Also provides a similar mechanism for challenging business personal property assessments that may have not been previously challenged during the tax year. The 25.25 protests can be utilized by business owners or representatives to challenge a valuation that is believed to be at least one-third (1/3) overvalued.

Many business owners understand that equipment, machinery and furniture are subject to business personal property (BPP) taxes. Currently, 38 states have some form of BPP taxation system. This is in addition to property taxes assessed on their land and buildings, also known as real property taxes or real estate taxes. Property taxes make up the largest component of state and local taxes paid by a business. Many business owners don’t realize that some states include the taxation of inventory and supplies under the umbrella of property tax.

From a financial statement perspective, inventory assets are recorded as assets and are represented on a business’s balance sheet. On the other hand, supplies are recorded as expenses and appear on a business’s income statement.

Inventories are typically defined as personal property held for sale, but some states require that balances of raw materials and work in progress be included in the reported figure. In states that tax inventory as personal property, most request a year-end balance to be reported. Some states require a taxpayer to report an average of the current year-end and prior year-end inventory balances, while some states require that an average of each prior month-end balance be listed.  

For the most part, states that tax inventory assess balances reported by a taxpayer on their property tax return at 100%, so this component of a business’ property tax burden can often be a large percentage of the total property tax liability. This is different from assessing other personal property (equipment, machinery, computers and furniture), which usually receives some form of depreciation allowance when calculating a fair market value. Because of this, just-in-time (JIT) inventory management can be an effective way to reduce property taxes on inventory. Sourced from an article for Oracle Netsuite.

JIT inventory management ensures that stock arrives as needed for production or to meet consumer demand, but no sooner. The goal is to eliminate waste and increase the efficiency of your operations. Since the main objective is often quality and not the lowest price, JIT requires long-term contracts with reliable suppliers.

JIT is what’s known as a lean management process. In JIT, all parts of any production or service system, particularly people, are interconnected. They inform each other and are mutually dependent on generating successful outcomes. 

JIT in time inventory management usually results in lower year-end inventory balances.  This helps a business’s bottom line in a couple of ways: 1) the cost of housing larger inventories is reduced as the space needed to store and house the inventory is less, and 2) if the business is located in a state that taxes inventory, the reported inventory balances will be less resulting in lower personal property taxes.

Additionally, some states allow for the reduction in the taxable base of inventory based on a taxpayer’s estimate of the fair market value of the year-end inventory figure. In the case of claiming a decline in the fair market value of inventory items, a taxpayer should be prepared to have current market data and research to back up any requested reduction from 100% of the cost of the inventory items. Some states may not assess all inventory balances the same. For example, Texas assesses vehicles held by a dealership uniquely. from the Texas Comptroller website.

For local property tax purposes, Texas law requires a motor vehicle dealer’s inventory to be appraised based on the total sales of motor vehicles in the prior year. A dealer must also file a monthly form with the county tax assessor-collector to report motor vehicles sold during the prior month and prepay a vehicle inventory tax (VIT) for those sold vehicles into an escrow account.

A handful of states offer some form of Freeport Exemption for goods that are stored within their state but ultimately will be shipped to other states. Among states offering this kind of tax relief are Georgia, Kentucky, Oklahoma and Texas.

In the case of Oklahoma, inventory that qualifies for the Freeport Exemption is classified as “Tangible Personal Property Moving through the State.” From the Freeport Exemption Declaration form (901-F) available on the Oklahoma Tax Commission website

All property consigned to a consignee in this State from outside this State to be forwarded to a point outside this State, which is entitled under the tariffs, rules and regulations approved by the Interstate Commerce Commission to be forwarded at through rates from the point of origin to the point of destination, if not detained within this State for more than ninety (90) days, shall be deemed to be property moving in interstate commerce, and no such property shall be subject to taxation in this State; provided, that goods, wares and merchandise whether or not moving on through rates, shall be deemed to move in interstate commerce and not subject to taxation in this State if not detained more than nine (9) months where such goods, wares and merchandise are so held for assembly, storage, manufacturing, processing or fabricating purposes; provided, further, that personal property consigned for sale within this State must be assessed as any other personal property.

Additionally, some states or jurisdictions may offer an exemption regardless of whether the goods are destined to be shipped to another state. For example, Mat-Su Borough in Alaska exempts the first $1,000,000 of business inventory.

Another way to provide some tax relief is to allow credits for property taxes paid in calculating other state and local taxes. For example, both Kentucky and Louisiana allow a credit on business income tax returns for property taxes paid on inventory assessments. From the Kentucky Department of Revenue website.

The inventory tax credit is a nonrefundable and nontransferable credit that may be applied against income taxes imposed by KRS 141.020 (individual income tax) or KRS 141.040 (corporation income tax) and the limited liability entity tax (LLET) imposed by KRS 141.0401 for any taxpayer that, on or after January 1, 2018, timely pays ad valorem (tangible personal property) taxes on inventory to a taxing jurisdiction in Kentucky. Unused credit amounts cannot be carried forward to later tax years. The Kentucky credit was phased in over four years and was 100% as of 2021. Similarly, the Louisiana credit is taken by certain businesses on their income or franchise tax returns; however, in this case, any excess credit can be carried forward.

Lastly, some states apply tax rates differently to their assessment of inventory and supplies. Kentucky, for example, taxes inventory (Merchants Inventory) at a state rate of .05 (5 cents) + local rate compared to taxing supplies (Materials and Supplies on Schedule C as Other Tangible Personality Note Listed Elsewhere) at a state rate of .45 (45 cents) + local rate.

Supplies differ from inventory in that they are usually noted as items used in the normal course of business. States that tax supplies, which are usually expensed by a business throughout the year, often allow for a one-month or two-week average to be reported as a reasonable representation of the supplies that would be on hand at any time. In some cases, the personal property tax return may request that supplies be reported on the return form and aren’t assessed.

Another issue related to reporting supplies involves the expense of assets that do not meet a company’s capitalization threshold. These are not necessarily items used in the normal course of business, such as cleaning supplies but are assets that typically would be capitalized and depreciated over time. However, because the cost is so low, the administrative burden of tracking the asset on a fixed asset record is too high. For example, if a company had a capitalization threshold of $3,000 and purchased an asset such as a computer monitor for $1,000, the monitor could be expensed.

In general, the Internal Revenue Service (IRS) suggests taxpayers choose one of two capitalization thresholds for fixed-asset expenditures, either $2,500 or $5,000. The thresholds are the costs of capital items related to an asset that must be met or exceeded to qualify for capitalization. A business can elect to employ higher or lower capitalization thresholds.  

Many jurisdictions have policies that allow for the assessment of these types of assets.  Some jurisdictions will only assess them in the current year, while others will assess them over several years. For example, South Carolina (8 years) and Utah (4 years) have specific tables to value and assess expensed assets.

As the last point to make, taxpayers should research statutes and regulations regarding the assessment of supplies. While some states may request that only supply figures be reported on the personal property tax return form, statutes and regulations may support the taxation of inventory balances that are often much larger. This can lead to large discrepancies and exposure in a personal property tax audit. Instructions included on business personal property return forms do not always clearly state what balances should, or shouldn’t, be included in the balances reported on the return.

In closing, inventory and supplies can make up a large part of a taxpayer’s property tax expense, the largest component of state and local taxes a business pays. The intricacies of how inventory and supplies are assessed in various states across the country allow for many different variations in how to properly report figures on your property tax return. It is worth the time and effort to make sure you are reporting these items accurately.

Taxpayers should consider having a property tax professional review their inventory and supplies reporting methodologies to confirm that they are in compliance with state and local requirements.

When a business opens, they acquire assets needed to operate, such as computers, copiers, desks, phones, machinery, etc. These items, for federal purposes, are categorized as follows:

• Three-year properties such as tractors, tools and some livestock.
• Five-year properties such as computers, office equipment, cars, light trucks and construction assets.
• Seven-year properties such as office furniture, appliances and most other property not otherwise categorized.

Real Estate is written off over a longer period of time such as:

• 27.5 years (residential rental properties)
• 39 years (commercial buildings)

Over time you are allowed to depreciate the cost of these assets. Land, however, is not depreciable, but land improvements such as roads, sidewalks or landscaping may be written off over 10, 15 or 20 years depending on the specific nature of the asset.

Many businesses don’t realize that federal depreciation isn’t what most assessors use to assess their personal property taxes. A few states use federal depreciation for personal property taxes, including Missouri, Nebraska and South Carolina. Other states and/or counties develop depreciation schedules based on their research as to how long the useful life of certain equipment is. Once this is determined, they will then assign index factors (used to determine the replacement cost) and depreciation factors based on the useful life and age of the equipment. The overall factor is then used to calculate the equipment’s market value. If assets remain on your depreciation schedule, they are taxable for business personal property taxes — even if the netbook value is down to zero. This is partly why some assessors have depreciation rates that go down to a residual rate of 10-20% of the cost.   

While most of the time using federal depreciation would give businesses a more favorable value for business personal property taxes, there are other ways to arrive at a market value other than just using the county depreciation factors. When states set the depreciation tables for business personal property, there isn’t much research into the type of equipment, how long it might last, etc. Many states will keep the factors the same as last year or adjust them by altering the index factors.    

Another option owners have if they don’t agree with the factors being used by assessors to assign value to their equipment is to research the equipment’s market value and provide backup to support lower values for the equipment. We see this done quite a bit in Texas, where the business personal property rendition of the taxable property asks for the owners’ opinion of value.

If you need assistance filing your business personal property returns, be sure to contact a well-versed property tax professional. You want to make sure the one you choose knows the states your businesses are in.

The most common reason is related to capital expenditures. If there are a large number of capital expenditures in a prior year, it is likely that the personal property taxes will increase. New construction or renovations of your business may require permits to be filed with local authorities. Based on these permits, an assessor may add value to a personal property account if they believe all or a portion of the cost is related to personal property and is not reflected on the annual business personal property tax return that was filed.

Assessors’ offices may also conduct field checks of businesses in their jurisdictions annually to ensure that all businesses in their respective jurisdictions are accounted for and are reporting an annual return. They may also request to tour the businesses to look for things like renovations or expansions, and they could potentially adjust the value they have on their tax rolls. Construction in progress that is equipment-related may also be taxable as personal property in some jurisdictions.

What better way to launch a company that specializes in both property tax and healthcare? That is where PVS began 25 years ago. We started with the two founders, and a few healthcare clients — and we grew from there. Our main focus in the beginning, as it remains today, is the delivery of high-quality, ethical consultation services throughout the tax industry.  We were extremely blessed at the beginning of our formation to have a network of business associations that allowed our initial clients to trust our consulting services. This trust continues to this day and has expanded exponentially. We are extremely appreciative of these first clients — and all our clients — for trusting in our services.  

For the first 10 years, the main form of growth for PVS was from existing client growth.  Primarily as our clients experienced our services, we were allowed to grow with them. As many of our clients grew, we grew as well. We did not establish a formal sales group until many years later.

By 2000, we had around ten employees. By 2010 we had grown to roughly 50 employees. As we start our 25th anniversary year, we have approximately 70 employees. 

Along the way, many people have joined PVS who have made a large difference in our growth, and we appreciate all of them. Shortly after the launch of our company Pam Carley, our longest-tenured employee, joined PVS just after graduating from K-State. She has grown with our company and is now the Director of the Personal Property department. We are so appreciative of Pam’s leadership within this department and thank her for her continued commitment to our success.

In February 1999, Monte Welch was welcomed into our company. He and Bob Hileman had worked together in years past within the healthcare industry. His availability provided PVS the opportunity to add to our healthcare experience and knowledge as we value and file many healthcare-related equipment personal property tax returns. Monte’s prior career experience has provided PVS with the needed real-world knowledge to value medical equipment. He has worked closely with much of this equipment and can describe its function in detail. Monte is currently the VP of Operations at PVS.

In early 2000, Kent Hileman joined the team and was the first employee in the real estate department. Building upon Dave Dlugopolski’s prior knowledge and experience in the real estate tax industry, Kent and Dave teamed up to grow the Real Estate Department of PVS, while saving clients money through appeal work. Kent has gone on to get his MAI (Member of the Appraisal Institute – the gold standard in commercial real estate appraisal), two ASAs (one in real estate and one in appraisal management and review), and a CMI (property tax designation), and then became a partner with PVS in 2011 after receiving those designations.

To add to our depth and expertise, Chip Saam was invited in 2000 to join PVS. Chip’s experience in both property tax and healthcare added greatly to the company. While employed at PVS, Chip has achieved his ASA (in equipment valuation) and is also a CMI with roughly 30 years of experience.

Gerhart VanNote, who has also been in the industry for 30 years now, was recruited to join PVS in 2006. Gerhart and Dave both started their tax consulting careers together at a national property tax consulting firm. Gerhart started at PVS as a senior consultant but is now the Senior Director of Real Estate.

Jenna Reyes joined PVS in 2007 directly upon graduating from K-State and has risen through the ranks quickly. She has also been instrumental in the growth and maintenance of clientele and the management of staff. Jenna is now the Director of the Real Estate department with 15 years of experience.

There are many more who have been at PVS anywhere from 5 to 15+ years and range from senior consultant to the director level. The length of time our employee base has been at PVS is a testament to how much we care about our employees, but also the management team in place. To name a few that are at the manager or director level and who have been important to our growth (in no particular order): Catherine Murray, Tyler Rognlie, Bryan Hileman, Jennifer English, Tyler Tackett, James Lee, Daryl Smith, Vanessa White, Mark Kinch. We significantly appreciate all of them.

PVS has grown steadily and consistently over the years, as a result of the people all mentioned above, because of the quality of work those people put forward, and the relationships they build with our clientele. We are extremely proud of the people we have and the work we do. Our mission has been to provide quality consulting in an ethical and trustworthy manner. Property tax consultants can have a negative image by many in the assessing world, but PVS has separated itself by doing things the right way and being transparent in everything we do.

Another factor that separated PVS from its competition early on was the development of its own proprietary in-house property tax software system. The company has invested significantly in developing and growing this system through the years. It manages everything we do, from filing personal property tax returns, to tracking assessments, tracking tax bills, providing tax bill approvals, etc. Essentially it is our life from soup to nuts. We also invested early on in other technology, making sure we not only have quality servers, quality security protocols, but also backups so that we can be back up and running should any disaster happen. 

Not everything has been easy, PVS has faced adversity as well over the years, as all companies do that have been around for 25 years. It’s never a cakewalk getting to a quarter-century. In our industry, as our clients have faced cost reduction measures and we have faced increased competition, contingency fees have compressed. We have also had large clients that have had to reduce their sizes and readjust their business models, as the government is continuously changing reimbursement and other factors. These changes were inevitable, and luckily PVS predicted/saw them coming. To get through this, instead of pulling back on employee counts, PVS bulked up their sales department and started branching outside of healthcare. Ten to fifteen years ago, PVS was 95% healthcare, but had the consultants and experience to work outside of those constraints. As a result, we started selling heavily in other property types and industries, including hotels, industrial, retail, office, and more. Healthcare consists of the most complex property types out there (think hospitals, surgery centers, senior living, etc.), so valuing other property types was already in our wheelhouse. In the last ten years, we have doubled our number of clients, working over 900 clients around the country in our 25th anniversary year.

As we hit 25 years of business, our goals remain the same with those of the past. We strive to provide high-quality, ethical, transparent property tax consulting service to our clients, helping them to stay compliant and reduce costs, which in turn, helps their businesses to thrive.  

We thank everyone who has been a part of our company’s past and will be a part of our future as well, to include our staff, clients, and other partners we have across the country, such as attorneys and appraisers. Thank you! We look forward to the next 25 years.

When Property Valuation Services started 25 years ago, we only worked within the business personal property realm filing returns for healthcare companies using our unique expertise in medical equipment to revalue these assets and lower property taxes. Twenty-five years later, that expertise has expanded to include saving the three largest theater companies in the country millions of dollars in property taxes on their projectors, manufacturing facilities on their equipment, leased equipment and, of course, we are still the only firm in the country with our multiple proven valuation methodologies to lower healthcare equipment property taxes. This is evident by the clients within our portfolio. 

What you may not know is that we also house a licensed ASA equipment appraiser to assist in our valuation methodologies, tax base arguments, filings, appeals and hearings. He can perform formal appraisals, but as our Technical Director/ Quality Control Director, he spends his time ensuring our work remains detailed and of the highest level. Assessors trust when PVS files a value, it is accurate and thorough.

We started our real estate department with similar expertise as we did in healthcare. Focusing on what makes a healthcare facility specialized, PVS has developed valuation techniques to take advantage of this expert knowledge. From hospitals to medical office buildings, surgery centers, dialysis clinics, imaging centers, nursing homes and senior living facilities, PVS works thousands of healthcare parcels every year and are known throughout the country as the go-to firm for medical real estate consulting.

Not to be outdone, the real estate department also houses licensed MAI Appraisers so that they can utilize the highest level of expertise in the industry. Similar to our equipment appraisers, these appraisers do not perform a high volume of formal appraisals, instead this provides us the opportunity to further demonstrate expertise when representing our clients’ filing appeals and attending hearings. No property tax firm has to employ an appraiser, but PVS chooses to because we know it is what best helps our clients’ interests.

These appraisers are simultaneously employed by a separate company called Appraisal Solutions Group, owned by the same owners as Property Valuation Services. Should a formal appraisal be necessary and not related to an appeal by PVS, our appraisers can perform such an appraisal.  

Filing business personal property tax returns and appeals, working real estate appeals and performing appraisals are not the only functions happening within our building. We offer all our clients what we refer to as our compliance services. For business personal property clients, these services are a part of the annual management fee collected that includes the filing of the return.  

What is lesser known is that our compliance services are an option for our real estate clients as well. This would include tracking our clients’ assessment notices, tracking tax bills, providing electronic tax bill approvals, sending multiple reports per year outlining account status and estimated property tax amounts for budget/accrual purposes, and managing all of this property tax information in an online user web access portal. With a secure username and password, our clients can view their property tax information and run customized reports. 

Another area of expertise some may not have experienced with PVS is our audit defense services. The word AUDIT can be scary, and for good reason. Audits can drag on for years, the statute period can be extended retroactively should the auditor find cause, and the potential back taxes, penalties and interest have literally bankrupted companies.  

First, know that PVS’ filings are respected as top in the industry. Any asset revaluation work that goes into filing a return will include all backup data, likely communicated preemptively with the assessor prior to the return being filed, and we promise our clients that we will defend any and all reductions we made if they were to be called into question during an audit.  

But going a step further, you never know when you will randomly be selected for a property tax audit. Most states have some sort of audit program, where certain states like California audit regularly every four years. Our experts have handled thousands of audits including everything from minimal concern random audits to multi-million-dollar assessments for major hospitals. We know how to mitigate liabilities and work with the Auditor to reduce findings so that you pay as little as possible.  

So why consolidate all of your property tax responsibilities into one trusted building? Let me explain.

First, there was a prior article written pertaining to Lease Hold Improvements (LHI). In summary, these are the physical changes made inside a building so that the owner of the business can operate the business. At times, these improvements are considered real estate as they are a significant change to the inside of the building. Others consider these changes as business personal property as they are considered temporary additions to run the business. Without giving an opinion, the point is that often these are taxed by both the real estate assessor and the personal property assessor. If you do not have a firm handle on both, this could be easily missed.  

It is also a good idea to utilize our compliance services so that both your real estate and business personal property information can be managed for you, and the information be uploaded to our online client web-access site for your convenience. This will allow you to view both business personal property and real estate information in one location.

Bottom line is that PVS is known across the country as the preeminent representation for healthcare organizations. This expertise isn’t just lip service; understanding healthcare equipment, healthcare building specifications and healthcare services has meant hundreds of millions of dollars in savings. These companies are owned and operated by former healthcare executives, tax experts and healthcare professionals.  

If you work with PVS but feel there are other areas we could be further adding to the benefits being provided, please do not hesitate to reach out.

Why are you paying excessive property taxes?

The world of Business Personal Property (BPP) Tax can be as simplistic or as complex as you want it to be. For most companies, this type of tax is not a priority. There are numerous other tax responsibilities weighing on a tax or accounting department that require a much larger time commitment. The fact that BPP is one of your company’s largest annual liabilities becomes outweighed by the lack of attention it really needs… so why waste the time?

In general, a companies accounting/tax department or outsourced firm files returns correctly: taking the acquisition cost of an asset, ensuring the asset is on an appropriate county depreciation table, and doing some simple math until you reach a new value each year totaling the sum of your assets’ depreciated values. Simple enough, anyone can do it…why overcomplicate the process?

Most companies do not realize that BPP is subjective. They mistakenly consider it an algebra problem they cannot affect; there is one answer for ‘x’. However, what they do not realize is that each asset’s acquisition cost does not equal its taxable cost. Every taxing jurisdiction across the country has outlined statutes regarding what is taxable and what is not, for property tax purposes. Keep in mind, this has nothing to do with book value, this is specifically regarding property tax statutes in thousands of taxing jurisdictions all over the United States. If you have a firm who prioritizes BPP enough to have developed multiple proven revaluation methodologies, then you likely also have significantly lower Business Personal Property Tax liabilities. Unfortunately, even most property tax firms are focused on real estate property tax and BPP filings become a completed side task.

This sounds odd to some; to others it makes perfect sense. Why pay taxes you do not have to? With most jurisdictions’ deadlines looming any day now, finding areas to reduce your BPP tax liability by outsourcing to a firm with this expertise is an easy way to make an impactful boost to your bottom line profitability. Healthcare facilities, manufacturing companies, even movie theaters have seen millions of dollars in increased margins by simply having PVS file their returns on an annual basis.

Business Personal Property Tax can be incredibly simple, it can also be intimidatingly complex, and the difference depends on whether or not you want to continue paying excessive property taxes you do not owe. The bottom line is that you can affect your tax liability, so take control.

Why does PVS spend the time, why do we complicate the process?

Because we can.

It is rare for a consulting firm to house MAI Appraisers, let alone have two on staff.  Property Valuation Services strives to provide the highest level of expertise to our Clients, including presenting the highest level of credibility to an assessor when debating values.

Keep an eye out for our next post, as property tax deadlines are approaching fast!

One of our partners, along with our Technical Director for Real Estate, recently spent a week in Nashville at a continuing education class to maintain their MAI designation and appraisal licenses. If unfamiliar, MAI is the highest designation for an appraiser established by the Appraisal Institute. To become an MAI an individual must have good moral character, be a Certified General Real Estate Appraiser, hold a bachelor’s degree, meet standards and ethics requirements, pass rigorous education requirements, pass a challenging final comprehensive examination, receive credit for over 9,000 hours of valuation experience, and receive credit for the demonstration of knowledge requirement. To maintain this designation and appraisal licenses, continuing education classes are required to build and maintain skills and depth of valuation methodologies.

It is rare for a consulting firm to house MAI Appraisers, let alone have two on staff.  Property Valuation Services strives to provide the highest level of expertise to our Clients, including presenting the highest level of credibility to an Assessor when debating values.

Keep an eye out for our next post, as property tax deadlines are approaching fast!