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The Continuing Conundrum of How to Exclude Goodwill in Unitary Property Taxation—and a Proposed Solution

Added by Richard G. Smith in Articles & Publications, Tax Law on August 10, 2017

The exclusion of tax-exempt goodwill from the assessed value of taxable property is a vexing problem for tax administrators and for the taxpayer companies that seek such exemptions. This is particularly the case for taxpayer companies that (1) report goodwill on their financial statements and (2) are subject to property taxation by state taxing authorities based on the value of the “ unit” of property used in a business operation conducted within the taxing state. This discussion analyzes the issues involved in the identification and valuation of goodwill, considers alternatives for implementing the exemption of goodwill in a unit principle valuation, and recommends a practice for excluding goodwill that is based on a method recognized and endorsed by the appraisal guidance used by tax administrators.


The valuation of goodwill is a recurring issue in property tax cases involving industrial and commercial taxpayers that are valued using the “unit method.” That unit valuation principle is based on the premise that the value of an operating “unit” of property is greater than the sum of its parts.

When the income approach is used in a unit principle valuation, the unit income will generally include income from the entire business enterprise, not simply from the taxable assets.

As such, to the extent there are earnings attributable to assets that are exempt from taxation, including the intangible assets that are exempt in most taxing jurisdictions, the value of those exempt assets will be included in the income approach value indication.

Similarly, when the market approach is used in a unit principle valuation, and market value is determined by reference to comparable properties, the market approach value indication will include the value of whatever exempt assets are included in the sample of comparable properties.

The cost approach more clearly segregates tangible assets from intangible assets. And, the cost approach is the only generally accepted property valuation approach to assure that intangible property will not be included in the taxable value.

In a previous discussion, this author suggested that where the taxpayer owns substantial intangible property and where the use of the cost approach is practicable, appraisers use only that approach.1

Some states follow that practice, especially for certain industries where intangible property is a significant part of the total unit of operating property.

This discussion explores the logic of an alternative:

1. If the appraiser uses the cost approach and one or more other valuation approaches, then the appraiser should deduct the value of intangible property after the reconciliation of the various approaches into a final unit value.

2. In the goodwill deduction, the appraiser should use a market-book ratio based on the accounting “book value” of goodwill.

This proposal is not original to this discussion. It is recommended by at least two appraisal sources relied on by state assessors, and its adoption would represent a compromise of sorts. Where goodwill exists, the amount of goodwill recorded on the tax- payer’s books is likely to be only a portion of the total goodwill. Accordingly, if taxpayers are willing to accept such a limited exemption, taxing authorities should be satisfied.


It has long been the practice of states to value certain types of companies using the “unit” valuation principle.2

The unit valuation principle traces its roots to the 19th century. The logic of the unit valuation principle, and the “sum of the parts” rationale, was described by the U.S. Supreme Court in the Adam s Express case.

The issue in that case was whether it was constitutional to include intangible assets as part of the taxable value, and the court accepted the argument that the whole is greater than the sum of the parts, as follows:

Now, whenever separate articles of tangible property are joined together, not simply by a unity of ownership, but in a unity of use, there is not infrequently developed a property, intangible though it may be, which in value exceeds the aggregate of the value of the separate pieces of tangible property. Upon what theory of substantial right can it be adjudged that the value of this intangible property must be excluded from the tax lists, and the only property placed thereon be the separate pieces of tangible property?3

Companies that are valued for property tax purposes using the unit valuation principle are typically public utilities like electric, gas and water transmission and distribution companies, telephone companies, railroads, and airlines.

Because utility-type property usually crosses many local government boundaries, the unit principle valuation of utilities is generally performed on a “central assessment” basis by the state’s department of revenue.

State tax authority appraisers typically use one or more of the three property valuation approaches to determine the taxpayer “unit” value—cost approach, income approach, and market approach.

By its nature, the cost approach derives the value of the individual tangible property of the subject unit, although adjustments for functional and economic obsolescence often are made at the system or unit level.

After estimating separate value indications for the subject unit property using the cost, income, or market approaches, the appraiser “correlates” or “reconciles” these value indications into a single value conclusion—after considering the strengths and weaknesses of each valuation approach.

States began using the unit valuation principle when a larger share of property ownership in this country was tangible real property or tangible personal property. In the 20th century, however, there was a significant increase in the value of intangible property, and such intangible property represents an ever-increasing proportion of the nation’s wealth.4

As a result, and perhaps because intangible property is difficult to value, states began enacting property tax exemptions for intangible property. Most states now have such intangible property exemptions.5

Recurring Issues in the Deduction of Intangible Property and Goodwill

There have been a number of important cases over the last 50 years addressing whether and how intangible property value should be deducted from a total unit value. And, it is helpful to discuss those cases briefly here.

Two California cases set the stage for development of the principles important to the analysis of intangible asset exclusion in unit valuations.

In Roehm v. County of Orange6 and ITT World Communications v. County of Santa Clara,7 the California Supreme Court addressed the applicable constitutional and statutory provisions covering the exemption of intangible property.

In Roehm , the court held that a liquor license was an intangible asset not subject to taxation, no more than other forms of governmental permits, stock exchange seats, memberships, goodwill, and other assets “which have never been taxed as property in this state during its entire existence.”

However, the Roehm court introduced confusion with the following statement: “Intangible values, however, that cannot separately be taxed as property may be reflected in the valuation of taxable property.”8

In ITT World Communications, the court rejected the taxpayer’s argument that value should be measured exclusively by the cost approach in order to exclude intangible property value. The court endorsed the idea suggested in Roehm that although intangible property cannot be taxed directly, it could be taxed indirectly:

Although Appellant’s franchise cannot be assessed and directly subjected to property taxation, the assessment of its taxable property may take into account earnings from that property that depend upon Appellant’s possession of the franchise.9

Tax authorities probably read too much into this analysis. The franchise asset addressed in that case might not have its own identifiable value; the franchise is more like a permit that allows the activity and is necessary to the use of an asset at its highest and best use. But for assets that can be valued, these cases did not support the notion that intangible assets can be valued indirectly.

That principle was made clear in GTE Sprint Communications Corp. v. County of Alameda, where the court held that although the unit value may be enhanced by the presence of intangible property, the statutory exemption requires that the value of the intangible property must be excluded from the unit value.10

In contrast, with respect to goodwill specifically, the Utah Supreme Court in Beaver County v. WilTel held that for a telecommunications company, it was not necessary to exclude the increment of value that represents the difference between:

1. the tangible property value standing alone and

2. the business enterprise value of the entire unit.11

The court likened this goodwill value to the assemblage value concept in real estate appraisal, where the process of assembling disparate proper- ties into an operating system creates an attribute, similar to location, which enhances the value of the unit and does not require exclusion as a separate intangible asset.

The court in WilTel went too far in suggesting that goodwill is part of the enhancement of the tangible assets, a conclusion that is clear from a subsequent Utah case, T-Mobile USA, Inc. v. Utah State Tax Commission.12

In T-Mobile, the Utah State Tax Commission had used a historical cost method to value the taxpayer corporation tangible assets but had allocated part of the book value of goodwill to the taxable assets, presumably under the authority of WilTel and in an effort to add an assemblage value enhancement to the tangible asset value.

The court held the Commission’s allocation of accounting goodwill in this manner was improper because accounting goodwill is intangible property that cannot be taxed consistent with the Utah Constitution. It rejected the argument that “accounting goodwill falls within the definition of tangible enhancement value because it captures the ‘synergy value’ of the company’s net assets working together as a unit.”13

The court reasoned that “synergy value” and “customer base value” could be considered part of accounting goodwill, which is exempt. Finally, it agreed with the trial court’s analysis that “to the extent T-Mobile’s goodwill account included enhancement value, that value would be captured through the valuation of the tangible property itself.”

This analysis seems to beg the question of whether there was any taxable enhancement in the tangible property as determined in the property appraisals.

The Supreme Court avoided that question by holding that in this case, it was appropriate to rely on only the cost approach appraisal. The use of the unit valuation principle was not mandatory.

Other cases have concluded that the task of extracting intangible value is so challenging that unit valuation approaches—such as the income and market approaches—should not be used. In Heritage Cablevision v. Board of Review ,14 the Iowa Supreme Court affirmed the rejection by the district court of a market approach valuation method that included intangible asset value.

The court rejected the use of the market approach, because while that method may be appropriate to determine the value of the business enterprise, it “necessarily includes nontaxable assets such as a franchise to operate, an established customer base, experienced personnel in place, goodwill, and other intangibles.”15

In another Iowa case, Post–Newsweek Cable, Inc. v. Board of Review ,16 the Supreme Court rejected the income approach for unit valuation, noting the following:
Tremendous profits and a monopolistic status do not, however, justify taxation of intangibles. The income approach—which capitalizes earnings—measures the value of a business entity, not the value of individual taxable assets of that entity. This calculation necessarily values intangibles. (p. 816)

In a Florida case, GTE Florida, Inc. v. Todora,17 the appellate court criticized the use of both the income approach and market approach for including the value of intangible property. And, quoting the Florida Supreme Court in Havill v. Scripps Howard Cable Co., the court found: “From the single value arrived at by the income approach, it is virtually impossible to segregate specific items and identify their values. Thus, it is unlikely that the value of intangible assets and other nontaxable items can be subtracted in a nonarbitrary fashion to reveal the just valuation of the tangible personal property.”18

The court then applied the same analysis to the market approach.

As a result, in Iowa and Florida, only the cost approach is used to determine the assessed value of tangible property for many companies. The cost approach has the advantage of allowing the appraiser to focus solely on the tangible asset values.

The California Board of Equalization also has relied on cost approach valuation methods in the valuations of telecommunications property. This is because of the high concentration of intangible property in that industry.

Some states have eliminated or limited the unit approach by statute or by rule (e.g., Arizona, Nebraska, Minnesota [for telecommunications companies], and Virginia). Other states have shifted to a gross receipts tax for centrally assessed taxpayers, avoiding entirely the complex valuation issues associated with large and complex businesses (e.g., North Dakota, South Dakota, and for many industries in Iowa).

Issues Regarding How To Extract Intagible Property and Goodwill Value

The foregoing cases present two extremes on how to handle the difficulties of extracting the value of intangible property from the total unit value. The assessing authorities argued that goodwill in particular does not need to be deducted at all. This is because goodwill represents “enhancement” to the value of the taxable assets.

The courts in some jurisdictions held that the difficulties in deducting intangible property values makes the use of the income approach and market approach impracticable. In between these two extremes are the states that:

1. acknowledge the goal of extracting intangible asset value and

2. develop the standards for doing so.

One set of standards that is very restrictive is contained in a controversial valuation handbook published by the Western States Association of Tax Administrators (“WSATA”), a group of centrally assessed tax administrators in 13 western states.19

The WSATA handbook includes views on appraisal principles, and has endorsed certain methods, that are contentious and that even its own members do not generally apply or give much consideration to (such as the direct capitalization income approach and stock and debt variation of the market approach).

One set of principles advanced in the WSATA handbook concerns a definition of intangible property for purposes of extracting intangible property value from the total unit value. The WSATA hand- book explains that for an intangible asset to qualify for deduction from the total unit value, “it must be capable of being sold separately and apart from the unit.”20

According to the WSATA handbook, goodwill is an intangible asset that is not separable from the operating unit. Indeed, the WSATA handbook describes goodwill as being in a category of assets that “do not have a separate, independent property existence e.g., goodwill, enterprise value.”21

The WSATA handbook was the basis for rules promulgated in two states that limited the intangible property exemption, particularly with reference to goodwill. Those rules were recently challenged in— and declared invalid by—the courts.

In Montana, the relevant exemption statute exempts “intangible personal property,” and defines that term as property “that has no intrinsic value but is the representative of value,” or “property that lacks physical existence, including goodwill.”22 The statute then provides a nonexhaustive list of property that meets that definition: “certificates of stock, bonds, promissory notes, licenses, copy- rights, patents, trademarks, contracts, software, and franchises.”

The Montana Department of Revenue promulgated a rule that adopted the WSATA handbook approach for limiting the scope of intangible property exemptions. That rule required that in order to qualify as exempt intangible property, the intangible property must be capable of ownership and “must be able to be bought and sold, separate from the unit of operating assets, without causing harm, destroying, or otherwise impairing the value of the unit of assets being valued through the appraisal process.”

The Montana rule allowed the book value of goodwill as an exemption in the cost approach, but it included other restrictions that effectively excluded goodwill from the exemption in any other unit principle valuation approach. Those restrictions included the directive that the “ability to make excess revenues over the normal rate of return” represents intangible value, not intangible property.23

In Gold Creek Cellular of Montana dba Verizon Wireless and AT&T Mobility v. Department of Revenue,24 the Montana Supreme Court had little difficulty holding that this definition of intangible personal property exceeded the Department’s rule- making authority—which is to promulgate rules consistent with the statute. The court rejected the “separability” requirement as inconsistent with the statute, which includes property that cannot be separated from the unit and yet is listed in the statute as exempt.

With respect to goodwill specifically, the court noted that “the Department’s distinction between intangible property and intangible value appears to sweep up goodwill, as goodwill is often defined by the ability to make excess revenues over the normal rate of return.”25

The issues surrounding the exemption of good- will were soon litigated again in connection with another rule adopted by the Department of Revenue of Washington. This rule also adopted the “separability” requirement. Much of the case centered on the argument that there was no need to exclude goodwill in any unit principle valuation approach other than the cost approach. This is because goodwill was not even “property,” since it did not satisfy the separability requirements that the Washington Department of Revenue and the WSATA handbook believed were appropriate. The court disagreed.

As in Montana, the Washington courts recognize goodwill as a separate asset for many purposes. The court held that the “separability” limitation improperly created a subset of intangible assets— those which were separable from the unit, and those which were not.26
In both Montana and Washington, the Departments of Revenue excluded goodwill in the cost approach, but defended such treatment not because it was an exempt intangible asset, but because the book value of goodwill was not evidence of intangible property at all.

Instead, goodwill was a residual of the purchase price allocation process in business acquisitions. That approach was rejected by the courts, which recognized that goodwill is an intangible asset in its own right.

However, the implicit recognition of goodwill as excludable in the cost approach, together with the courts’ recognition that goodwill should be considered in all unit principle valuation approaches, sets the stage for a solution to the goodwill conundrum, as explained in the next section of this discussion.

Exclusion After Reconciliation-An Approach That Should Be Acceptable to All

If one accepts the premise that goodwill is appropriately measured in the cost approach for use in that approach, then a widely recognized technique exists to extend that valuation to the unit principle valuation as a whole. Even the guidance relied on by state property tax assessors recommends this technique.

Deduction of intangible assets after the reconciliation process is recommended both by the WSATA handbook and another resource relied on by state assessors—the valuation standards promulgated by the National Conference of Unit Valuation States (“NCUVS”). Both of these sources recommend this process rather than the valuation and deduction of intangible property in each individual approach.27

In other words, it is not necessary to consider how goodwill should be deducted from the cost approach, income approach, or market approach. Instead, the value indications from those valuation approaches should be “reconciled” into a single value conclusion and then the value of goodwill should be deducted from that value conclusion. This process makes it unnecessary and inappropriate for a rule or policy precluding deduction of goodwill value from the income approach or the market approach.

A goodwill value amount is available from, and is used by, the state assessors for the cost approach. The guidance of the WSATA and NCUVS standards is that this cost approach value should be used as the deduction from the reconciled value.

A simple example helps to illustrate this point. Before considering exemptions, let’s assume the assessor determines a tangible unit value in the cost approach of $1,000 and gives it a 50 percent weight.

The assessor estimates tangible unit values under the income approach and market approach of $800 in each, and gives each of those conclusions a 25 percent weight. After applying the math based on these weightings, the reconciled tangible unit value would be $900.28

Now, the assessor considers exempt goodwill. Assume the taxpayer has $200 of goodwill on its books. That $200 goodwill value can be deducted from the reconciled unit value of $900, to conclude a taxable unit value of $700.

The practice of some assessing authorities is effectively to allow the $200 goodwill deduction in the cost approach for a net cost approach value of $800, and allow no deductions to the $800 income approach or market approach values.

The WSATA handbook recommends a refinement of this process where the goodwill amount deducted from the reconciled subject unit value is adjusted to a market equivalent by using a marketbook ratio.29

In this example, the reconciled unit value of $900 is compared to the cost approach unit value of $1,000, indicating a ratio of 90 percent. That 90 percent ratio is then applied to the book value of goodwill, to convert the book value of goodwill to the market value of goodwill.

That calculation would result in:

1. a deduction of $180 for goodwill ($200 ×
90%) and

2. a taxable unit value of $720 ($900 – $180).

This refinement has the advantage of adjusting the book value of goodwill by a market-based ratio, so that the market value of goodwill has the same relationship to the book value of goodwill as the relationship of book value to market value for all other unit assets.

So why is this approach not acceptable to assessing authorities? The answer is apparently that they do not accept the premise that goodwill is correctly measured in the cost approach. Instead, they argue that the book value of goodwill is a residual value that does not reflect the value of what goodwill is intended to represent—the excess earning power of assets or of the business enterprise that is not reflected in the value of the taxable, tangible assets.

Addressing this argument requires an understanding of the economic nature of and legal basis for recognizing goodwill, and the equivalence of the book value of goodwill to this economic and legal concept.

A Defense of the Book Value of Goodwill as a Measure of Economic Goodwill

Where goodwill is recognized by the courts as a type of property worthy of legal protection, the courts are referring to what we commonly understand to be goodwill from an economic perspective.

For example, in Friedlaender v. Commissioner, the U.S. Tax Court stated that “the goodwill of a business is the potential of that business to realize earnings in excess of the amount which might be considered a normal return from the investment in the tangible assets.”30 In Dixon v. Crawford, Peterson & Yelish, the Washington court approved an excess earnings approach to value goodwill— “recognizing earnings not strictly attributable to the value of the work performed.”31 In In re Marriage of Hull, the Montana Supreme Court reached the same conclusion.32

The question, then, is whether the book value of goodwill represents the value of those excess earnings. To answer that question requires an understanding of how goodwill is determined for financial accounting purposes.

As most readers know, goodwill is generally recorded only in connection with a business combination, as part of the process of allocating the purchase price for the assets of an acquired business.

For companies with financial statements that comply with generally accepted accounting principles (which includes most state-assessed companies), the rules provide for a valuation of all tangible assets and identifiable intangible assets at “fair value,” which for many purposes is analogous to fair market value.33 The amount recorded as the book value of goodwill is the residual amount of the acquisition purchase price over the sum of the fair value of the acquired tangible and the fair value of the identifiable intangible assets.

Although some state assessors complain that this residual value does not represent any asset at all, much less goodwill, the complaint fails to recognize the effect of the valuation in the real-world practice of valuing companies in merger and acquisition transactions.
Consider, for example, the purchase of a target company for $1 billion. Assume the purchase price is determined based on the following:

1. The buyer’s expectation that earnings will be $100 million per year

2. The buyer’s discount rate, based on the market cost of capital for an investment of this risk, which is 10 percent.

A careful valuation is performed of all tangible assets and identifiable intangible assets, resulting in a total value of $900 million.

An implicit assumption from those asset valuations is that the target company assets will produce income of $90 million annually. If more than $90 million were expected, those assets would be worth more than $900 million.

Based on the market-required return, the $900 million in assets are expected to earn the cost of capital. That amount is $90 million, and anything more than $90 million would be excess earnings.

Thus, the extra $10 million in expected earnings must be produced from assets that are not included in the valuations of the tangible assets and identifiable intangible assets, and that are properly identified as goodwill.

The amount of goodwill determined in the purchase allocation process is a “residual” value. This is because the earnings from which the goodwill is derived are a residual—the extra or residual earnings available after providing a fair return to the other acquired assets.34

Goodwill determinations for financial statement purposes are important. If they are misstated, the company, its management, and even the independent auditors may be subject to suit.35

In addition to the care necessary in making purchase price allocations, accounting principles also require another procedure that is designed to assure the reliability of goodwill determinations and update them to account for changes. Pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) topic 350, a company must review its good- will balances annually and adjust the book value of goodwill downward where there is a likelihood that the goodwill is “impaired.”36

There are two features of the impairment process, and the accounting for goodwill in general, that should give state assessors comfort in relying on the book value of goodwill for post-reconciliation deductions using a market-book ratio.

First, goodwill may be written down, but goodwill
is never written up. So if goodwill is impaired in one year and written down, but the business prospers thereafter, the goodwill amount will not be restored.

Second, the book value of goodwill reflects the excess price paid for acquired business assets, but not the acquiring business.

So, for example, if Verizon were to acquire T-Mobile, the book value of goodwill would reflect the excess purchase price associated with the acquired T-Mobile assets, but not the goodwill associated with the pre-acquisition Verizon assets.

Viewed in this light, one would expect that the book value of goodwill would almost always understate the actual economic goodwill of the taxpayer.

It is possible to argue that goodwill may include more than the present value of future excess earnings. However, any other explanations for the good- will amount do not lead to the conclusion that the goodwill is taxable.

For instance, one commonly used explanation for goodwill is that it represents the present value of growth opportunities (“PVGO”). These are future investments which are expected to earn more than the cost of capital, and so have a positive net present value and increase the price a buyer would be willing to pay for a company.37

However, future assets are not subject to property taxation.38 Even if this increment of value does not represent goodwill, it is still not a taxable asset.39

There are other arguments why the book value of goodwill is not a precise measurement of economic goodwill, such as the risk that when other assets are incorrectly valued in a purchase price allocation, it affects the amount of the purchase price booked to goodwill. However, the risk of error could be positive or negative, and valuations in any context are estimates subject to reasonable error.

The risks that the accounting book value of good- will differs from economic goodwill, in a way that overstates the correct amount of exempt goodwill, seems low when one considers the two constraints on the accounting recognition of goodwill, noted above. Both of these requirements have the effect of understating the business unit’s total goodwill:

1. that the book value of goodwill reflects only
the acquired company’s goodwill and

2. that the book value of goodwill is constantly being re-evaluated, and could be written
down but not adjusted upward.

Given these directional constraints (always toward a lower book value of goodwill), state assessing authorities should consider it reasonable when a taxpayer seeks to exclude only the book value of goodwill.


Case law over the last 50 years has shown a steady recognition that intangible property in general— and goodwill in particular—are important parts of a company’s portfolio of assets. Most states have enacted taxation exemptions for intangible property, usually including goodwill.

The appraisal guidance relied on by states (WSATA and NCUVS) recommend that tax-exempt assets should be deducted at the end of the unit principle valuation process, after the tangible asset value indications from the valuation approaches are reconciled into a final value.

It makes perfect sense to use the accounting book value of goodwill in that process, adjusting the recorded goodwill balance by a market-book ratio as recommended in the WSATA handbook.

Adoption of this goodwill recognition procedure would result in a fair resolution of the conundrum that continues to frustrate taxpayers and tax administrators.

This article originally appeared in Willamette Management Associates Insights Quarterly Magazine, July 2017.


1. R. Smith, “Is the Unit Approach Viable? A Legal Perspective,” Journal of Property Tax Assessment and Administration 10, no. 2 (2013).
2. See generally R. Smith, “Deducting Intangible Asset Value for Property Tax Purposes: How ‘Necessary’ Intangibles Are Treated in Two Recent Cases,” In sights (Spring 2014): 62; R. Smith, “Is the Unit Approach Viable? A Legal Perspective,” Journal of Property Tax Assessment an d Administration 10, no. 2 (2013); R. Smith, “A Critique of ‘Enhancement’ and Other Theories for Taxing Intangibles,” Journal of Property Valuation and Taxation 14 (Fall 2002).
3. Adams Express Co. v. Ohio State Auditor, 165 U.S. 194, 219-20 (1897), aff’d after rehearing, 166 U.S. 185, 218-20 (1897). See also State Railroad Tax Cases, 92 U.S. 575, 616 (1875).
4. This growth in the value of intangible property was well underway even in 1897, when the Supreme Court made the following observation in the Adams Express case: “In the complex civilization of today a large portion of the wealth of a community consists in intangible property, and there is nothing in the nature of things or in the limitations of the Federal Constitution which restrains a State from taxing at its real value such intangible property. . .” 166 U.S. at 218.
5. It is noteworthy that in the Adams Express case, the state of Ohio did not exempt intangible property, so the court’s broad statements, about how it is logical to value and tax the economic value of a business enterprise, are now largely irrelevant.
6. 32 Cal. 2d 280, 196 P.2d 550 (Cal. 1948).
7. 101 Cal. App. 3d 246, 162 Cal. Rptr. 186 (1st Dist. 1980).
8. 2 Cal. 2d at 285 [emphasis added]. The court
quoted commentators who had expressed the view that there were insurmountable problems in attempting to fairly value intangible property on a uniform basis, and also quoted from a California Tax Commission investigation that concluded that “[t]he taxation of such property at full valuation and at the full rate is an administrative impossibility and an ethical monstrosity.” Id. at 288.
9. 101 Cal. App. 3d at 254 [emphasis added].
10. 32 Cal. Rptr. 2d 882 (Cal. Ct. App. 1994).
11. Beaver County v. WilTel, Inc., 995 P.2d 602, 611-
12 (Utah 2000).
12. 254 P.3d 752 (2011).
13. T-Mobile, 254 P.3d at 764.
14. 457 N.W.2d 594 (Iowa 1990).
15. Id. at 598.
16. 497 N.W.2d 810 (1993).
17. 854 So.2d 731 (2003) (Fla. App. 2003).
18. Id. at 734, quoting Havill v. Scripps Howard Cable Co., 742 So.2d 210 (Fla. 1998).
19. Appraisal Handbook , Unit Valuation of Centrally Assessed Properties, Western States Association of Tax Administrators – Committee on Centrally Assessed Property (August 2009), VI-2.
20. Id., VI-4.
21. Id., VI-2.
22. MCA § 15-6-218.
23. Administrative Rules of Montana 42.22.101(12). 24. 310 P.3d 533 (2013).
25. Id. at 537.
26. AT&T Mobility vs. Thurston County et al, Order, Case No. 14-2-002804 (Thurston County Superior Court, Sept. 18, 2015). The decision of the court was not appealed.
27. The WSATA handbook states as follows: “Once
a value for intangible property is determined, NCUVS standards state that it is properly removed from the unit valuation rather than from individual value indicators. The best
practice is to remove the value of the tax-exempt intangible property from the allocated unit value of the state giving the exemption,” VI-4. The NCUVS standards, published in October 2005, are available at With respect to this issue, standard VI(G) applies: G. When excluding exempt or locally assessed property from the unit, the following should be considered: 1. The exclusion should occur only after the unit value is determined.

$1000 cost Approach $800 Income Approach $800 Market Approach
X .50 Weigh t x.25 Weight x.25 Weight
$500  $200 $200
Reconciled Unit Value $500 +$200 +$200 = $900  

29. “One way to remove exempt intangible property is through a market to book ratio. In this method, it is assumed that all property contributes in equal amounts to the unit value. The book value of the exempt intangible item is multiplied by the market-to-book ratio of the entire unit, and that value is eliminated from the unit value.” WSATA Handbook, VI-4.
30. 26 T.C. 1005, 1017 (1956). See also Copland v. Dep’t of Taxation, 114 N.W.2d 585, 865 (Wis.1962) (same).
31. 262 P.3d 108, 112 (Wash. App. 2011).
32. 712 P.2d 1317 (Mont. 1986)
33. Financial Accounting Standard Board, Statement No. 141.
34. The Utah Supreme Court in T-Mobile discussed the relationship between booked goodwill and economic goodwill. 254 P.3d at 760, note 12: We pause to note that the FASB definition of accounting goodwill is similar to the generally understood definition of “goodwill.” Black’s Law Dictionary defines “goodwill” as “a business’s reputation, patronage, and other intangible assets that are considered when appraising the business, esp[ecially] for purchase; the ability to earn income in excess of the income that would be expected from the business viewed as a mere collection of assets.” BLACK’S LAW DICTIONARY 715 (8th ed. 2004). This definition recognizes that goodwill does not have any value in itself but derives its value from other assets. Similarly, accounting goodwill has no value in itself but derives its value from other assets. As per the FASB, accounting goodwill reflects a business’s customer base, customer service capabilities, and other intangible assets that are included in the purchase price of a company; it also reflects the synergies created by the net assets working together. Because the definition of accounting goodwill and the general definition of goodwill are similar, we refer to these terms interchangeably throughout this opinion.
35. See Brasher v. Broadwing Energy, Inc., 2012 WL 1357699 (N.D. Ill., 2012) (plaintiffs stated a claim, not subject to early dismissal, that company failed to timely disclose issues regarding valuation of goodwill). See also Fox v. CDX Holdings Inc., 2015 WL 4571398 (Del. Ch. Ct. 2015) (the court notes that a valuation for ASC 350 impairment purposes varied significantly from a separate valuation for purposes of a transaction, and showed an intent to deceive with respect to the latter), aff’d, 141 A.3d 2016 (Del. 2016).
36. ASC topic 350, formerly referred to as Statement of Financial Standards No. 142, is also issued by the Financial Accounting Standard Board. It was amended in 2012 to ease the requirements for annual “testing” of goodwill valuations, but continues to require evaluation by company management of whether certain events may trigger the need for testing and re-valuation of the goodwill.
37. See Brealey Myers & Allen, Principles of Corporate Finance, at 98-108 (9th ed. 2008).
38. Union Pacific Railroad Company v. State Board of Equalization, 49 Cal.3d 138, 776 P.2d 267 (1989).
39. Arguably, PVGO is part of goodwill, because by definition it represents returns greater than the cost of capital on those future investments—that is, excess earnings over a normal return on the future assets.