Businesses consider real estate taxes in their bottom line but often seem to forget about personal property taxes. Every business has personal property, so it can be a significant tax expense for them.
Tangible personal property (TPP) refers to property that can be touched and moved, such as equipment, furniture, computers, etc. Some states do not tax TPP; however, property tax is the main tax supporting local education, police/fire protection, local governments, some free medical services and most local infrastructure.
Personal property reporting & computing value
The way you report personal property can have an appreciable impact on the tax assessment. In addition to machinery, furniture and the like, inventory, supplies and leasehold improvements also may be assessed as personal property.
TPP assessment attaches to the property at a specific date. Rules vary widely by jurisdiction as do valuation dates. Consider these key points when completing the rendition form:
- Identify the assets at each location on the assessment date and determine if the asset is reportable as personal property.
- Prepare the rendition based on the original cost by year of acquisition and apply the appropriate depreciation factor to arrive at fair market value.
- Identify and remove assets that have been disposed of. Your business will continue to pay taxes on those assets as long as they remain on the books.
Be mindful of appeal deadlines.
Generally, the rendition you submit is the basis for the personal property value; however, assessors can ignore the rendition as filed and arbitrarily assess the taxpayer. Review the notice of value to confirm the value agrees with the return as filed. If it does not, you can file an appeal. Be aware of the appeal deadline; once a tax bill is generated, it’s too late to protest!
Pay only your obligation.
Researching and preparing personal property forms and documentation is intricate and time-consuming. Businesses with a great deal of equipment or multiple locations should consider enlisting the assistance of a tax professional to ensure you pay only what you legitimately owe. A tax professional can help you:
- properly classify fixed assets to minimize personal property tax liability and avoid double taxation.
- seek out personal property tax incentives and exemption opportunities.
- make adjustments to cost to produce an accurate taxable cost (e.g., repairs, replacements, intangibles, relocation).
- meet with plant personnel to determine how idle, ghost, abandoned and fully depreciated assets are being treated.
- ensure you pay only your obligation.
Companies often over-report as they tend to pick up assets that are both real and personal from the fixed asset ledger. Over-reporting = overpaying!
Pay attention to valuation notices. The time to appeal is usually short. The time to be active is when the valuation notice is received. Remember, if you wait until you receive your tax bill, it’s generally too late to protest!