Abstract
Property tax administrators (primarily in Western states) follow an adjustment procedure which appears to contradict generally accepted accounting procedures and results in hundreds of millions of dollars of overvaluation and thus significant excess taxation. These administrators claim that unless an adjustment is made to the net operating income of a firm that incorporates operating leased assets, these leased assets will "escape" taxation. To prevent this escape from property taxation, the administrators' process transforms the leased asset to an "owned equivalent." Through a review of economic, financial, and accounting literature on the matter, this article demonstrates that this net operating income adjustment process does not create an owned equivalent and actually overvalues firms causing excess property tax liability. This accepted process, moreover, creates an imbalance in debit and credit entries that is inconsistent with accounting procedures as set forth by the FASB in SFAS 13. The Western States Association of Tax Administrators is compared to SFAS 13.