstances under

which the initial order or decision may, without further notice,

become a nal order.

See also:

• administrative law judge

• contested case hearing

• county board of equalization

• nal decision and order

initial determination

An initial determination is the approval or denial of exemption by

the State Board of Equalization for religious, charitable, scientic,

and nonprot educational property.

An approval will identify what is exempt and when the exemption

begins. The approval will be sent to the applicant, county assessor,

and county trustee and include a copy of the original application.

An approval does not transfer or expire, and it can be revoked.

Only property or parts of property used for the qualifying

purpose are exempt. Property owners, therefore, receive property

tax exemption approvals for the specic properties being used for

the qualifying purpose, not all properties they own. In addition,

an exemption can be partial based on the assessor’s review and

information from the applicant on how much of the property is

being used for the qualifying purpose.

instrument

An instrument, when referred to in property assessments and

real estate, is a formal legal document that outlines an exchange

of assets and/or rights. These documents are usually deeds,

contracts, wills, or leases.

intangible personal property

There are two types of personal property: tangible and intangible.

While tangible property can be physically touched, intangible

personal property cannot. Examples of intangible property include

ownership in a business and debts.

The current assessment level for intangible personal property

is 40 percent, but Tennessee only assesses the intangible personal

property of certain insurance companies. (Bank-owned intangible

property is not taxed using property assessments.)

See also:

• classication

• property class

• tangible personal property

International Association of

Assessing Ofcers (IAAO)

The International Association of Assessing Ofcers (IAAO) is a

professional membership organization of government assessment

ofcials and others interested in the administration of the property

tax. IAAO grants assessor designations to members who complete

required training and examinations.

See also:

• assessor designations

investment tax credit

The investment tax credit is a federal program that encourages

private sector investment in the rehabilitation and reuse of historic

buildings and is intended to stimulate economic development. The

tax credit reduces the cost of restoration and rehabilitation to the

owner in the form of a federal income tax credit, and the credit is

equal to a percentage of what the owner spends on rehabilitating

the building. There are two types of investment tax credits:

• 20 percent for a certied historic structure, and

• 10 percent for a non-historic structure (which must have

been built before 1936 and not deemed historic, and also

must be used for ve years as income producing but not

for housing).

Both types of investment tax credits require the project to meet

the substantial rehabilitation test, which means the cost of the

restoration and rehabilitation project must spend the adjusted

value of the building or $5,000, whichever is greater.

jurisdiction

Jurisdiction has two meanings, both related to scope of authority.

(1) The jurisdiction of a legal or political entity is the

extent to which that entity has authority regarding

interpreting and applying the law, taxing, and

governing. For example, the State Board of

Equalization often must establish that the board

has jurisdiction over a case before it may hear the

case.

(2) Jurisdiction can also mean the territorial range of

one’s authority or control. In this case a jurisdiction

would be the physical area within certain borders

where a legal or political entity has authority.

lease

Leases are written contracts in which the lessor (owner) transfers

the rights to occupy and use real or personal property to another

(lessee) for a specied time in return for a specied payment (rent).

leasehold estate

A leasehold estate is created when a landowner agrees to give

temporary property rights to a second party in exchange for rent

or other compensation. Both parties would enter into a lease

agreement that would outline the length of the lease as well as

any restrictions in use, maintenance, or alterations. A holder of

a leasehold estate can sell the lease and may prot if the market

value of the lease is higher than the price originally paid.

Leasehold estates differ from typical rentals that are paid and

leased on shorter periods, such as weekly or monthly, and can be

terminated or renewed often.

legal description

A legal description of property includes the delineation of

dimensions, boundaries, and relevant attributes of a real property

parcel that serve to identify the parcel for all purposes of law. The

description may be in words or codes, such as coordinates. For a

subdivided lot, the legal description would probably include lot

and block numbers and subdivision name.

liens

A lien is a legal right to take or hold property of a debtor as

payment or security for a debt. In Tennessee, liens are given to a

third party in a deed of trust, which outlines the agreement between

lender and borrower. If the borrower is unable to fulll his or her

obligations (usually in the form of mortgage payments), the third

party is able, through the lien, to use the sale of the property to

recover the funds.

life estate

A life estate is when a landowner (grantor) gives the right to

possess and use property to a specied person (tenant) only during

the life of that tenant. The tenant’s rights to the property end at

death, when ownership of the property may revert to the original

owner or to another person. For example, a daughter may buy her

parent’s home but, through a life estate deed, allow her parents

to continue to live there for the remainder of their lives. Upon the

parents’ deaths, the right to possess and use the property would

then return to the daughter or another specied person.

locally assessed property

Locally assessed properties are all properties assessed by an

ofcial of the local jurisdiction where the property is located. In

Tennessee, all property, other than public utility company property,

is assessed by elected county assessors of property.

See also:

• state assessed property

lot

A lot is a parcel of land owned or intended to be owned. A tract of

land is divided into lots during platting (or mapping). In Tennessee,

no plat, which maps the subdivision of an area into lots, may be

recorded until it is approved by a local planning commission.

See also:

• plat

low-income housing tax

credit (LIHTC) property

Low-income housing tax credit (LIHTC) property is any housing

property restricted under federal government regulations pursuant

to the low-income housing tax credit program. The State Board of

Equalization has adopted rules specifying acceptable methods of

valuing these and other types of affordable housing. The taxable

value of LIHTC property consists of a restricted use component (a

portion of the rental units must be available to low-income tenants)

and a component representing the economic benet of the subsidy

to the property owner (usually the property developer).

market analysis

A market analysis is the study of real estate market conditions

for a specic type of property.

market approach

The market approach is a valuation term with a broad meaning.

In the broadest use of the term, a market approach would be

any valuation procedure intended to produce an estimate of a

property’s current market value. In a narrower use of the term, it

could be synonymous with the sales comparison approach.

See also:

• sales comparison approach

market rent

Market rent is used to determine the value of properties (usually

rental properties) in the income approach. When a given property

is being valued using the income approach, the market rent is

established by gauging the rents of similar properties.

See also:

• income approach

market value

Market value is the amount of money a well-informed buyer

would pay and a well-informed seller would accept for property

in an open and competitive market, without any outside inuence.

Tennessee statute provides what is regarded as a legally equivalent

denition of value for Tennessee property taxes.

mass appraisal

Mass appraisal is the systematic process of valuing a group of

properties by using market data, standardized methods, and

statistical modeling. Assessors of property often rely on valuation

equations, tables, and schedules developed through mathematical

analysis of market data. Mass appraisal is one step in developing

the assessment roll, the ofcial list of properties that are assessed

for property tax purposes within a given jurisdiction. In Tennessee,

the assessment roll must be complete by May 20.

mass appraisal model

Using market data during a mass appraisal, a mass appraisal

model is developed. It is a mathematical expression of how supply

and demand factors interact in a market to affect property values.

metes and bounds

Property descriptions can be expressed in metes and bounds.

Metes are the measures of angles and distances between points

along the boundary of a parcel. Bounds describe any boundary

not drawn using metes, such as an existing road or waterfront.

Together metes and bounds describe the boundary of a given

parcel of land. The angles are described by reference to points

of the compass, and the distances are described in feet or chains;

curves are treated as arcs on a circle.

mineral rights

Mineral rights are rights to extract ore, petroleum, or other

minerals from a property.

mixed-use property

Mixed-use property combines two or more categories of use,

such as commercial and residential. A common example of mixed-

use property is a single building with a retail store on the street

level and residential units above.

multiple-use subclassications

Multiple-use subclassications are a type of property where a

single parcel of land is used for more than one purpose, which

results in different subclassications and different assessment

percentages. In these situations, it is necessary to assign different

subclassication and assessment percentages to each use. The

assessor determines the appropriate assessment percentage by

determining the share of the total market value attributable to each

subclass.

neighborhood

A neighborhood is the environment around a property that has a

direct and immediate effect on the property’s value.

neighborhood analysis

A neighborhood analysis is used to identify, analyze, and discuss

the various market forces influencing properties within that

neighborhood.

net operating income (NOI)

Net operating income (NOI) for public utilities is gross income

minus all operating expenses including depreciation and all taxes,

but before the deduction of interest. Some Tennessee laws have

been revised to change the assessment levels for highly competitive

companies to the commercial and industrial assessment level.

See also:

• capitalization rate

• income approach

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

nonoperating property

Nonoperating property refers to property not used in the

operation of the primary business. It may be capital invested in

temporary investments, subsidiary companies, or other properties

which are not a part of the utility operations.

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

obsolescence

Obsolescence is a decrease in property value because of changes

in demand for similar properties. Common reasons properties lose

value due to obsolescence include aesthetic changes/trends, new

technology, regulatory changes, and shifts in consumer demand.

See also:

• depreciation

• economic (external) obsolescence

• functional obsolescence

Ofce of State Assessed

Properties (OSAP)

The Ofce of State Assessed Properties (OSAP), part of the Ofce

of the Comptroller of the Treasury, is responsible for assessing

public utilities.

See also:

• state assessed property

open space land

Open space land is one type of greenbelt land. Greenbelt is the

common term for the properties outlined in the Agricultural,

Forest, and Open Space Land Act of 1976. Open space land is land

containing at least three acres characterized principally by an open

or a natural condition, the preservation of which would tend to

provide the public with one or more of the following benets:

• The use, enjoyment, and economic value of surrounding

residential, commercial, industrial, or public use lands;

• The conservation of natural resources, water, air, and

wildlife;

• The planning and preservation of land in an open

condition for the general welfare;

• A relief from the monotony of continued urban sprawl; or

• An opportunity for the study and enjoyment of natural

areas by urban and suburban residents who might not

otherwise have access to such amenities.

For land to qualify as open space, the planning commission for

the county or municipality must designate the area for preservation

as open space land. Once the planning commission adopts an

area, then land within that area may be classied as open space.

If the planning commission has not designated an area, then this

classication is not available. While open space land may include

lands primarily devoted to recreational use, it does not apply to

golf courses.

See also:

• agricultural land

• greenbelt

• forest land

• use value

operating expenses

Operating expenses are the costs required to run a business.

For a public utility, typically the operating expenses include

all categories of expenses from regulated operations, including

annual depreciation and amortization expenses and all taxes. The

deduction of operating expenses from gross income leaves only

the income available to pay the cost of debt and equity (typically

called net operating income).

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

operating lease

Operating leases are sometimes called “service leases” because

they are short-term leases for the use of assets that become obsolete

quickly (such as computers or ofce equipment). Operating leases

generally do not transfer ownership of the asset at the end of the

lease term, and the lease payments are considered an operating

expense for the lessee. Operating leases do not have to be recorded

on a business’s balance sheet because the lessee is not acquiring

an asset at the end of the term. Businesses frequently rent vehicles

using an operating lease, because vehicles become obsolete quickly

(especially with heavy use) and the company leasing them does

not want to own the vehicle at the end of the lease term.

Operating leases are different from capital leases, which are

longer term leases that transfer ownership of the asset at the end

of the lease term.

See also:

• capital leases

opportunity cost

In real estate investing, opportunity cost is the rate of return on

investing the same amount of money in an alternative investment

opportunity with similar risk. Opportunity cost is a way of

measuring the highest potential return on investment between

two or more investment opportunities.

original cost

Original cost is the total amount of money required to purchase

and acquire an asset. In addition to the purchase price, the original

cost includes any taxes, fees, delivery charges, installation expenses,

or other costs ancillary to the purchase of an asset. Original cost

(and not purchase price) is used to determine the tax basis of an

asset.

overall rate (OAR)

An overall rate (OAR) is a measure that converts future benets

into current value. The overall rate is calculated by dividing net

operating income by the property’s purchase price. This measure

is often used in assessing the value of commercial property.

See also:

• capitalization

ownership

Ownership is the exclusive right to the use of property. Individuals,

groups of people, and other entities can all own property. Property

can have a sole owner, or ownership can be split between multiple

parties.

parcel

A parcel is land, including the resources in and on it, and

the buildings and permanent xtures attached to it. It can be

a contiguous area of land or one of a number of lots on a plat;

separately owned, ether publicly or privately; and capable of

being separately conveyed. A parcel is assigned a numeric or alpha

numeric description that identies it uniquely in each jurisdiction.

See also:

• lot

• plat

parcel identication number

A numeric or alphanumeric description of a parcel that identies

it uniquely. In Tennessee, this identication number consists of the

map, group, control map, parcel, property identier, and special

interest.

payments in lieu of taxes

(PILOT)

Payments in lieu of taxes (PILOT) are payments made by private

taxpayers, often businesses, to a local government to help offset

losses in property taxes due to special tax treatment.

A PILOT is used when a local government provides tax incentives

for a private company to relocate to or expand in the area. To that

end, an agreement is made that allows real and personal property

to be transferred for a specied period of time to an industrial

development board (IDB) or health, education, and housing facility

board (HEHB). The effect of this transfer is that the company’s

assets, now in the hands of a governmental entity, are exempt

from taxation. In exchange for favorable tax treatment, the entity

agrees to pay the local government payments in lieu of taxes. At

the conclusion of the agreement period, the property is transferred

back to the private company and placed on the property tax roll at

full value. PILOT payment calculations vary, but are most often an

incremental percentage of what the actual taxes would have been

otherwise.

See also:

• health, education, and housing facility board (HEHB)

• industrial development board (IDB)

percent good

Percent good is an estimate of the value of a property that is

expressed as a percentage of its replacement cost after depreciation

of any kind has been deducted. For example, a structure that is

estimated to be 40 percent depreciated has a percent good of 60

percent. This 60 percent can then be applied to the new replacement

cost to nd the current value.

personal property

Personal property is an asset owned or leased by a taxpayer and

used for business or a profession. This excludes real estate and any

xtures, which are considered real property.

There are two types of personal property: tangible and intangible.

While tangible property can be physically touched, intangible

personal property cannot. Examples of intangible property include

ownership in a business and debts.

In Tennessee, all tangible personal property must be reported by

March 1. This reporting includes any personal property acquired

or disposed of, which is used to create or update a list of tangible

personal property for each taxpayer. The value of the property is

determined using depreciation schedules in Tennessee law. Thus,

taxpayers update their lists of assets and the assessors of property

assess the cost of the assets less depreciation.

In Tennessee, tangible personal property is assessed at 30 percent

of its value for commercial and industrial property and 55 percent

of its value for public utility property, per the classications set out

in the Tennessee Constitution.

The current assessment level for intangible personal property

is 40 percent, but Tennessee only assesses the intangible personal

property of certain insurance companies. (Bank-owned intangible

property is not taxed using property assessments.)

See also:

• intangible personal property

• tangible personal property

physical deterioration

Physical deterioration causes a loss in value due to ordinary

wear and tear and the forces of nature.

plat

A plat is an ofcial map that is intended to show the division of

land into lots or parcels. After recording a plat with the appropriate

authorities, that land can then be described for legal purposes by

reference to the plat, without additional description. In Tennessee,

local planning commissions must approve any plat that has been

subdivided into lots before it is recorded.

See also:

• lot

possessory interest

A possessory interest in a piece of real estate is the right to

occupy the property and exclude others from the property without

owning the property. Leasehold estates are the most common form

of possessory interest.

For example, a property owner could sign a 55-year lease, giving

the possessory interest of the property to the tenant for 55 years.

In other words, for 55 years the leaseholder is allowed to live in or

use the property exclusively. After 55 years, the right to live and

use the property returns to the property owner.

When a government owns land that is then leased to a

nongovernment entity, the lessee has a possessory interest, and

that possessory interest may be taxable (although the government

land itself is not).

potential gross income

Potential gross income is the amount of money that would be

collected if a property is fully occupied and all rents are collected.

Potential gross income does not deduct specic costs like vacancy

costs, collection losses, and normal operating expenses.

price-related differential (PRD)

Price-related differential (PRD) is used as a measure of assessment

bias and is one of the calculations used by the Comptroller’s Division

of Property Assessments to create the appraisal ratio studies.

The purpose of this measurement is to show whether higher-

priced properties are being either overvalued or undervalued in

comparison to their lower-priced counterparts.

Before PRD can be calculated, the ratio of appraised value to the

actual sales prices for each recently sold property is determined.

This ratio is meant to show how closely appraised values are to

market values. Then, PRD is calculated by dividing the mean of

these ratios by the weighted mean of the ratios, which puts more

weight on higher-priced properties.

If the price-related differential is above 1.03, it indicates that high-

value properties are appraised lower than low-value properties in

relation to market value. This is called assessment regressivity.

If the price-related differential is below 0.98, it indicates that high-

value properties are appraised higher than low-value properties in

relation to market value. This is called assessment progressivity.

See also:

• appraisal ratio report

• ratio study

property class

In Tennessee, for purposes of taxation, all property is divided

into three classes: (1) real property, (2) tangible personal property,

and (3) intangible personal property.

See also:

• classication

property line

A property line is the boundary line that denes a lot or parcel

of land.

property tax

Tennessee’s property tax is one of the oldest and most signicant

sources of revenue for local governments. Tennessee’s Constitution

authorizes counties and municipalities to levy a tax on three classes

of property — real, tangible personal property, and intangible

personal property — based on the value of the property.

Counties in Tennessee are authorized to levy a property tax,

based on the value of the property within the county’s boundaries.

The county assessor of property is responsible for regularly

determining the assessed value of properties for tax purposes.

Not all municipalities in Tennessee levy a property tax.

See also:

• appraisal

• assessment

• reappraisal cycle

property tax freeze

Property tax freeze is a local option program administered

jointly by the assessor of property and the collecting ofcial of

the applicable jurisdiction. Qualifying taxpayers in the program

may see lower property taxes over time relative to those not in the

program due to the property taxes owed being “frozen” at a set

amount.

The Tennessee Constitution gives the General Assembly

the authority by general law to authorize counties and/or

municipalities to implement a local option property tax freeze

for taxpayers 65 years of age or older. As a result, the General

Assembly enacted the Property Tax Freeze Act in 2007, which

establishes the tax freeze with specic requirements for age and

income, and authorizes the legislative body of any county and/or

municipality to adopt the property tax freeze program.

See also:

• Property Tax Relief Program

property tax notice

Property tax notices, or property tax bills, are written notices sent

to listed property owners that detail the amount of property taxes

due. In Tennessee, no jurisdiction is required to send property tax

notices; it is the responsibility of property owners to ensure taxes

are paid. However, jurisdictions are often able to collect a higher

percent of their tax levy when notices are sent out and therefore

usually do.

See also:

• assessment change notice

• tax bill

Property Tax Relief Program

The Comptroller’s Division of Property Assessments administers

the state-funded Property Tax Relief Program, which can reduce

the property tax bill for qualifying taxpayers.

The Tennessee Constitution provides for property tax relief for

qualifying elderly and disabled homeowners who meet income

requirements, as well as certain service-disabled veterans and

their surviving spouses. Property tax relief reduces an eligible

homeowner’s property tax bill because the state, rather than the

homeowner, pays all or a portion of the local property tax.

See also:

• property tax freeze

public property

Public property is any government-owned property, and is

exempt from taxation. This includes all property of the United

States, the State of Tennessee, any county, or any incorporated

town, city, or taxing district in the state that is used exclusively for

public, county, or municipal purposes.

public utilities

Public utilities include railroads, private cars, buses, airlines,

trucks, barge lines, electric companies and cooperatives, telephone

(including cell phone) and telegraph companies, pipeline and

gas companies, water and sewerage companies, and power

transmission companies.

Federal laws prohibiting tax discrimination against certain kinds

of public utility property have effectively lowered assessment rates

for railroad, airline, and motor carrier property from 55 percent

(the assessed value for public utility properties) to 40 percent, the

same rate as industrial and commercial property.

quality class

Quality class is a subjective classication of a structure by

an appraiser, intended to describe structures with high quality

building materials, workmanship, architectural attractiveness,

and design. Quality class, or grade, is the key variable in most cost

schedules. Cost schedule refers to charts or tables constructed to

assist in estimating the replacement cost new (RCN) of a structure

based on factors such as quality class and size.

See also:

• replacement cost new (RCN)

ratio study

A ratio study is a study of the relationship between appraised or

assessed values and market values. The goal in ratio studies is to

determine the level and uniformity of the appraisals or assessments

for a given jurisdiction.

In Tennessee, ratio studies are compiled and analyzed to create

the appraisal ratio report, which is published by the Comptroller’s

Division of Property Assessments.

See also:

• appraisal ratio report

real estate

Real estate is the physical parcel of land and all improvements

permanently attached or xed to the land.

real property

Real property is one of the three classes of property subject to

taxation in Tennessee, as specied by Article II of the Tennessee

Constitution.

Real property is dened by state law to include land, structures,

and improvements on land, certain mobile homes, and machinery

and equipment afxed to the land.

Real property is subdivided into four subclasses, also specied in

the Tennessee Constitution. Properties are assessed at a percentage

of their appraised value based on preset assessment percentages

for each subclass. The Tennessee Constitution provides for the

following preset assessment percentages:

Residential real property 25%

Farm real property 25%

Commercial and industrial real property 40%

Public utility real property 55%

Example: A residence appraised at $ 100,000 would have an

assessed value of $25,000

See also:

• intangible personal property

• public utilities

• tangible personal property

reappraisal

Reappraisal is the mass appraisal of all property within a

jurisdiction completed at the end of a reappraisal cycle. Not

all properties are reappraised each year, but all properties in

a jurisdiction must be appraised or reappraised once within a

reappraisal cycle. Between reappraisals, a property’s appraisal

amount remains constant, with the exception of properties that

have changed signicantly due to new buildings, additions,

demolitions, etc.

reappraisal cycle

A reappraisal cycle is the period of time necessary for a

jurisdiction to have a complete reappraisal of all eligible property.

In Tennessee, reappraisal cycles are four, ve, or six years.

recapture

Recapture, in general, is the recovery of a capital investment.

More specically, it is the portion of the net operating income or

the cash ow that provides for the periodic repayment of invested

capital. Recapture may also be achieved, wholly or in part, through

resale of the property. The words depreciation and amortization are

sometimes used as synonyms for recapture. However, depreciation

is also both an accounting term and a word that means a loss from

original value, and amortization is commonly used to signify

debt retirement. Recapture has no such multiple meanings, and is

therefore more desirable for use in income appraisal.

See also:

• greenbelt

• rollback tax

This denition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed

Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State

University).

registered agent

Tennessee law requires that persons representing taxpayers

in property tax appeals before the State Board of Equalization

must qualify on the basis of being an attorney for the taxpayer

or occupying a particular relationship to the taxpayer, or on the

basis of demonstrating specic appraisal or assessment related

qualications and registering with the SBOE. Prospective agents

may register by submitting an application and the required fee.

The three general areas of qualication as a registered agent are

as follows:

• Education (120 hours of appraisal or assessment courses),

appraisal/assessment experience (four years), and

examination (Tennessee Certied Assessor exam).

• An agent may also qualify on the basis of an appraisal

or assessment designation, but the only designations

currently recognized are the Certied Member designation

of the Institute of Professionals in Taxation (IPT) and

the Accredited Senior Appraiser (ASA) designation of

the American Society of Appraisers. Rules of the board

presently require organizations conferring professional

designations to apply to the board for recognition of a

particular designation, and, to date, only the IPT and

ASA have followed this process.

• Applicants may also qualify by reciprocity if they are

currently registered as taxpayer agents in another state

with comparable requirements to Tennessee. Agents

registered with the board must renew registration every

two years, and they are subject to disciplinary standards

adopted as rules of the board.

remaining economic life (REL)

The remaining economic life of an asset is the number of future

years for which the operation of an asset is expected to add value

to the total property. REL is often expressed as a percentage of the

total economic life (REL percent).

For example, a structure’s total economic life may be 50 years,

at which time it would likely be dilapidated and no longer have

positive value. Twenty years after construction of the structure, its

remaining economic life would be 30 years, or 60 percent, of the

total economic life.

replacement cost

Replacement cost represents the cost of replacing an asset with

something that is equivalent. For example, the replacement cost of

a house is the cost of building a replacement house of the same size

and type of construction. It does not include the price of the land,

as that would not need replacing in the event of a loss.

Replacement cost is not the same as market value, which is the

amount it would take to purchase another property of similar size

and type of construction, including the land.

See also:

• market value

replacement cost new less

depreciation (RCNLD)

The replacement cost new less depreciation is a calculated value

of an asset used in the cost approach. The rst step to calculate the

RCNLD of an asset is to determine what a similar replacement,

with the same utility to its owner, would cost to build using

current techniques and materials. This is the replacement cost. The

depreciation of the asset is then subtracted from the replacement

cost because the asset is not as new as its replacement would be.

Depreciation would include any reduction in value due to factors

such as not having the newest techniques and materials, not being

as functional as the asset once was, and having a shorter useful life

than a new version would.

See also:

• cost approach

• depreciation

replacement cost new (RCN)

Replacement cost new (RCN) is the value of an asset based on

the cost — including material, labor, and overhead — that would

be incurred in constructing a replacement without necessarily

reproducing exactly any particular characteristic of the original

asset. Materials, design, and building techniques could be up to

current standards, but must have the same utility to the owner.

residual value

Residual value refers to the value of an asset after the term of a lease

expires. As an asset is used, its value depreciates. At the end of the

lease term, the asset has a residual value that represents what it would

cost to buy the asset at that point. Estimates of residual value may be

used in calculations to determine rental payments and lease terms.

See also:

• asset

• capital lease

• operating lease

revocation

Tennessee law allows property held and used purely for religious,

charitable, scientic, literary, or educational purposes to be exempt

from property taxes. The property owner must le for a property

tax exemption from the State Board of Equalization. The SBOE may

revoke an exemption on its own or following a concern or complaint

brought by a county ofcial, including the assessor, or other person

regarding an exempt property.

Grounds for revocation are fraud, misrepresentation, erroneous

information, change in use, and abandonment of property. The

revocation process can be initiated by the SBOE or a county assessor,

or once a concern or complaint regarding an exempt property is

received.

The review begins when SBOE attempts to contact the property

owner in response to a complaint. Upon completion of the review,

all relevant parties (complainant, property owner, assessor, trustee)

are notied whether there is probable cause to revoke. If there is

probable cause to revoke, the SBOE will inform the owner of their

right to request a hearing before an administrative law judge (ALJ).

The SBOE will then advise the assessor that the property should

not be returned to the tax roll until SBOE receives an order from

the ALJ and forwards the le to the Administrative Procedures

Division of the Tennessee Secretary of State’s Ofce for nal

disposition. If a hearing is not requested within 90 days, the ALJ

issues an order of revocation, but if a hearing is requested, the ALJ

issues an appropriate order after holding a hearing.

right-of-way

Right-of-way is the right of passage through property. The term

can have two specic meanings:

(1) A right-of-way can be an easement that allows

passage through a property that benets owners

of other lots or other specic parties because it

connects them to roads or other points of interest.

(2) Land crossed by a railroad or public utility, whether

owned by the railroad or utility company or used under

an easement agreement, is also called a right-of-way.

rollback tax

A rollback tax, or rollback assessment, is charged to a greenbelt

property owner when the property no longer qualies as greenbelt,

and thus is no longer eligible for a reduced assessment. In the

greenbelt program, the value of land is based on its current use as

agricultural, forest, or open space land rather than the current market

value for similar properties. Use value is determined by a statutory

formula that blends farm income and market data. This calculation is

performed by the Division of Property Assessments.

If property is disqualied and removed from the greenbelt program,

it usually triggers rollback or recapture of some of the taxes saved. The

rollback tax in most cases is the difference in the taxes under greenbelt

versus what they would have been at market value for the previous

three years. Greenbelt property is unique in that it is valued based

only on the amount it would be sold for if it were required to remain

as agricultural land instead of being based on how much a buyer

would pay if the property could be developed in any other way.

See also:

• agricultural land

• greenbelt

sales comparison approach

One of three approaches to value, the sales comparison approach

estimates the value of a property or improvement in reference to

comparable sales. This method entails comparing the property

being appraised to similar properties that have sold for known

prices to estimate value. The appraiser identies comparable

properties sold recently that also have relatively similar size,

quality, use, and amenities. Some adjustments can be made to

account for differences between the property being appraised and

the homes used as comparison.

See also:

• cost approach

• income approach

• market approach

sales ratio

Sales ratio measures the difference between appraised value

and market value. It is calculated by dividing the appraised value

of a property by the sales price of that property. In Tennessee, on

the appraisal date (January 1 of the year of reappraisal), market

and appraised values should be similar. As time passes between

reappraisals, the disparity between these values may increase. This

disparity is what creates a sales ratio other than 1.00 (100 percent).

These ratios are used to develop the appraisal ratio report.

See also:

• appraisal ratio report

• appraised value

• market value

situs

The situs is the actual or assumed location of a property for

purposes of taxation. In personal property, situs may be the physical

location of the property or, in the instance of highly mobile property,

the more or less permanent location of the property owner.

special purpose property

Special purpose properties have unique features in their design,

materials, construction, or use. These special qualities affect a property’s

assessment because they limit the available uses for the property.

split classication rules

Split classication rules apply to those situations where a parcel of

real property is used for more than one purpose and it is necessary

to assign different subclassications and assessment percentages

to each use. Split classication rules address the classication of,

for example, agritourism properties, mobile homes within mobile

home parks, and commercial businesses on residential property.

state assessed property

State assessed property is a term most often applied to utility

property or property with special characteristics that prompts a

state, instead of local governments, to perform the assessment to

ensure uniformity.

In Tennessee, state assessed properties are public utility

and transportation properties. The Office of State Assessed

Properties (OSAP), within the Tennessee Ofce of the Comptroller,

conducts annual appraisals, assessments, and audits of such

properties. These assessments are given to counties, cities, and

other taxing jurisdictions for billing and collection of property taxes.

OSAP assesses 18 types of public utility and transportation

companies with a presence in Tennessee, including airlines, motor

carrier, railroads, and wireless management, among others.

See also:

• Ofce of State Assessed Properties (OSAP)

State Board of Equalization

The State Board of Equalization is responsible for ensuring

constitutional and statutory compliance in assessments of property

for ad valorem taxes. This responsibility is carried out through

establishment of policies, rules, manuals, and training; hearing

of appeals from county boards of equalization; direct review and

hearing of appeals regarding state assessed property; review of

application of tax exemptions; and review of certied tax rate

calculations. The State Board is part of the Tennessee’s Ofce of

the Comptroller of the Treasury.

See also:

• board of equalization

• county board of equalization

stipulated value

The stipulated value of a property is an amount that all parties

to a dispute (such as a tax appeal) agree is the accurate amount.

Stipulating a value removes that element from the contested facts

in a case.

straight line depreciation

Straight line depreciation of real property calculates the amount of

depreciation equally per year over the life of the property. This regular

and equal reduction in value is a relatively simple and common

method for calculating the loss in value over time for a property.

stratication

Stratication refers to the division of samples of observations

into two or more subsets according to some criterion or set of

criteria. Such a division may be made to analyze different property

types, locations, or characteristics to better understand how these

differences affect values. This type of data analysis can help

develop appraisal models that assist with mass appraisals.

structure

A structure is any man-made improvement that rises above

ground level on a parcel or lot of land.

subclass

A subclass refers to a group of properties within a class. In

Tennessee, the three classes are subdivided into four main

subclasses: (1) public utility property, (2) industrial and commercial

property, (3) residential property, and (4) farm property.

See also:

• classication

subject property

The property being appraised is sometimes referred to as the

subject property; this is another way of saying which property is

the subject of the appraisal.

substitution

The substitution principle states that a potential owner will pay

no more for a property than the price for a property of similar

usefulness. In other words, a property’s value tends to be set by the

cost of acquiring an equally desirable substitute. The substitution

principle is the basis for the cost approach to valuation.

See also:

• cost approach

101

tangible personal property

Tangible personal property is a subcategory of personal property.

Personal property is an asset owned or leased by a taxpayer and

used for business or a profession. Generally, personal property

can be moved and taken out of a space, whereas real property is

afxed to the land or structures. Tangible personal property can be

furniture, equipment, vehicles, or anything that is concrete, other

than real estate or a xture. It is the opposite of intangible personal

property, which is personal property, like business ownership and

patents, that is not concrete and cannot physically be touched.

In Tennessee, tangible personal property is assessed at 30 percent

of its value for commercial and industrial property and 55 percent

of its value for public utility property.

See also:

• classication

• intangible personal property

• property class

• real estate

Tax Aggregate Report

The Tax Aggregate Report is an annual publication of the State

Board of Equalization that is required by law. Data for this report are

analyzed and compiled by the Comptroller’s Division of Property

Assessments. The report contains property tax information for

cities and counties and, in some instances, statewide totals.

102

The report includes select data and information, such as:

• estimated current property values;

• total local assessments for each county, municipality,

and special school district, by property class (real,

tangible personal, and intangible personal) and subclass

(residential, farm, industrial and commercial, and public

utility);

• public utility assessments;

• changes in assessments between the current year and

prior year;

• tax rates; and

• year of last revaluation, parcels (both taxable and exempt),

and population.

tax base

The tax base is the total asset value to which the tax rate or rates

are applied to determine the taxes owed by a person or a group of

persons. The tax base for property taxes, for example, is the total

assessed value of all properties subject to taxation.

tax bill

A homeowner’s tax bill is that amount of money he or she must

pay in property taxes. In Tennessee, homeowners can calculate

their tax bill by multiplying the assessed value of property by the

tax rate in the property’s city and county. Assessed values can be

found by multiplying the appraised value of the property (which

is public record) by the assessment ratios for Tennessee.

See also:

• assessment

• assessment ratio

• tax rate

103

tax increment nancing (TIF)

Tax increment nancing (TIF) is a tool used by local governments

to encourage development in targeted areas. Local industrial

development boards or local housing authorities can invest in

a project using the future expected increases in tax revenue for

the nancing. For example, a blighted neighborhood might have

dilapidated buildings worth only $50,000 in property value. Using

a TIF, the local development board or housing authority could

replace the run-down buildings with new ones to increase total

property values in the area to $750,000. The $700,000 difference

in property value would increase property tax collections. The

increased property tax revenue is used to recover the cost of the TIF

improvements. In short, TIF is a way to allow new development to

pay for itself.

State law requires the Comptroller of the Treasury and the

Commissioner of Economic and Community Development to

review certain TIF plans to determine whether the nancings are

in the best interest of the State of Tennessee.

See also:

• industrial development board (IDB)

tax levy

Tax levy can have two related meanings:

(1) The act approved by a legislative body that sets

either the amount of tax on a specic good or asset

or the tax rate to be applied to a predened tax

base.

(2) The total amount of taxes authorized by a

legislative body. With property taxes, for example,

the tax levy is the amount collected from

homeowners. The total taxes due are calculated by

applying the tax rate to the properties’ assessed

values.

104

tax rate

The tax rate describes the amount of taxes paid per $100 of

assessed value. The assessed value is a portion of the appraised

value as outlined by state law. It is distinct from the effective tax

rate, which shows what percent taxes are of the appraised value of

property.

In some counties, the basic county tax rate is distinct from any

additional tax rate set by cities or special school districts within the

county. The total tax rate combines all applicable tax rates for the

jurisdiction.

See also:

• effective tax rate

tax roll

A tax roll is an ofcial list showing the amount of taxes charged

against each taxpayer and/or each property within a jurisdiction.

tax sale

A tax sale occurs when a taxpayer’s property is sold by a public

authority so that delinquent, or unpaid, taxes may be collected

from the proceeds. Taxpayers can pay delinquent taxes prior to a

scheduled tax sale, and they have a specied time period after the

sale in which they can redeem the property from the purchaser.

title

A title is the legal instrument that serves as evidence of ownership.

See also:

• deed

• instrument

105

topography

Topography is the contour of the land’s surface. A land’s

topography may be, for example, gently rolling, mountainous, or

at.

topology

Topology is a set of rules in mapping technology (such as

geographic information systems, or GIS) that when coupled with

editing tools and techniques, enables a geodatabase to accurately

model geometric relationships. Topology helps determine how

different types of geographical data interact and share a geographic

space. For example, one rule may be that all parcel boundaries

should be covered by a parcel line.

See also:

• geocoding

• geodatabase

total economic life

Total economic life of a tangible asset is the period of time, or the

number of units produced, over which the asset is expected to add

value to the total property, or to be economically feasible. This is

distinct from the physical life of an asset. Tangible assets could be

buildings or improvements to the property.

106

tourist development zone (TDZ)

Tourist development zones (TDZs) are high tourism areas in

which improvements would likely bring more industry and

increased revenue. While state government is generally entitled

to 75 percent of all sales tax revenue generated in Tennessee’s

municipalities, the state foregoes its portion of the sales tax in a

designated TDZ so that the area can be developed.

In Tennessee, municipalities with a TDZ must annually document

any costs of development or improvement projects to ensure that

the state’s share of the sales tax is being used appropriately. The

Commissioner of Revenue reviews the documentation, conrms

TDZ expenditures, and then noties the Department of Economic

and Community Development.

trust

In property terms, a trust is an agreement in which the owner

of property (the settlor) transfers legal title to a second party (the

trustee), with later benets to either the settlor or a third party (the

beneciary). The trust agreement outlines how the trustee handles,

manages, and disposes of the property. Usually a trust for property

is in place so that after the settlor dies, the trustee transfers

ownership to the beneficiary without having to go through the

longer probate process.

107

undivided interest

An undivided interest in ownership exists when there are multiple

parties, corporations, partnerships, or tenancy-in-common owning

assets or property. Such co-owners with an undivided interest have

unrestricted rights to the entire common asset or property, and no

co-owner has exclusive rights to any asset or part of the property.

Uniform Standards of

Professional Appraisal Practice

(USPAP)

USPAP is an annual publication from the Appraisal Standards

Board of The Appraisal Foundation. Its description is as follows:

“These Standards deal with the procedures to be followed in

performing an appraisal, review or consulting service and the

manner in which an appraisal, review or consulting service is

communicated. Standard 6 sets forth criteria for the development

and reporting of mass appraisals for ad valorem tax purposes or

any other universe of properties.”

108

uniformity

Uniformity in taxation refers to the equal sharing of the tax burden

so that all similar property is taxed at the same rate. Uniformity in

taxation requires:

• a standard property assessment process,

• a standard rate of taxation, and

• all property be subject to taxation, so that all similar

property may be taxed the same.

In Tennessee, the State Board of Equalization ensures that

property tax assessments meet state constitutional standards

of uniformity through the board’s administrative policies and

appeals process.

unit of comparison

A unit of comparison is a measurement that breaks down the

price of a whole into smaller uniform units so it can be compared

to another property that can also be broken down into those

same units. For example, a home’s price could be broken down

by square feet. This unit of comparison would allow properties

to be compared based on their price per square foot. Units of

comparison are also used to estimate the value of a given property

in comparison to other properties for sale or recently sold.

unit value

Unit value has two possible denitions:

(1) The value of a section of property if it were to be split

into similar parts. For example, value per square foot

is one type of unit value; or

(2) An appraisal of an integrated property as a whole

without any reference to the value of its component parts.

109

unit method of evaluation

The unit method of valuation is the technique of valuing a

collection of property as a single, whole item.

use value

Use value has two similar denitions:

(1) The value of property based on a specic use,

which is not necessarily the same as the value of

the property if it could be developed or used in the

most protable way. For example, the use value of

land when it can only be used as farm land may be

less than the highest and best use value of the land

if it could be developed into multi-use apartment

complexes; or

(2) Can refer to property that is entitled to a different

assessment than similar properties in the area,

based on its use. Examples of properties that may

be assessed at use value under state law include

agricultural land, open space land, and forest land.

See also:

• agricultural land

• greenbelt

• highest and best use

111

vacancy and collection loss

Vacancy and collection loss is the amount of money deducted

from potential annual gross income to reect expected vacancy

and turnover, or nonpayment of rent by tenants. Vacancy and

collection loss is commonly expressed as a percentage of potential

annual gross income, and is based on market research, not actual

rental history of a property.

For example, market research may show that each month there

is turnover or other factors that cause one out of 10 apartments

to be vacant and one out of the same 10 to not pay rent. If all the

apartments cost the same, then the vacancy and collection cost

would be 20 percent because two of the 10 apartments did not

bring in rent revenue.

See also:

• effective gross income (EGI)

value

Value can have several meanings relative to property assessment:

(1) The relationship between an object desired

and a potential owner is the object’s value. The

characteristics of scarcity, utility, desirability, and

transferability create value for the desired object.

(2) The present worth of future benets arising from the

ownership of real or personal property.

(3) The estimate sought in a valuation.

112

value in exchange

Value in exchange has multiple meanings:

(1) The amount an informed purchaser would offer for

property under given market conditions.

(2) The concept that states value is based on the ability

of property to elicit the exchange of another asset,

such as money, in trade.

value in use

Value in use is the value of property when assessed based on a

specic use. This is distinct from the highest and best use principle,

which looks at property values if the property were put to its most

protable use. Value in use is most often used in Tennessee for the

valuation of greenbelt land.

See also:

• agricultural land

113

warranty deed

The most common type of property deed, a warranty deed is an

instrument for conveying property that has good and marketable

title. When a property owner sells his property using a warranty

deed, he warrants that he owns the property and has the right to

convey it to the buyer.

Other types of deeds transfer property without providing a

warranty that the seller owns the property and has the right to sell

or transfer the property.

See also:

• deed

115

zoning

Zoning is the regulation by a governing body to restrict

landowners’ use of their land. Zoning regulations can also restrict

the type, size, and location of structures to be erected on the land.

116

Acronyms

Assessment Related

Acronyms

CALP: Computer Assisted Land Pricing

CAMA: Computer Assisted Mass Appraisal

CTR: Certied Tax Rate

CVU: Current Value Update

EYB: Effective Year Built

GIS: Geographic information System

IMPACT: Integrated Multi-Processing of Administrative

and CAMA Technology

NOI: Net Operating Income

OBY: Out Buildings and Yard items

PRC: Property Record Card

RP: Real Property

SFLA: Square Feet of Living Area

TPP: Tangible Personal Property

117

Assessment Related

Organizations

AI: Appraisal Institute

CBOE: County Board of Equalization

CTAS: County Technical Assistance Service

DPA: Division of Property Assessments

IAAO: International Association of Assessing Ofcers

TIAAO: Tennessee Chapter of the International

Association of Assessing Ofcers

TNAAO: Tennessee Association of Assessing Ofcers

OSAP: Ofce of State Assessed Properties

SBOE: State Board of Equalization

118

Comptroller of the Treasury, Authorization No. 307402,

February 2018, 1500 copies. This public document was

promulgated at a cost of $2.91 per copy.

personal property

computer-assisted

mass appraisal

ad valorem (CAMA)

condition appeal

appraisal

arm’s-length transaction

assessment

classification

assessor of property

cost approach

depreciation

effective age

equalization

GIS greenbelt

improvement

income approach

market

approach

personal property

discount rate

public utility

real property

parcel identification number

common carrier

discount rate

public utility

state assessed properties

unit method

Administrative Law Judge

contested case hearing

certified tax rate

tax increment financing

agreements

Assessment Appeals Commission

major federal program

modified opinion

assessor of property

appeal

appraisal

ad valorem

arm’s-length transaction

payment in lieu of tax

cadastral map

classification

cost approach

depreciation tax rate

common carrier

classication

 condition

costapproach

depreciation

equalization

commission

greenbelt

improvement

incomeapproach

Defining Tennessee

Property Assessments

A Glossary of

Property Assessment Terms

VOLUME I / 2018