The market value of industrial properties. It seems a basic enough concept. Indeed, most states theoretically ascribe to a market-value standard for ad valorem taxation. This market-value concept is based upon "value-in-exchange," also what a property would sell for in an arms-length transaction. In fact, this standard of market value is often rooted in the enabling laws of the state's scheme of ad valorem tax laws.

While these concepts seem clear on their face, why then in a tax assessment forum has the use of the market approach to value industrial properties become such a complex chore? Why have seemingly easy value methodologies been turned on their ear?

The answer is a continued obfuscation by courts and administrative tax tribunals that encourage distortions of market events to distribute and stabilize the tax base between the residential and industrial tax base.

However, while courts and administrative agencies attempt to equalize the tax base, the constitutions of most states create an impediment because of their "market friendly" language.

While market-approach-to-value gives the best indication of market value, it often provides the taxpayers with a clear case for assessment reduction. Because of this, taxing jurisdictions argue that many industrial properties are "special purpose" or "special-use," to avoid using the market approach.

If a property is truly special purpose, then no true market comparables can be found. The only acceptable method of valuation that remains, they argue, is the cost approach. Obviously, this method leads to a much higher value.

This argument begs the question, What makes a certain property special purpose? The taxing jurisdiction's answer continues to distort the market data by including personal property in its analysis in order to define it as real property.

In other instances, the municipality centers on the "process" conducted or "manufactured" in the building. This methodology of avoiding the market approach is widely used.

In order to dilute and counter this argument, detailed study of the use history of the subject property and available market comparables is needed.

Additional arguments have been raised by taxing jurisdictions that attempt to bastardize the "highest and best use" of the property. In this attempt to circumvent the market approach, many municipalities try to use a "value-in-use" concept by concluding that the highest and best use of the property is for its precise continued use.

Often, the factors cited for this conclusion do not account for the realities of the market place. "Market value" and the allied concept of "highest and best use" must be based upon the realities of the marketplace or, as the New Jersey supreme court's landmark decision stated:

"It simply implements a market value standard identifying highest and best use by reference to possible legal uses." Ford Motor, 127 N.J. at 301.

In forcefully concluding this landmark decision which returned reality to the term, "market value," the court indicated that "only the market driven value-in-exchange, not the value-in-use to Ford should identify the highest and best use of the property."

The search for market value of industrial property in a tax assessment setting often can become an arduous task. Nonetheless, the market approach is the most preferred approach to valuation for all properties, including industrial.

Taxpayers must remain vigilant in continuing to press to have this approach accepted. With the valuation landscape littered with invalid information, careful, detailed analysis must be presented by taxpayers relying on a market approach to prove value for industrial buildings.