Income & Expense Reporting Form
Frequently Asked Questions and Answers
(Q) What is this form for? Or how is this information used?
(A) To collect income and expense information on income producing properties to assist in valuing these properties based on local information. The information is not used on an individual property basis but is used in conjunction with the other similar businesses to arrive at typical income and expenses for your property type. This information is then used in the income approach to value.
There are three approaches to value.
1. Income approach – is a method of estimating the present value of anticipated income benefits.
2. Cost Approach – determines the replacement cost of an improvement less depreciation plus land value
3. Sales Comparison Approach – estimates a property’s value by comparing the property to similar properties that have sold.
Montana statute requires the DOR to appraise property at market value (15-8-111 MCA).
(Q) I filled this form out last year (2 years ago, etc.) do I still need to fill this out?
(A) Yes, as we analyze the data on a yearly basis.
(Q) What is other income?
(A) Miscellaneous income is received from concessions, laundry rooms, parking space or storage bin rental, and other associated services connected to operating the project.
(Q) What is payroll associated with property except management mean?
(A) Cleaning staff, salary paid to property maintenance staff, not a contracted service.
(Q) I just re-roofed, or re-painted, new carpet, etc., do I enter this under maintenance and repairs?
(A) These are expenses that you do not have every year, therefore please pro-rate the annual expense for this improvement and place it in Reserves for Replacement or contact your local DOR office.
(Q) What are reserves for replacement?
(A) A portion of money that is set aside each year to replace items that have a shorter life than the building, i.e. carpet, roofing, heating system, etc.
(Q) What type of building insurance is allowable?
(A) Hazard, Fire, Casualty, Liability and any other insurance directly related to the building, not business insurance, not life insurance.
(Q) What type of expense is allowable for security?
(A) Security guard salary would be included in payroll assoc with property, leased or contracted security systems would be included.
(Q) I have remodeled the entire building where do I put this on the form?
(A) This is not considered an operating expense. It is a capital improvement. Capital improvements are long-lasting additions to the property that usually increase total value, income or economic life.
(Q) Why do I need to fill out the information on the second page when I provided the information in the income area of the first page?
(A) The information on the first page is for the building as a whole, this information gives us more detailed information based on the floor level.
(Q) What do you mean by “type of lease”?
(A) We want to know what expenses are the responsibility of the building owner, such as those listed at the bottom of form i.e. Net Lease (A lease in which a tenant pays maintenance and operating expenses for the leased property in addition to rent.)
(Q) What is “additional annual income”?
(A) This is the amount of rent paid over the base rent. Additional rent may be based on gross sales, net operating income, consumer price index etc.
(Q) Why do you need to know what I paid for the property?
(A) To assist in developing income valuations for property. Analyzing trends and to check the income values against the actual market data.
(Q) Why do you need to know what my mortgage terms are?
(A) To analyze for non-standard financing that may have affected purchase price.
Q) Am I required to submit this information?
(A) No - This information is voluntary at this time but is used to gather information to help determine the value of your property for property taxes. The information is not used on an individual property basis but is used in conjunction with the other similar businesses to arrive at typical income and expenses for your property type.
(Q) How can you use an Income Approach when the law says you can’t?
(A) There is no law stating the DOR can’t utilize the income approach as one of the approaches to be used in valuation of commercial properties.
The law §15-8-111(2)(c) states, “If the department uses the capitalization of net income method as one approximation of market value and sufficient, relevant information on comparable sales and construction cost exists, the department shall rely upon the two methods that provide a similar market value as the better indicators of market value.”
ARM 42.20.107 through 42.20.109 specify the application of the income approach, when necessary information is available, and provide detail on how the approach is to be utilized.
(Q) Will this raise my taxes?
(A)The information is not used on an individual property basis but is used in conjunction with the same information for other similar properties to arrive at typical income and expenses for your property type, then capitalized to determine a value for your property based on the income approach to value.
