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Both parties agree that the comparable sales method of
valuation is not applicable to the valuation of the sewer line in
question because there are no sales of sewer lines to which we
can compare it. Two generally accepted methods of valuation
remain: (1) The capitalization of income method; and (2) the
cost method.
Respondent’s Position
Respondent contends that the sewer line should be valued by
using the cost method of valuation. The total cost of the sewer
line and treatment facility upgrade was $540,000. Included in
this amount was the $350,000 cost of the sewer line itself,
$200,000 of which was financed by the deposit in escrow.
Imperial paid the total $190,000 cost of upgrading the treatment
facility. Therefore, if we accept respondent’s cost valuation
approach, since the fair market value of the sewer line and
treatment facility upgrade is the cost, in this case, $540,000,
and Imperial contributed only $340,000 towards its construction
and upgrade, all of the $200,000 expended from escrow would be
includable in petitioner’s income.
Petitioner’s Position
Petitioner contends that the capitalization of income method
of valuation is the only fair and accurate method for determining
the fair market value of income-producing property like a sewer
line. The capitalization of income method determines fair market
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Last modified: May 25, 2011