NAC361.423. Income approach indicator of value: Formula for determination.

     1. The capitalized income approach consists of deducting from the normalized and annualized gross operating income any direct and indirect normalized and annualized operating expenses specifically related to the normalized and annualized gross operating income including any annualized book depreciation. Deferred income taxes will be treated as an operating expense. Normalized and annualized rental expense on operating property leased from others, less imputed depreciation, income taxes and other applicable expenses, will be disallowed as an operating expense.

     2. The resulting adjusted net operating income will be capitalized (converted to value) using an appropriate capitalization rate for the industry group. The capitalization rate for the typical company will be used for the firms being appraised in each industry group. The market capitalization rate will be derived from calculations made for selected companies in each industry group.

     3. The operating income to be capitalized into taxable value will be normalized and annualized based on the most recent year’s adjusted net operating income. When the most recent year’s net operating income is not a reasonable representation of a company’s net operating income, such as where a company’s net operating income tends to be cyclical, a 3- or 5-year average of adjusted net operating incomes will be normalized and annualized and may be used.

     4. Construction work in progress is not a factor in applying the income approach to value.

     5. Any normalization or annualization adjustments to a company’s net operating income must be based on known, measurable and experienced changes in a company’s operation or taxable property as of the current year’s reporting date.

     (Added to NAC by Tax Comm’n, eff. 9-30-88; A by R085-98, 11-23-98)