Tangible Personal Property Tax – The Invisible Business Tax
Businesses are keen to capture real estate taxes in their bottom line but often fail to consider personal property taxes. Tangible personal property (TPP) refers to property that can be touched and moved. Every business has TPP; machinery and equipment, furniture and fixtures, and computers all fall into this category. Inventory, supplies and leasehold improvements also may be assessed as personal property. Businesses of all sizes that are located in states that tax personal property will have obligations.
With 38 states, Washington D.C. and Puerto Rico taxing tangible personal property, compliance across multiple states can be time consuming for businesses. The filing of returns, along with the state and local jurisdictions’ review cycle and use of contingent-fee auditors can turn into a significant administrative burden.
Computing and reporting value
The way personal property is computed and reported can have an appreciable impact on the tax assessment. You will be required to provide detailed information on a “rendition form” that provides the Appraisal District with the description, location, cost and acquisition dates for business personal property that you own. It is important to remember that the TPP assessment attaches to the property at a specific date. Rules vary widely by jurisdiction as do valuation dates. You will want to 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. This is a common error.
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 only your obligation!
A line-by-line analysis of fixed assets will ensure proper classification and verify that you are not over-reporting and therefore overpaying your personal property taxes. Researching and preparing personal property forms and documentation can be intricate and time-consuming work. 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.
In addition to properly classifying your fixed assets to avoid double taxation, there are a few steps you or a professional adept at completing required forms and documentation can take to ensure you pay only your obligation.
- 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; make sure disposed property is off the books.
- Take into consideration the types of unused property that may qualify for special accounting treatment, such as functional and external obsolescence, value-in-use and possible benefit of appraisal methodology
Be mindful of appeal deadlines
Valuation notices are often put to the side with the thought to look at them later when you are not so busy. Don’t let later become too late; the time to appeal is usually very short. The time to be active is when the valuation notice is received. Remember, if you wait until you receive your actual tax bill, it’s generally too late to protest!
Property tax reporting requirements vary by jurisdiction, which complicates compliance. If you require assistance to ensure reporting is accurate and filed timely or simply have some questions, feel free to reach out to the author, Vicki Rico at 314.995.5584 or firstname.lastname@example.org. You may also find some examples of real-case tax savings in our Property Tax eBook to be useful.