11th.—From this cost (using the detailed inventory to find the extent of property still in existence), calculate the amount of depreciation for each section of the plant, this being based on the present condition of the different parts and what their future life may be. The total depreciation is then deducted from the result found in 9th, and this remainder is used as the "Fair and Equitable Value" of the tangible property at the date of appraisal.
The intangible value (called by many names) must now be determined. It consists of rights, from the State, county, city, or any one or more combined, which the company must have in order to carry on its business. These rights in nearly all States are taxable, and taxes are collected on them. The Supreme Court of the United States has in the past held that they are property, notwithstanding what State "Courts and Commissions" have set forth on this subject, and in the writer's examinations they will be treated as property until the Supreme Court of the United States decides otherwise.
There are in general three classes of franchises, namely:
I.—Those granted by the State to conduct a business, where no county or city franchise is necessary, only requiring the company to obey the ordinances for excavation, etc. The charter of the Laclede Gas Company, of St. Louis, Mo., is an example of this class.
II.—Those granted by the State to carry on a business subject to a county or city franchise.
III.—Those granted by a city to an individual, singular or plural, or a company, to do business within its limits or a section thereof.
In each case the right may be a contract, for it may require a payment for the franchise granted, either in a lump sum or in yearly installments, or in the form of services rendered, such as for light, etc., free service of some kind, or a combination of any two or all of them.
The manner of determining the value of "Intangible Property" is as follows:
(a) The gross collected earnings are audited for each year during the period the company has carried on its business. The same is done for all vouchers, i. e., operating, maintenance, salaries, legal, general expenses, interest, insurance, and taxes, and includes every item disbursed. Whatever this latter amounts to, is deducted from each year's gross earnings as already found, and the result is the true net earnings or deficit for each year.
(b) The true net earnings are added together and the mean taken; if, in the period from the beginning to the date of appraisement, any deficits are found, these are deducted from the total of the plus-earnings, the result is divided by the total number of years, and this gives the true average net earnings. This is then capitalized at the legal rate of interest of the State in which the property is located. The result is used as the value of the "Intangible Property."