Depreciation Schedule Guide: How to Save on Property Taxes and Streamline Your BPP Process

Chip Saam / Blog, Business Personal Property, Case Study

Once you know how a depreciation schedule can potentially save you property tax dollars, you’ll appreciate its value beyond mere compliance. An optimized depreciation schedule is a strategic tool that can lead to significant savings. In this guide, we’ll discuss managing business personal property (BPP) taxes through accurate and strategic depreciation schedule management, tackle common management challenges and provide actionable strategies to enhance compliance and maximize property tax efficiency.

Depreciation Schedule in Business Personal Property Tax

When businesses open, they acquire assets, such as computers, copiers, desks, phones, machinery, etc. Each type of asset has a schedule of depreciation based on its expected life, usage and role within business operations.

According to the Internal Revenue Service (IRS), “You can depreciate most tangible property (except land), such as machinery, vehicles, furniture and equipment. You can also depreciate certain intangible property, such as patents, copyrights and computer software.” Property qualifies for depreciation if it is owned by you, used in your business or for income generation, has a measurable useful life and is expected to last more than one year.

For federal purposes, the following items are categorized as follows:

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

Over time, you are allowed to depreciate the cost of these assets.

What is Federal Depreciation?

Federal depreciation is the method businesses use to calculate the decrease in value of their assets as defined by U.S. property tax laws. It involves applying IRS-approved methods and guidelines to determine the amount of depreciation that can be deducted from a business’s taxable income each year.

What is a Depreciation Schedule?

A depreciation schedule, on the other hand, is a detailed document that systematically outlines how assets lose value over time. This schedule is crucial for property tax purposes because it provides a structured way to account for the depreciation of tangible assets, thereby reducing the amount of taxable income.

The IRS defines depreciation as, “an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property.”

The depreciation schedule determines the value of assets based on their cost and age, taking into account factors such as usage, current condition, wear and tear, technological advancements and market trends.

Federal Depreciation vs. Depreciation Schedule

Arizona

For example, in Arizona, for equipment reported at its original cost and date, the assessor applies an additional depreciation factor that increases every year until total depreciation eventually meets 97.5%. If you’re reporting equipment that has been re-booked — meaning it’s being reported at the cost and date your business acquired an existing asset instead of the original cost and date of the equipment — the equipment is not eligible for the additional depreciation. Arizona has recently modified the application of additional depreciation factors, so it is important to fully understand their depreciation schedules and how this applies to your personal property.

Indiana

In Indiana, the factor used on new equipment purchases increases from the first year to the second year, so the taxable value of the equipment increases in the second year before beginning to decline again in the third year.

In some cases, when using a depreciation schedule, assessors will assign index factors to an asset’s original cost to determine the replacement cost new of an asset before applying the depreciation factors based on the equipment’s useful life and age.

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 zero. In the majority of cases, the most an asset will be depreciated is 80-90% of its cost — thereby leaving a remaining taxable value, otherwise known as its residual value — which will be taxable until the asset is disposed from a taxpayer’s books and records.

Common Challenges in Managing Depreciation Schedules

In an attempt to manage depreciation schedules effectively, businesses may face several common challenges to maintain accuracy and compliance.

Incorrect Classification of Assets

Different types of property may be taxed at different rates. Correctly categorizing assets means they are taxed appropriately.

Incorrect classification of assets can skew the depreciation calculations, leading to potential overstatements or understatements of asset values on financial statements and property tax returns.

Market Dynamics

Another challenge is maintaining up-to-date asset valuations that reflect current market conditions. As market dynamics shift — due to factors such as technological advances, economic downturns or changes in consumer demand — the value of assets can fluctuate significantly.

Property Tax Laws Dynamics

Moreover, property tax laws concerning depreciation are not static and can vary widely across jurisdictions. This complexity is magnified for businesses operating across multiple regions since they must stay informed about and comply with diverse regulatory requirements.

Managing depreciation schedules requires a proactive approach, including regular schedule reviews and updates, a thorough understanding of applicable tax laws and the application of appropriate asset classification and valuation methodologies. Property tax professionals from Property Valuation Services (PVS) can help businesses optimize their property tax benefits and maintain compliance by addressing these issues.

Strategies for Optimizing Depreciation Schedules

Optimizing depreciation schedules is crucial for maximizing property tax benefits and enhancing financial accuracy. Here are some strategic approaches we employ to make depreciation schedules precise and efficient:

Review Regularly: Conduct systematic and regular reviews of depreciation schedules to account for all assets correctly and align their depreciation with current regulations and business operations. Identify errors or changes in asset conditions or valuations that might affect depreciation calculations.
Employ Suitable Depreciation Schedules: Simply put, you need to choose the right depreciation schedule for each type of asset. Businesses must evaluate the estimated decline in value for each asset type and ensure that the depreciation schedule used is appropriate for the decline in value. This choice impacts how quickly an asset is depreciated and can affect a company’s property tax obligations and overall financial outlook.
Manage Asset Strategically: Acquiring assets at a time that maximizes property tax benefits or disposing of them when they no longer contribute value can significantly impact a company’s financial health and property tax liabilities.
Document All Assets: Record all assets. This includes purchase dates, costs and depreciation schedules.

By implementing these strategies, businesses can feel confident that their depreciation schedules are compliant and strategically aligned with their broader property tax planning and financial management goals. But, ensuring everything is correct can get complicated quickly. That’s why the experts at PVS work to minimize the burden of figuring out depreciation schedules by doing the legwork for businesses.

Case Studies: Property Valuation Services’ Success Stories of Depreciation Optimization

These real-world examples illustrate how PVS employs a comprehensive approach that includes utilizing depreciation schedules tailored to specific modalities or industries.

Case Study 1

PVS filed the business personal property tax renditions using their in-house property tax savings methodologies for a health care system in South Texas. The proposed values from the Appraisal District were appealed and resolved through mediation.

Challenges: To identify assets with intangible components, PVS had to review and classify asset listings for five hospitals and several ancillary items and compare them to our in-house database of high-technology medical equipment for the appropriate adjustments. PVS also had to determine the appropriate depreciation schedule for each asset.

How PVS Helped: PVS prepared personal property renditions that identified components of certain pieces of equipment as either intangible or non-taxable and thereby reduced the taxable base and moved a large portion of assets to a faster depreciation schedule, both of which resulted in lower taxes assessed.

Results: PVS secured more than $1,000,000 in savings for the client.

Case Study 2

PVS filed the business personal property tax return for a newly constructed replacement hospital using their in-house property tax savings methodologies. The assessor’s office accepted the return with minor discrepancies.

Challenges: To identify assets with intangible components PVS had to review and classify an asset listing with over one thousand items and compare it to our in-house database of high-technology medical equipment for the appropriate adjustments. PVS also had to determine the appropriate depreciation schedule for each asset. Additionally, there was a bulk entry costing over $6,000,000.

How PVS Helped: PVS prepared a personal property return that identified components of certain pieces of equipment as either intangible or non-taxable. This reduced the taxable base of the assets and moved a large portion of assets to a faster depreciation schedule, both of which resulted in lower taxes assessed. PVS was also able to obtain details behind the bulk entry and incorporate those assets in the property tax savings methodologies.

Results: PVS secured more than $60,000 in savings for the client.

Case Study 3

PVS started working with a leasing company to reduce the property tax liability on leased equipment of a current client. PVS identified intangible and non-taxable components of the equipment that could be removed from the taxable basis of the assets, along with identifying jurisdictions that would allow the movement of the equipment to a faster life.

Challenges: PVS reviewed and analyzed the leased equipment to determine the appropriate cost adjustments and depreciation schedules. As the equipment was located throughout the country, the exact location of each asset had to be considered when applying property tax reduction methodologies, as they can vary not only by the state the equipment is located in but also the individual jurisdictions.

How PVS Helped: By reviewing the leased equipment before the lessor’s filing, PVS was able to reduce the property tax liability of the leased equipment.

Results: This resulted in savings of more than $220,000 in the first two years.

The Impact of Legislative Changes on Depreciation Schedules

Legislative changes can alter how depreciation schedules are managed in BPP taxation, often with the goal of stimulating economic growth or adapting to new economic conditions. These changes can include modifications to depreciation methods and rates, potentially increasing depreciation rates for certain assets to encourage investment by allowing businesses to recover costs more rapidly through property tax deductions. Additionally, the introduction of temporary property tax incentives, such as bonus depreciation or higher expensing limits, can enable companies to deduct a greater portion of an asset’s cost in the year of purchase, thus affecting their short-term financial and property tax planning.

To stay compliant and strategically aligned with new property tax laws, businesses need to adapt by updating internal processes and systems. Understanding these legislative impacts is crucial for businesses to maximize property tax efficiencies and make informed decisions about capital investments and asset management.

Property tax laws are complex and constantly changing, but experienced property tax professionals have the expertise to apply property tax-saving strategies effectively and keep your business compliant. Hiring a property tax expert is a smart investment that pays off by protecting your bottom line and freeing up capital to drive business growth.

Property Valuation Services Can Help You Manage Depreciation Schedules

At Property Valuation Services, we understand that managing depreciation schedules is crucial for minimizing property tax liabilities and maximizing savings.

By customizing depreciation schedules to fit the unique characteristics of each asset type and industry, our clients receive fair and accurate property tax valuation.

Contact us and don’t let the complexity of depreciation schedules intimidate you from optimizing your property tax strategy.

Let us help you transform your property tax management challenges into opportunities for growth and savings.

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Simplifying Business Personal Property Tax: A Guide for Every Business Owner

Chip Saam / Blog

Business personal property (BPP) tax can be taxing! Ignoring or misunderstanding property tax doesn’t just risk compliance issues; it could mean missing out on substantial property tax savings. Also, overpaying on property taxes drains essential resources and funds that could support growth, innovation or bolster your business’s financial health.

Understanding business personal property tax is a financial strategy that can significantly impact your bottom line. Learn how to navigate BPP effectively so you’re not leaving money on the table and enable smarter investments for your business.

What is Business Personal Property Tax?

Business personal property tax is a self-reporting tax where taxpayers file returns listing tangible assets they possess as of a specific date. Assets commonly include furniture, machinery, computer and office equipment, vehicles and inventory. Essentially, if it’s not real estate, it’s likely business personal property.

It’s different from the property tax on your building or land, which is called real property tax. The key is to report exactly what you have, so you don’t pay more property tax than you should.

In most states, assessing jurisdictions require annual filings of business personal property tax renditions. Failure to file can result in arbitrary assessments by assessors. Depreciation tables are commonly used to consider the acquisition date and cost of assets and account for their declining value over time. These tables often include various rates of depreciation to accommodate different asset types.

Why Getting It Right Matters

Filing your business personal property tax return is a critical step in managing your property tax liability. Incorrect filings — overvaluation, undervaluation or omission of assets — can lead to unnecessary property tax overpayments or potential penalties. Such financial missteps draw essential resources away from crucial business growth areas, impacting your ability to innovate, expand and maintain operational stability. Moreover, every dollar inaccurately allocated to property tax overpayments is not invested in your business’s future.

Consequently, Property Valuation Services’ (PVS) comprehensive approach to personal property valuation includes the following techniques:

Identification of High-Technology Assets: We have expertise in identifying and valuing high-tech assets accurately.

Cost Adjustments: We have developed proprietary cost adjustment methodologies to revalue assets so that the valuation reflects the current market value.

Industry Specific Depreciation Schedule: We utilize depreciation schedules tailored to specific modalities or industries.

Market Approach for High-Tech Equipment: We employ market-based approaches for valuing high-tech equipment.

Equipment Appraisals: Our team houses American Society of Appraisers (ASA) equipment appraisers who can conduct thorough equipment appraisals to determine accurate, credible values.

AHA Useful Life Analysis: For healthcare, we perform useful life analyses following the American Hospital Association guidelines.

Replacement Cost vs. Reproduction Cost: We assess the replacement cost versus reproduction cost for accurate valuation.

Ghost Asset “Clean-Up”: We identify and rectify ghost assets for accurate assessment.

Identification of Non-Taxable Assets: We identify assets that may be exempt from taxation.

What’s the Process of Filing a Business Personal Property Tax Return?

Each year, businesses are required to file a business personal property rendition detailing their assets. This includes information like acquisition dates, costs and other relevant documentation. Accurate filing is crucial because it directly impacts your property tax assessment. Inaccurate filings or underreporting can lead to crippling audit liabilities, including penalties and interest.

The filing date can vary by jurisdiction. Typically, these returns are due annually, with deadlines ranging as early as January or late as November in a few places. The specific date can differ from one state, county or city to another. It’s important to check with your local tax authority for the exact filing deadline applicable to your business.

How Do Assessors Figure Out Your Business Personal Property Tax?

The Tax Foundation explains that “Taxes on [Tangible Personal Property] are levied mostly by local governments, but they are regulated at the state level. There is much variation in how TPP is taxed. Property classifications, assessment ratios and exemptions are often established by the state, with localities opting to tax TPP within the boundaries set by the state government.

Seven states (Delaware, Hawaii, Illinois, Iowa, New York, Ohio and Pennsylvania) exempt all TPP from taxation, while another five states (Minnesota, New Hampshire, New Jersey, North Dakota and South Dakota) exempt most TPP from taxation except for select industries that are centrally assessed, such as public utilities or oil and natural gas refineries.”

Factors To Consider When Calculating Your BPP Tax

Moreover, when calculating your BPP Tax, here’s what to keep in mind:

Current Value of Assets: Consider both the original purchase price and their current market value. Factor in how much they have depreciated over time.

Age of Assets: Note that the date you acquired each asset and their expected useful life span are necessary to accurately calculate depreciation.

Depreciation: Know the depreciation rate applicable to each category of your assets and how much their value has diminished over the years.

The Internal Revenue Service stated, “You can depreciate most tangible property (except land), such as machinery, vehicles, furniture and equipment. You can also depreciate certain intangible property, such as patents, copyrights and computer software.” Property qualifies for depreciation if it is owned by you, used in your business or for income generation, has a measurable useful life and is expected to last more than one year.

Local PropertyTax Rules: Be aware of the specific property tax rates in your jurisdiction, available exemptions or deductions and the filing deadlines and documentation requirements.

Type of Assets: Movable items like equipment, machinery, computers and furniture are subject to business personal property tax, along with considerations for the property tax implications of leased equipment.

Professional Valuation: Consulting with property tax experts can lead to an accurate valuation of your assets and strategies to minimize your taxable liability through legal avenues.

Paying Less Business Property Tax Legally

Avenues to potentially reduce your business personal property tax involve several strategies and considerations that align with property tax laws and regulations:

Exemptions and Exclusions: Identify assets that may be completely exempt from property tax or qualify for partial exclusions based on their use, nature or value. Some assets can be partially taxed based on exempt components of the asset, so the original cost and taxable original cost could differ.

Based on information from the Tax Foundation, “De minimis exemptions provide relief for small firms by eliminating their tax liability if they remain below a valuation threshold for their tangible personal property (TPP). These exemptions lower compliance costs for firms with a small amount of otherwise taxable TPP.”

The Tax Foundation also reported, “Arizona, Colorado, Idaho, Indiana, Michigan, Montana and Rhode Island have TPP tax de minimis exemptions of $50,000 or more, while Florida, Georgia, Kentucky and Utah have lower exemptions.”

Depreciation: Understanding how to apply depreciation rules effectively can result in substantial property tax savings.

Property Tax Credits: Certain jurisdictions offer property tax credits for businesses that qualify under specific criteria. These criteria include using renewable energy sources or investing in community development projects.

Accurate Asset Valuation: Ensuring your assets are valued correctly can prevent overpaying property taxes. This includes disputing overvaluations and updating asset values to reflect current market conditions.

Asset Classification: Different types of property may be taxed at different rates. Correctly categorizing assets means they are taxed appropriately.

Negotiated Property Tax Agreements: In some cases, businesses can negotiate payment agreements or incentives with local property tax authorities, especially if they contribute significantly to the local economy.

Timely Reporting and Filing: Adhering to deadlines and filing requirements can avoid penalties and interest, which add to the property tax burden. Some jurisdictions also offer discounts for early filing or payment.

Property tax laws are complex and constantly changing. Property tax professionals have the expertise to apply property tax-saving strategies effectively and keep your business compliant. Hiring a property tax expert is a smart investment that pays off by protecting your bottom line and freeing up capital for your business growth.

Business Property Tax Efficiency Strategies for Entrepreneurs at All Stages

Whether you’re a seasoned business owner or just starting out, PVS offers tailored solutions to enhance property tax efficiency. For veterans in the business world, we delve deep into your asset portfolio, ensuring everything is meticulously accounted for and compliant with the latest property tax regulations.

Also, if your assessments seem higher than necessary, we’re here to support you in challenging them. For new entrepreneurs, we provide comprehensive guidance on setting up your property tax reporting correctly from the start. By educating you on the essentials of business personal property tax, we prevent common mistakes. This also equips you with strategies for sustainable financial health.

Partnering with Property Valuation Services (PVS) Means Less Stress

Since property tax laws and regulations change from time to time, it is hard to keep up. At PVS, we stay on top of all the updates for you. We possess a unique advantage. Our team combines technology and product specialists with seasoned business personal property tax professionals. This powerful blend enables us to develop exclusive, cost-cutting methodologies that result in substantial client savings. Our comprehensive business personal property tax representation services include:

Cost-Reduction Services
Compliance Services
Assessment and Property Tax Bill Approval
Audit Defense
Property Tax Budget Assistance
Appraisal Services
Depreciation Expense Calculation Services
Reporting
Property Tax Research Assistance

Real Stories from Real Businesses

At PVS, we’ve had the privilege of supporting a diverse range of businesses in mastering their property tax challenges. Our clients have found the freedom to concentrate on their passions since their property tax affairs are in expert hands.

Case Study 1: Aircraft Parts Company

Executive Summary

PVS took over the personal property tax compliance responsibilities for an aircraft parts company with a warehouse in Texas. In reviewing the prior year’s filings for their centers, PVS identified that this company was not taking advantage of the Freeport Exemption, which PVS believed they would qualify for.

Challenges

Initially, PVS reviewed this client’s financial information, sales and shipping data, and analyzed how quickly their inventory moved through their warehouse in Texas. By doing so, PVS found that this client did, in fact, qualify for the Freeport Exemption.

How PVS Helped

PVS analyzed the data from this client, prepared and filed the Freeport Exemption for this client so they could claim this benefit. PVS was able to save this client more than $42k in personal property taxes by filing the Freeport Exemption.

Case Study 2: Movie Theaters

Executive Summary

During the first two years of the mandatory digital projection transition for movie theaters, PVS signed/engaged in a joint venture with the top movie companies in the U.S. We used their methodologies for revaluing high-tech equipment to save them $4.4M in property taxes.

Challenges

During the transition, these new assets were leased from their joint venture company formed to install and maintain these projectors. So, PVS’ ASA Equipment Appraisers contacted and worked with the projector manufacturers to analyze one of the actual assets. This is done to identify how they could revalue the equipment and lower the leasing company’s property tax liability, which would be passed through to these movie theater companies.

How PVS Helped

PVS filed returns for thousands of movie theaters specific to each leasing company. PVS appraisers collaborated with manufacturers and analyzed assets on-site.

Case Study 3: Health Care System

Executive Summary

PVS filed business personal property tax renditions using their in-house property tax savings methodologies for a health care system in South Texas. The proposed values from the Appraisal District were appealed and resolved through mediation.

Challenges

To identify assets with intangible components, PVS had to review and classify asset listings for five hospitals and several ancillary items and compare them to our in-house database of high-technology medical equipment for the appropriate adjustments. PVS also had to determine the appropriate depreciation schedule for each asset.

How PVS Helped

PVS prepared personal property renditions that identified components of certain pieces of equipment as either intangible or non-taxable. This reduced the taxable base and moved a large portion of assets to a faster depreciation schedule. Both of these resulted in lower property taxes assessed. PVS secured more than $1,000,000 in savings for the client.

Let Property Valuation Services Reduce Your Taxable Liability

Business personal property tax is complicated, but it doesn’t have to be a headache.

Our diverse team of accounting-based staff and finance specialists from Overland Park, Kansas are committed to understanding your properties from both an analytical and accounting perspective. PVS consistently finds property tax savings following behind other property tax firms. Most of our services are conducted on a pre-assessment basis to represent your interests and maintain positive relationships with assessors in the community.

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. This also includes presenting the highest level of credibility to an assessor when debating values.

We’re not just maximizing your tax savings; we’re your partner in taking the entire tax management process off your plate. By entrusting your property tax responsibilities to PVS, you free up valuable time, allowing you to focus on driving your business forward. Let us handle the intricacies of tax filing, so you can dedicate your energy to your business’s growth and innovation.

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Essential Tax Planning Strategies for Franchise Owners

Bryan Hileman / Blog

Let’s face it: a franchise‘s property tax can take a big bite out of your profits. By dialing in on how you manage these taxes, you can turn what seems like another bill into a chance to save some cash. Staying on top of your property taxes means you won’t waste money on mistakes or pay more than you should. If you let this slide, you could spend more than necessary, cutting into your hard-earned profits. Be proactive with your property tax planning strategies now, and you’ll set your franchise up for a healthier financial future while avoiding overpayment and penalties.

Understanding the Impact of Business Property Taxes on Your Franchise

Understanding and keeping track of property taxes can be like finding hidden money. You can potentially turn a routine bill into actual property tax savings by getting smart about managing your real estate and business personal property taxes.

Staying sharp on managing property taxes means you’re not just throwing money away through mistakes or ignorance. But if you’re not paying attention, you might pay more than you should, which directly cuts your profits.

What is Business Property Tax?

When discussing business property taxes, we cover two major areas: property taxes on the real estate you own for your business and property taxes on the tangible business personal property part of your daily operations.

Real Property vs Personal Property

Real property refers to the land and any structures firmly attached to it. This category captures your franchise’s physical location and any permanent installations or modifications therein. It’s the aspect of your business that doesn’t move, including buildings and any fixed enhancements.

Additionally, leasehold improvements — alterations made to rental property by a tenant — also fall under this category. Despite being initiated by the tenant, these modifications are considered permanent contributions to the property’s value and are thus treated as real property for property tax purposes.

On the other hand, tangible personal property encompasses all the movable items within your business. This property includes office essentials like computers and furniture, operational gear such as kitchen equipment and the various tools essential for your trade. The defining characteristic of personal property is its mobility; these items aren’t fixed to one location and can be transported as needed.

Understanding the distinction between real and personal property is crucial because they’re taxed differently and can have various exemptions and rules depending on location. By getting a handle on both, you ensure you’re not overpaying in either category, optimizing your business’s financial health and efficiency.

Business Property Tax Planning for Franchise Owners

The secret sauce to handling your property taxes well is to stay ahead with smart planning. This plan means knowing exactly what property taxes you’re dealing with right now, looking for any changes on the horizon and finding ways to keep those tax bills as low as possible without stepping over any lines.

Here’s how you can get started:

Know Your Current Situation: Start by getting a clear picture of what you’re paying in terms of both real estate taxes and business personal property taxes. It’s like knowing the layout of the land before you start navigating.

Watch for Changes: Property tax rates and regulations can change, and new equipment or property upgrades can affect your property tax bills. Keeping a lookout means you won’t be caught off guard.

Find Ways to Reduce Your Property Tax: Once you know where the land lies and what changes might come, it’s time to look for legal ways to reduce your property tax. This reduction could mean challenging assessments you think are too high or taking advantage of property tax incentives and exemptions you’re entitled to.

By taking these steps, you’re not just ticking boxes to stay compliant; you’re actively looking for ways to improve your property tax situation for your business’s bottom line.

Essential Steps for Smart Business Property Tax Planning for Franchise Owners

Keeping Up with Property Tax Rate Changes

Consider the impact of a new infrastructure project funded by increased local property taxes in your area. This scenario could significantly affect your budget. You can stay ahead of these developments by subscribing to local government newsletters and attending city council meetings.

Suppose you know an upcoming vote on a tax increase to fund a new public park. In that case, you can budget accordingly or even engage in advocacy efforts to mitigate the impact on local businesses. This level of engagement helps you anticipate financial shifts and adapt your budget to maintain profitability.

According to the Tax Policy Center, “Cities also use different assessment methods that can limit the decline in tax collections from declining property values. New York, for example, uses net operating income submitted by owners of commercial buildings, rather than recent sales, to determine assessed value, and phases in those changes over five years. The city comptroller estimated that a “doomsday” scenario where office values decline by 40 percent between 2023 and 2029 would lead to a decline in property tax levies of 3 percent in 2027.”

Getting Ready for Property Revaluations

Think about the effects of a new commercial development nearby, which could increase property values in your vicinity. If your property’s assessed value spikes, so does your property tax bill. You can prepare a robust challenge by familiarizing yourself with the revaluation process, including the appeal procedure. This procedure might involve commissioning an independent appraisal or compiling evidence of any factors that could detract from your property’s market value, such as needed repairs. Appealing an unfair assessment can lead to substantial property tax savings, benefiting your bottom line.

Planning for Property Improvements

Adding a high-tech drive-thru to improve customer service could significantly boost sales, but it might also increase property taxes. By consulting with a property tax professional before undertaking the project, you can explore ways to minimize its impact on your property tax liability, such as taking advantage of specific property tax breaks for technology investments. Strategic timing of the project’s start and completion dates also plays a role in mitigating property tax consequences, allowing you to reap the benefits of your investment without a hefty increase in your property tax burden.

Managing Your Equipment Taxes

The Tax Foundation cautions business owners that “Complying with personal property taxes is onerous, as it requires documenting all assets—all the way down to cleaning supplies for the office kitchen—along with their acquisition price, acquisition date, and depreciation.”

Suppose you’re overhauling your POS systems across multiple locations. The investment, while substantial, is necessary for improving efficiency. By carefully planning the purchase and installation timeline, you can maximize property tax benefits related to business equipment investments.

In addition, understanding business personal property assessment is essential, as many states tax business personal property in addition to real property. Those that do tax equipment, require that an annual business personal property return be filed each year by a certain date. The local assessor’s office reviews the returns filed and calculates a taxable value for the equipment, most often by depreciating the cost of the taxable equipment reported on either their own local depreciation schedules or the state depreciation schedules. As a result, in most cases, newer equipment will yield a higher taxable value initially but will decrease over time in most places as the equipment receives another year’s worth of depreciation until it hits the residual depreciation factor for the schedule it’s being assessed on.

However, your business personal property taxes may increase from the prior year for various reasons like capital expenditures, audit results, leased equipment, depreciation tables, abatement or exemption expiration, tax rate increase and assessor errors.

By tackling these areas proactively and informedly, you’re not just dealing with property taxes as they come. Instead, you’re setting your franchise up for a better financial future. It’s about finding the right balance between doing what’s best for your business now and planning for property tax savings.

Teaming Up with Tax Pros for Winning at Business Property Taxes

FranNet franchise experts explained that “While it’s a common misconception that franchises are owned by large corporations with deep pockets, franchise operations are small businesses too with much in common with their independent counterparts. Both have similar staffing and revenue models, depend on local employees, community involvement and attracting a consumer base with an organic, grassroots appeal.”

The Vital Role of Property Tax Management

These similarities underscore the critical importance of effective property tax management. Just as these operations strive to connect with their communities and manage their resources wisely, navigating business property taxes with precision and insight becomes vital to sustaining growth and success.

Business property taxes can feel like venturing into a labyrinth without a map. That’s precisely why enlisting the expertise of a seasoned tax planning advisor is not just helpful — it’s a game-changer. These aren’t just any advisors; they’re specialists who live and breathe property tax codes, dedicating their careers to understanding every twist and turn of tax legislation.

Elevating Your Strategy with Expert Advisors

By partnering with these experts, you’re not merely outsourcing a task; you’re incorporating a wealth of knowledge and experience into your team. They offer property tax planning services with a toolkit of strategies, each tailored to fit the unique contours of your franchise. They do more than ensure compliance with the complex web of legal requirements; they actively seek out opportunities for property tax savings that might otherwise fly under the radar.

Widely acclaimed across the country, Property Valuation Services (PVS) exceeds what local certified public accountants or general tax consulting firms offer. We provide specialized attention to understanding your properties from an analytical and accounting perspective.

Proactive Property Tax Savings with PVS

With our diverse team of accounting-based staff and finance specialists, we consistently discover property tax savings, even when working with other consulting and tax firms. Most of our services are conducted proactively, on a pre-assessment basis, to represent your interests while maintaining positive relationships with assessors and the community.

Making the Most of Tech Tools for Tax Management

There’s a ton of tech out there designed to take the headache out of handling your business property taxes. Think about software that keeps track of your assets and figures out their value for you or apps that ping you with updates whenever a tax law change could affect your business. These tools make property tax planning for franchise owners more accurate and much less time-consuming, so you can focus more on running your business and less on crunching numbers.

Building a Stable Financial Future with Property Valuation Services

Staying on top of your business property tax planning is the secret to keeping your franchise financially healthy. It’s about understanding what you’re dealing with, making smart plans and using all the help you can get from pros and tech tools. This approach doesn’t just help you manage property taxes today; it sets you up for long-term success, ensuring your franchise keeps growing and thriving.

If navigating the maze of business property taxes seems daunting, you’re not alone. Now is the perfect time to reassess how you manage property taxes and pinpoint areas for enhancement. From seeking specialized advice to leveraging cutting-edge tax technology, numerous strategies can fine-tune your tax approach for optimal outcomes. Engaging with professionals like Property Valuation Services in Overland Park, Kansas, can be a game-changer. Their expertise in accurately assessing your property’s value and navigating property tax regulations ensures you’re not paying more than necessary.

Why not take a proactive step towards financial clarity and efficiency for your franchise? Schedule a consultation with Property Valuation Services and start your journey to financial optimization and confidently secure your franchise’s future.

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Evaluating Commercial Property Tax Firms: What Matters Most?

Bryan Hileman / Blog, Commercial Property Tax

Commercial property taxation is like a relationship — it’s complicated! Property tax professionals face the daunting challenge of managing ever-changing property tax laws and ensuring compliance while optimizing property tax savings. The risk of increased property tax liabilities and non-compliance penalties looms large, affecting your company’s financial health.

Navigating these intricate property tax waters without specialized expertise can lead to missed opportunities for property tax reduction and increased vulnerability during property tax assessments and appeals. Commercial property tax laws require understanding and foresight, which can be overwhelming even for the most experienced professionals.

Discover how to find a commercial property tax firm that helps mitigate risks and effectively manage property tax to secure your company’s financial future.

Understand the Stakes: The Crucial Role of Commercial Property Tax Decisions

According to the Tax Foundation, “Property taxes matter to businesses for several reasons. First, businesses own a significant amount of real property, and tax rates on commercial property are often higher than the rates on comparable residential property. Many states and localities also levy taxes not only on the land and buildings a business owns but also on tangible property, such as machinery, equipment, and office furniture, as well as intangible property like patents and trademarks. Across the nation, property taxes impose one of the most substantial state and local tax burdens most businesses face. In fiscal year 2020, taxes on real, personal and utility property accounted for almost 38 percent of all taxes paid by businesses to state and local governments, according to the Council on State Taxation.”

Since property tax decisions significantly influence your company’s financial health and strategic direction, complexities and challenges often arise when managing commercial property taxes.

Impact on Financial Health

Commercial property taxes represent a substantial portion of your operating expenses, so mismanagement or a lack of strategic planning in this area can lead to hefty financial burdens. Conversely, effective management and strategic reductions in property taxes can free up significant capital, improving your company’s bottom line.

Based on a World Bank Enterprise Survey, “Recent firm survey data for 147 economies show that companies consider tax rates to be among the top five constraints to their operations and tax administration to be among the top 11.”

Strategic Importance in Business

Effective property tax management goes beyond ensuring compliance — it plays a strategic role in your company’s broader financial planning. It involves understanding the opportunities to legally and ethically minimize property tax liabilities. This requires foresight, planning and a comprehensive understanding of property valuations and assessments, which are integral to making informed business decisions.

The Broader Business Implications

Property tax decisions can significantly influence other business decisions, such as property investments, expansions and daily operations. It’s a domain interconnected with various aspects of your business, making it essential to manage property taxes efficiently and strategically.

Stanford Institute for Economic Policy Research reported, “Taxation also affects how entrepreneurs organize their businesses, how much to borrow and invest and where they locate the businesses they create.”

Selecting a Property Tax Partner: Assess Track Record and Expertise

In selecting the right commercial property tax firm, understanding the importance of assessing a firm’s track record and expertise is imperative. It can be helpful to evaluate years of experience, specialized knowledge and real-world case studies demonstrating the firm’s ability to handle complex property tax scenarios effectively.

Years of Experience

Experience in commercial property taxation indicates a firm’s ability to navigate complex property tax issues proficiently. Look at their past successes and challenges; this experience is critical in managing your property tax strategies and challenges.

Property Valuation Services (PVS) boasts 26 years in the business of evaluating valuation methodologies and their impact on the true market value of our clients’ property. We have a proven track record of successfully producing reductions with our effective tools, communication and techniques.

Specialized Expertise

The intricacies of commercial property tax laws require a firm that doesn’t just understand the laws but masters them. Pay close attention to a firm’s depth of knowledge in both local and national property tax laws. This isn’t just a box to check off — it’s a critical factor in ensuring that your chosen firm can effectively handle scenarios that mirror your company’s unique challenges.

PVS’s comprehensive real estate tax services include assessment-reduction services, appeals, compliance services, assessment uniformity studies, assessment and property tax bill approval, abatement and exemption research, appraisal services, property tax accrual forecasting and reporting.

Real-World Case Studies

Real-world case studies demonstrate how a firm applies its expertise in practical situations. These case studies often detail specific instances where the firm successfully navigated complex property tax situations, providing tangible outcomes like reduced property tax liabilities or successful appeals.

One of our case studies showcases how we represented a property owner’s appeal of an excessive property valuation increase on a closed and vacant store in Missouri. PVS argued that the building was vacant and unusable, with vandalism and internal structure damage, and that there was no market demand or support for the assessor’s valuation. Our appeal reduced the assessment by 50%, saving the taxpayer $89,665 in property tax dollars.

Client Testimonials and Peer Reviews

Client testimonials and peer reviews testify to the firm’s commitment to client satisfaction and ethical practice. Look for patterns in feedback that speak to the firm’s responsiveness, transparency and overall quality of service. These real-world endorsements are instrumental in painting a picture of what it’s like to work with the firm on a day-to-day basis.

Dave Courtney, Vice President-Tax, says, “Ardent Health Services has utilized Property Valuation Services (PVS) for 21 years because the work and Services are best in class. I’m not aware of any other property tax firm that has the level of industry knowledge. The tax savings generated annually by PVS would be enough on its own for our continued relationship, but PVS has become our go-to firm for property tax research, consulting and due diligence as well.”

Evaluate Approach to Client Needs

Your business is unique, and so are its challenges and opportunities. Learn how a property tax firm’s approach to client needs can determine your decision-making process.

Customization and Flexibility

A firm that excels in adapting its strategies to suit each client’s specific needs demonstrates a level of customization and flexibility essential for your business. It’s about applying property tax laws and how they are applied to align with your company’s unique circumstances, including its market position and future aspirations. The firm’s flexibility in adapting to evolving legal landscapes and fluctuating market conditions is a testament to its capability to support your business through various stages and situations.

At PVS, our valuation methods for real estate include:

Market Approach: We consider the market conditions and comparable properties to determine value.
Income Approach: We analyze the income potential of the property to assess its value.
Cost Approach: We evaluate the cost of construction and improvements to determine value.
Additional Considerations: We also take into account various other factors, such as:
- Equitability: Ensuring fair and equitable assessments.
- Building Age and Type: Considering the age and type of the building.
- Needed Improvements: Assessing the need for any improvements that may impact value.
- Vacancy: Evaluating the impact of vacancy on property value.
- All Forms of Depreciation/Obsolescence: Considering depreciation and obsolescence factors.
- Highest & Best Use of Your Property: Determining the optimal use of the property for maximum value.

Communication and Transparency

The foundation of any strong professional relationship is built on communication and transparency. Effective communication means more than just regular updates; it involves a clear, concise and jargon-free explanation of complex tax matters. It’s about ensuring that you are always in the loop and fully comprehend the strategies being implemented.

Similarly, transparency in processes and billing is paramount. You need a firm that is upfront about its methods and costs, ensuring no surprises down the line. Transparent practices don’t just facilitate smoother operations; they foster trust. This trust is instrumental in building a lasting relationship where your property tax strategies are managed successfully.

Explore Additional Services and Support

As you consider your options for a commercial property tax firm, look beyond immediate property tax concerns. Consider also the value of additional services and support they offer. These services can be crucial to your long-term property tax strategy and financial planning.

The Value of Ongoing Consultation

Ongoing consultation services can be a game-changer for your business. This forward-looking approach allows for continuous alignment of your property tax strategies with changing market conditions and regulatory landscapes. A firm that offers such consultation demonstrates a commitment to being a long-term strategic partner.

Long-Term Tax Strategy Planning

A firm that excels in this area can help you identify and capitalize on property tax-saving opportunities while maintaining compliance with complex and ever-changing property tax laws. This is vital for maintaining a competitive edge and ensuring financial stability in the long run.

Post-Appeal Support: Beyond the Verdict

Finally, consider the level of support a firm offers after resolving an appeal. Effective post-appeal support can provide insights into future property tax planning and help you understand the implications of the appeal’s outcome. This service ensures that the benefits of a successful appeal are maximized and integrated into your broader tax strategy.

Conduct a Cost-Benefit Analysis

Understanding the True Cost: Are they charging a flat rate, an hourly rate or a contingency fee based on the commercial property tax savings they achieve? Each model has implications for your business; understanding them is vital in making an informed decision.

Evaluating Potential Property Tax Savings: Consider the scale and complexity of your tax issues and how the firm’s strategies might translate into tangible savings for your company.

Avoiding Hidden Costs: These could come in various forms, such as additional charges for services or expenses related to lengthy legal processes.

Balancing Cost and Value: A firm that may charge more but offers a significantly higher potential for property tax savings and strategic benefits might be more valuable in the long run than a less expensive but less effective option.

Uphold Compliance and Ethical Standards

Selecting a commercial property tax firm goes hand-in-hand with the assurance that they strictly adhere to legal and ethical standards. This process safeguards your company’s interests and upholds its reputation.

The Imperative of Legal Compliance

The firm’s ability to navigate and adhere to the ever-changing tax laws and regulations is essential. This diligence shields your company from the pitfalls of legal entanglements and the financial penalties that can accompany them.

Ethical Practices: More Than Just Compliance

Find a partner who values transparency in every transaction, respects the confidentiality of sensitive information and communicates openly about their strategies and capabilities. This ethical stance is crucial, creating a partnership based on trust and mutual respect.

Verifying Their Commitment

Dive deep into the firm’s background, review its certifications, ask for references and scrutinize its track record for any red flags. This thorough vetting process is your due diligence, confirming that their practices align with legal requirements and the ethical standards you uphold for your business.

As an organization, PVS follows these guiding principles:

Customer Focus: We’re dedicated to being a customer-focused organization, prioritizing the needs and satisfaction of our clients.
Quality, Integrity and Ethics: We maintain a detail-oriented work environment that upholds the highest standards of quality, integrity and ethical conduct.
Respect: We treat all individuals respectfully, fostering a culture of inclusivity and appreciation for diverse perspectives.
Exceptional Communication Skills: We emphasize effective and transparent communication, ensuring clear and timely information exchange with our clients and team members.
Teamwork: We foster a collaborative and supportive work environment, recognizing the value of teamwork in achieving our goals.
Accountability: We take responsibility for our actions, delivering on our commitments and being accountable to our clients and colleagues.

Property Valuation Services – A Benchmark in Key Selection Criteria

Commercial property taxation is complicated, but Property Valuation Services (PVS) can be your partner in this journey. With a solid background in local and national tax laws, PVS commits to making a real difference in your business. Our approach is centered around you – your unique challenges and your specific goals. Every service is dedicated to understanding and meeting your needs and is communicated with clarity and empathy. At PVS, it’s about nurturing a trusting relationship built on transparency and ethical practices. Our case studies across industries prove our ability to achieve significant client results. This is evidenced by our successful navigation of property tax challenges and substantial property tax savings for clients across various property types and industries.

Reach out to us so we can provide you with a personalized experience where every aspect of your property tax management is handled with the utmost care and precision. Have your Commercial Real Estate Property Evaluated by a PVS Property Tax Expert!

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Navigating the 25.25 Rule in Commercial Property Tax Assessment

Chip Saam / Blog

Have you ever felt the sting of that annual property tax bill and wondered if there’s a way to break free from seeing the amount go up year after year? Today, we’re addressing the real concerns that keep commercial property owners up at night. If you’ve ever looked at your property tax statement and thought, “There must be a way to bring this down,” you’re in the right place. Explore Texas Tax Code Section 25.25 – the key to challenging that sky-high appraisal and claiming the savings you may be missing.

Understanding the 25.25 Rule: A Strategic Tool for Appraisal Errors

The 25.25 rule provides a nuanced approach to addressing appraisal errors, allowing property owners to challenge and rectify discrepancies that may have gone unnoticed. This strategic correction ensures a more accurate reflection of the property’s market value, enhancing overall fairness in the property tax assessment process.

Imagine you own a commercial property, and upon reviewing your property tax assessment, you observe an overestimation in the appraised value by the local appraisal district. The assessed value is substantially higher than what you believe reflects the actual market value of your property. Typically, you can file a protest before May 15 or 30 days after the Notice of Appraised Value is issued, depending on local and state regulations.

In case you missed the deadline, you can wait for next year to file your protest or use the section 25.25 of the Texas tax code, provided you meet these eligibility criteria:

The commercial property owner must prove that the appraisal district’s error resulted in the subject property being overvalued by at least one-third (1/3).
There should not have been a protest filed on the property in the same assessment year.
The property is not delinquent on any taxes currently owed on the property.

These criteria form the basis for filing a motion under Section 25.25 of the Texas Property Tax Code, offering a strategic avenue to rectify substantial overestimations in the appraised value of the commercial property. If you want to discuss this alternative on a personal basis and explore how it specifically applies to your commercial property, consider reaching out to professionals. They can provide personalized insights and guidance tailored to your unique circumstances.

Navigating the Filing Process

Filing a motion under Section 25.25 is your direct route to ensuring a fair and accurate assessment of your commercial property. This straightforward process allows you to advocate for a just valuation and leverage the hidden financial potential within your property.

How to Apply for 25.25 Rule

Step 1: Gather Necessary Documentation

Collect all relevant documents supporting your claim. These documents may include recent property appraisals, market analyses and comparable sales data. A robust set of documentation strengthens your case and enhances the likelihood of a favorable outcome.

Step 2: Complete the Motion Form

Ensure all required fields are accurately filled out in your official motion form for Section 25.25, providing detailed information about the appraisal error and the correct market value. According to the Texas Comptroller of Public Accounts, “Market value is the price at which a property would transfer for cash or its equivalent under prevailing market conditions if it is offered for sale in the open market.” Precision in this step is critical to a smooth filing process.

Step 3: Submission to the Appraisal District

Submit your completed motion form and supporting documentation to the local appraisal district. This step officially initiates the review process. This type of appeal can be filed any time before the current year’s taxes become delinquent: Feb. 1, following the assessment year.

Step 4: Engage in the Review Process

Be prepared for a review process initiated by the appraisal district. They may seek additional information or clarification during this phase. Stay actively engaged, promptly providing any requested documentation.

Step 5: Resolution and Adjustment

Upon completion of the review, the appraisal district will communicate its decision. If your motion is successful, your property’s assessment will be adjusted to reflect the more accurate market value, ensuring fair treatment.

Criteria for Appraisal Error Correction

To better understand where errors may happen in the valuation process, let’s look at some common issues below.

Deciphering the Criteria: Identifying Appraisal Errors

Market Value Discrepancy: Most often, there may be a substantial difference between the appraised value assigned by the appraisal district and the actual market value of your commercial property. This discrepancy often results from oversights in property assessments.

Inaccurate Comparable Sales: Is your appraisal district’s assessment based on incorrect or outdated comparable sales data? Local real estate market changes can render previous comparisons irrelevant, leading to appraisal errors.

Neglect of Property Characteristics: Appraisal errors may also occur when the unique characteristics of your commercial property are overlooked. Elements such as location, accessibility or recent improvements can significantly impact its value.

Failure to Account for Depreciation: If the appraisal district fails to consider depreciation accurately, it can result in an inflated assessment. Commercial properties often undergo wear and tear, and an inaccurate assessment of depreciation can lead to appraisal errors.

Disregard for Market Trends: Changes in the commercial real estate market should be reflected in property assessments. Appraisal errors may arise if the Appraisal District neglects to account for current market trends, impacting the property’s true value.

Understanding and correcting these errors ensures a fair assessment and maximizes property tax benefits. Viewing appraisal errors as strategic opportunities can contribute to substantial savings in commercial real estate.

What is Correct Market Value?

How does the appraisal district determine this crucial figure? Understanding the process can be your strategic advantage in the commercial property tax game.

Decoding Correct Market Value: The Appraisal District’s Formula

Property Assessment Factors: The correct market value is determined based on a comprehensive evaluation of various factors. The appraisal district considers aspects such as location, size, condition and unique characteristics that contribute to the overall value of your commercial property.

Comparable Sales Analysis: A crucial element in establishing correct market value is the analysis of comparable sales in the local real estate market. The appraisal district examines recent property transactions in your area to gauge the fair market value of properties with similar attributes.

Income Approach: The appraisal district may employ the income approach for income-generating commercial properties. This approach involves assessing the property’s potential income, applying a capitalization rate and deriving a value reflective of its revenue-generating capacity.

Cost of Replacement: The cost of replacing or reproducing your commercial property is another factor in determining the correct market value, which considers the expenses of recreating a property with similar utility and functionality.

By understanding how the appraisal district determines your commercial property’s market value, you gain insights into the factors influencing your property’s assessed value. With this knowledge, you can navigate the Section 25.25d process more effectively, ensuring that your property is set relatively and accurately.

Seeking Professional Advice for Commercial Real Estate

Even the most seasoned commercial property owners recognize the value of seeking professional advice when navigating the complexities of property taxes. Wondering when it’s time to bring in the experts? Well, those who navigate property tax codes daily and have a proven track record of success can help. Understanding the intricacies of property tax laws requires a level of expertise that only comes with years of experience and a deep understanding of the ever-evolving landscape.

When to Consider Professional Advice

Complex Appraisal Errors: If your commercial property’s appraisal errors are intricate or involve nuanced factors, seeking professional advice is essential. Property tax experts specializing in commercial real estate can dissect complex mistakes and formulate strategic solutions.

Legal and Regulatory Changes: Stay informed about legal or regulatory changes impacting commercial property taxation. Seeking professional advice during periods of legislative updates ensures your property remains compliant and optimized for potential 25.25 rule property tax savings.

Strategic Property Tax Planning: Professionals experienced in commercial property taxation can assist in developing strategic property tax planning initiatives. This includes correcting errors and implementing long-term strategies to minimize property tax liabilities and maximize savings.

Appeals and Litigations: When facing appeals or litigations related to property tax assessments, professionals bring a wealth of experience to the table. Their expertise in negotiation and legal proceedings can significantly influence the outcome in your favor.

Evolving Property Portfolio: If your commercial property portfolio is expanding or undergoing significant changes, seeking professional advice ensures the property tax implications are thoroughly assessed. Professionals can guide you in optimizing property tax positions amidst evolving property dynamics.

Experts with Proven Success

Choosing professionals who bring real-world experience and success to the table is crucial. Look for experts who have case studies demonstrating their ability to navigate complex property tax scenarios effectively just like the ones below:

A small retail strip center in Ellis County, TX, failed to appeal its 2019 property tax value after the appraised value doubled from the prior year. After contracting with PVS to represent the property, a 25.25(d) appeal was filed by PVS’ licensed Texas agents, who reduced the appraised value by over $400,000. This resulted in $ 9,000 in tax savings to the property owner.

A hotel in Harris County, TX, did not appeal their 2020 property tax value after the assessment increased instead of decreasing due to COVID-19. After engaging PVS, we used a 25.25(d) appeal to reduce the appraised value by over $400,000, which resulted in tax savings of over $11,000 to the hotel operator.

These case studies are tangible evidence of expertise and the positive outcomes achieved for commercial property owners.

Elevate Your Property Tax Strategy with Property Valuation Services

As you navigate the complexities of Section 25.25d, Property Valuation Services stands ready as your trusted ally, leveraging its proven track record, seasoned leadership and 25 years of industry experience to ensure your commercial property meets compliance standards and excels as a strategic asset for substantial property tax reduction.

Why not engage an experienced firm to handle the process? We handle everything from filing the initial paperwork to preparing evidence and handling negotiations and hearings with the appraisal district.

Contact us and let PVS be your trusted partner in unlocking the full potential of Section 25.25d — ensuring that every appraisal error becomes a strategic opportunity for maximizing property tax savings.

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Understanding Business Personal Property Tax Protests: When and How to Challenge Your Assessment

Chip Saam / Blog

Business Personal Property Tax Protests

Understanding Business Personal Property Tax Protests: When and How to Challenge Your Assessment

A business personal property tax protest (BPPTP) is a formal process by which business owners challenge the assessed value of their business personal property for tax purposes. Local government entities determine the value of properties within their jurisdiction and calculate taxes accordingly. However, there may be instances where business personal property owners believe that the assessed value is inaccurate or unfairly high, leading them to file an appeal. If you have questions about what a BPPTP entails, when it is appropriate to file, the steps for filing a protest and how you can navigate this process to reduce your property tax burden, we have the answers you need.

What is a business personal property tax protest?

BPPTP is a formal procedure through which business owners can dispute the assessed value of their tangible assets for taxation purposes. Business personal property refers to the movable assets used in conducting business, such as furniture, equipment, machinery and inventory. Challenging the assessed value of these assets is crucial to ensure a fair and accurate tax assessment.

Suppose you own a small manufacturing business, and your local tax assessor determines that the value of your machinery and equipment for tax purposes equals $200,000. However, after conducting research and consulting with industry experts, you believe that the fair market value of your assets is closer to $150,000. The $50,000 difference in valuations can make a difference in what you owe in business personal property taxes. In this case, filing a BPPTP can help you seek a reassessment that accurately reflects the value of your tangible assets.

While many states assess business personal property tax, New York and Ohio are some of the exceptions, so a protest would not occur in these states. You can check this list from Legal Zoom for the complete list of states that exempt businesses from this tax.

By presenting evidence such as recent appraisals, sales data for comparable machinery and equipment with any relevant documentation highlighting the condition or depreciation of your assets, you can build a strong case to support your protest. The goal is to demonstrate that the assessed value is inaccurately high and does not align with the fair market value of your business personal property.

For real-life inspiration, watch this video to learn how a hospital in Texas saved $34K in business personal property tax dollars after filing an appeal.

When should you consider a property tax protest?

Determining whether a BPPTP is appropriate for your situation requires careful evaluation, and several scenarios indicate when it might be time to consider filing a protest:

Overvaluation

If you believe that the assessor has overvalued your business personal property, resulting in an inflated assessment and higher taxes than warranted, a BPPTP may be necessary. Like in the example above, if the assessor values your machinery and equipment at $200,000, but recent sales data or industry standards suggest a value closer to $150,000, you can file a protest to seek a more accurate assessment.

Market Value Changes

Business personal property, such as equipment and machinery, can experience depreciation over time due to technological advancements, wear and tear or changes in market demand. If your assessment does not consider these factors and reflects an outdated or inflated value, a protest can help adjust it accordingly.

Suppose advancements in technology have rendered your equipment less valuable compared to newer models. In that case, you can present evidence of market conditions, expert opinions or depreciation schedules to support your protest. Demonstrating the depreciation of your business personal property can be a compelling argument for a reassessment that accurately reflects its current market value.

Read this case study to learn how a leasing company saved $220K in property tax dollars.

Incorrect Property Information

Errors in the assessor’s records, such as inaccurate descriptions or missing assets, can lead to an incorrect assessment of your business’s personal property. A BPPTP can rectify such errors and ensure a fair evaluation. For example, if the assessor mistakenly includes assets you no longer possess, this can lead to an artificially higher value. In that case, you can provide documentation and accurate asset listings to support your protest.

What are the steps in filing a business personal property tax protest?

While some states like Texas publish a business protest guide for small businesses detailing the steps needed to file an appeal, procedures may vary in other states. By following the specific guidelines of your local government, you can ensure that you’re challenging your assessment correctly and effectively.

In general, filing a protest involves several crucial steps to challenge your assessment effectively. By following these steps carefully and correctly, you can increase your chances of success:

1. Review Assessment Notice

Carefully review the assessment notice sent by the tax assessor’s office, paying attention to the assessed value, the deadline for filing a protest and any other relevant information.

2. Gather Supporting Evidence

When preparing for a business personal property tax protest, it’s crucial to gather specific supporting evidence for both tangible and intangible assets. Here are examples of the types of evidence you should consider collecting:

Tangible Assets

Tangible assets are physical property that can be seen and touched. They include items such as machinery, equipment, furniture and vehicles.

Recent Appraisals: Hire a licensed professional to conduct an independent appraisal of your tangible assets. The appraiser will assess factors like their condition, age and market value. Seek the expertise of professionals who have successfully handled cases and can provide their opinions or written statements regarding the accuracy of your property assessment. They can analyze the specifics of your property, review the assessment and provide their expert opinion on whether it is accurate or unjustifiably high. Their opinions can carry weight during the protest process, so it’s critical to choose those with a proven track record.

Comparable Sales Data: Research recent sales of similar tangible assets in your industry or region. For example, if you own a restaurant and are protesting the assessed value of your commercial kitchen equipment, find comparable sales of similar equipment in your area. This evidence will demonstrate if your assets have been assessed higher than comparable assets, strengthening your case during the protest.

Photographs: Take clear and detailed photographs of your tangible assets to support your protest. For instance, if you have machinery that is outdated or in need of repairs, capture those aspects in photographs. These visual representations can reinforce your argument and provide tangible evidence during the protest process.

Intangible Assets

Intangible assets are non-physical assets that hold value but do not have a physical form. They include items such as intellectual property, software, brand recognition and customer lists.

Expert Opinions: Seek the expertise of professionals who specialize in evaluating intangible assets. For example, if you have intellectual property, consult an intellectual property attorney or an experienced appraiser in that field. Their opinions can carry significant weight during the protest process.

Financial Documentation: Gather relevant financial documents that demonstrate the value of your intangible assets. For instance, if you are protesting the assessed value of your brand or customer list, provide financial statements that highlight the income generated by these assets or any licensing or royalty agreements that showcase their value.

Market Research: Conduct market research to gather data on similar intangible assets in your industry. For example, if you own a software company and are disputing the assessed value of your software code, collect information on comparable software products, their sales and any relevant market trends. This market research can provide valuable evidence to support your case during the protest.

Remember to consult the specific guidelines provided by your local tax authority, as evidence requirements may vary depending on your jurisdiction. Gathering the appropriate evidence and following the correct procedures will help you build a strong case for your business personal property tax protest.

3. Complete Protest Forms

Obtain the necessary protest forms from your local tax assessor’s office or website. Complete the forms accurately, providing all required information and supporting documentation.

4. Submit Protest

Submit your completed protest forms and supporting documentation within the specified deadline. Adhere to the submission guidelines provided by your local tax assessor’s office to ensure your protest is appropriately filed.

5. Attend a Hearing (if applicable)

A formal hearing may be scheduled to review your business personal property tax protest. If you receive a hearing notice, prepare your arguments, organize your evidence and articulate why you believe your tax should be adjusted.

How can Property Valuation Services help with your property tax protest?

At Property Valuation Services, we understand the complexities involved in the business personal property tax protest process, and we’re here to assist you every step of the way. Our expertise in property valuation can strengthen your case and increase the likelihood of a successful business personal property tax protest. Here’s how we can help you:

Independent Property Valuation

Our team of experts will conduct an independent evaluation of your business’s personal property value. Using our in-depth knowledge of local markets and industry-standard valuation techniques, we’ll provide you with an unbiased assessment that serves as evidence to support your claim.

Detailed Property Reports

We will provide comprehensive reports that delve into the factors influencing your property’s value. Our detailed analysis includes information on comparable sales, market trends, property conditions and other relevant factors. These reports will significantly strengthen your case during the property tax protest, providing a clear and thorough understanding of your property’s actual value.

Expert Testimony

If needed, our team can provide expert testimony during the protest hearings. Drawing on our extensive experience and expertise in property valuation, we will confidently present your arguments, explain complex valuation concepts and highlight discrepancies in the assessment. Our expert testimony will provide an independent and authoritative perspective that supports your claim for a lower assessed value.

Guidance and Representation

We understand the legal complexities and will ensure you are well informed. Our team at PVS can handle all aspects of the appeal process, from gathering necessary evidence and preparing documentation to navigating any challenges that may arise. With our strong representation, you can be confident that we’ll advocate in your best interest.

Market Knowledge and Insights

Our team stays up-to-date with local market trends and changes in regulations. We have a deep understanding of how these factors can impact property values and can provide you with valuable advice and strategies to pursue during the property tax protest process.

Contact Property Valuation Services (PVS) for a fair and accurate assessment of your business personal property’s value. Our expertise will strengthen the case and alleviate the burden of excessive property taxes. With our guidance, together we can navigate the tax protest process confidently for a successful outcome.

The local assessor’s office reviews the returns filed and calculates a taxable value for the equipment, most often by depreciating the cost of the taxable equipment reported on either their own local depreciation schedules or the state depreciation schedules.

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What Is Property Tax Valuation?

Chip Saam / Blog

What Is Property Value Taxation?

Property tax valuation refers to professional services that assess and determine the accurate value of business personal property and commercial real estate. These services are essential for businesses and investors seeking to understand the true worth of their assets. By providing expert insights and comprehensive analysis, property valuation services enable clients to make informed decisions, optimize profits and effectively manage potential risks associated with their properties.

Put worrying aside if you’re not familiar with all the ins and outs of property valuation just yet. In this comprehensive guide, we’ll demystify the definition and importance of property valuation for commercial real estate. We’ll simplify the jargon with our glossary of terms, explain the step-by-step valuation process and highlight its remarkable benefits.

Understanding Property Tax Valuation

Glossary of Terms

To better understand property valuation, let’s explore some commonly used terms:

Market Value

Market value is the estimated worth of a property in the current market. It’s determined by location, property size, condition, amenities, income potential, and recent comparable sales.

Appraisal

An appraisal is an expert’s assessment of a property’s value based on various factors such as location, size, condition and recent comparable sales. Appraisals are conducted by licensed professionals and are often required by taxing authorities and the judicial system when appealing a property tax assessment.

Comparative Market Analysis (CMA)

Comparative Market Analysis is a method that compares a property’s value with similar properties in the market to determine its worth. It involves analyzing recent sales data, market trends and property characteristics to assess a property’s value.

Assessed Value

The assessed value is the assigned value to a property for tax purposes by a local government entity. Assessed values are used to determine property taxes and may not always reflect the market value of a property.

Fair Market Value (FMV)

Fair market value is the price at which a property would sell between a willing buyer and seller in an open and fair market. FMV is influenced by factors such as supply and demand, property conditions, location and current market conditions.

Depreciation

Depreciation is a decrease in a property’s value over time due to factors such as wear and tear, age or outdated features. It’s an important consideration for property owners, as it can affect their overall value.

A property built 20 years ago may have experienced some depreciation due to aging infrastructure, which could lower its value compared to a newer property.

Capitalization Rate

The capitalization rate is used to estimate the property’s potential income and value based on its expected return. It is commonly used in commercial property valuation to assess investment opportunities.

For example, a commercial property with an expected annual net income of $50,000 and a capitalization rate of 7% would have an estimated value of approximately $714,285 ($50,000 divided by 0.07).

Highest and Best Use

The highest and best use means determining the most profitable use of a property based on market conditions and local zoning regulations. It involves evaluating alternative uses to determine the most financially advantageous option.

A vacant lot located in a commercial zone might have higher value and potential if developed into a retail shopping center rather than a residential property.

Zoning

Zoning is the set of local regulations that dictate the approved uses and development guidelines for commercial properties within a designated area. It determines whether a property can be used for residential, commercial, industrial or other purposes.

The Property Tax Valuation Process

Initial Assessment and Data Collection

Property valuation is a meticulous process that begins with an initial assessment. Professional valuers conduct a comprehensive analysis to gather relevant information and understand the property’s characteristics, location and prevailing market conditions.

During this phase, they assess the size and condition of the property, taking into account the number of rooms, amenities and overall appeal. Additionally, they analyze the property’s location, including its proximity to schools, amenities, transportation and the desirability of the neighborhood, all of which impact its commercial value.

Valuation Methods

Property valuers employ various methods to determine the value of a property. The most commonly used approaches include:

Sales Comparison Approach

The sales comparison approach involves comparing the property being valued with recently sold similar properties in the same area. It is particularly useful for residential properties with a significant number of comparable sales available. However, finding genuinely comparable properties can be challenging for unique or specialized properties and may not account for unique features or improvements.

Income Capitalization Approach

Primarily used for investment properties, the income capitalization approach assesses the property’s income potential by analyzing the rental income and operating expenses associated with the property. This method focuses on the property’s income potential, which is critical for investors evaluating returns on their investment. However, accurate and reliable rental income data is necessary for an accurate valuation, and it may not be suitable for properties that do not generate rental income or where accurate income data is unavailable.

Cost Approach

The cost approach evaluates the property’s value by considering the cost to rebuild or replace it. It is useful for unique or specialized properties where comparable sales or rental income data may be limited or not applicable. This approach provides an estimate of the property’s value based on the cost of reproducing or replacing it, considering current construction costs and depreciation.

Factors Considered in Property Tax Valuation

Several factors are taken into consideration when valuing a property:

Location

The property’s location is a key determinant of its value. Proximity to amenities, schools, transportation and the neighborhood’s desirability significantly influence its market value.

Size and Condition

The property’s physical attributes, including square footage, layout, number of rooms and overall condition, play a crucial role in determining its value. Well-maintained properties generally have higher values.

Comparable Sales

Recent sales prices of similar properties in the area are taken into account. The valuer compares the property being assessed with these sales to determine its market value.

Rental Income Potential

For investment properties, the potential rental income and cash flow are significant factors. The valuer considers the property’s rental income potential when assessing its value.

Market Trends

The overall direction of the real estate market, including supply and demand dynamics, influences property valuations. Market trends can impact property values positively or negatively.

Benefits of Property Valuation Services

Property valuation services offer numerous advantages when it comes to commercial real estate tax assessment. These services are specifically tailored to the unique requirements of commercial properties, ensuring fair and accurate taxation for property owners. Here are the key benefits:

Objective and Unbiased Assessment

Property valuation services provide an impartial evaluation of the commercial property’s value. Their expertise ensures that the property’s worth is determined objectively, leading to fair tax assessments that align with the property’s actual market value.

Compliance with Tax Regulations

Tax laws and regulations related to commercial real estate can be complex and constantly changing. Property valuation services experts are well-versed in these regulations, ensuring that the property’s valuation adheres to all relevant tax guidelines. This minimizes the risk of non-compliance and potential penalties.

Support for Tax Appeals

In the event of a tax appeal, a professionally conducted property valuation report serves as valuable evidence to support the property owner’s case. The report provides a solid foundation to present compelling arguments during the appeal process.

Identifying Tax Savings Opportunities

Property valuation services professionals can identify potential tax savings opportunities specific to commercial real estate. They are knowledgeable about eligible deductions and exemptions that can lower the property’s taxable value, resulting in reduced tax liabilities for the owner.

Strategic Financial Planning

Accurate property valuations enable property owners to make informed financial decisions. Understanding the true value of the commercial property allows for better tax planning and optimization of tax-related expenses.

Mitigating Overpayment

An accurate property valuation prevents overpayment of property taxes, helping property owners avoid unnecessary financial burdens. By paying the correct amount of tax, commercial real estate owners can maintain financial stability and operational efficiency.

Minimizing Assessment Errors

Professionals with expertise in evaluating commercial real estate minimize the risk of assessment errors, providing a reliable valuation that reflects the property’s true market value.

With property valuation services, commercial real estate owners can ensure that their properties are assessed fairly and in compliance with tax regulations. The benefits extend to strategic financial planning, reduced tax burden and increased confidence in navigating the complexities of commercial real estate taxation.

Factors to Consider in Choosing a Property Tax Service Provider

When selecting a property tax service provider, consider the following factors:

Experience and Expertise

Look for service providers with extensive experience in property valuation and a strong track record.

Reputation and Certifications

Check for certifications and accreditations that demonstrate the service provider’s expertise. Seek recommendations from trusted sources to gauge their reputation.

Client Testimonials and References

Read reviews and seek references from previous clients to gain insights into the quality of service and customer satisfaction.

Service Offerings and Specialization

Ensure the service provider offers the specific property tax services you require, whether for commercial or investment properties.

Turnaround Time and Cost

Evaluate the turnaround time for meeting deadlines and compare the pricing structures offered by different providers.

Property Valuation Services

Property Valuation Services (PVS) specializes in assisting commercial real estate owners achieve their property tax-related goals. We focus on providing comprehensive property tax services conducted by experienced professionals who consider all relevant factors specific to commercial properties.

Our meticulous analysis considers characteristics, location, market conditions and income potential to determine an accurate and fair property tax assessment. We have a comprehensive understanding of your property’s value, ensuring compliance with tax regulations and optimizing your tax liabilities.

With a deep knowledge of the market, we offer valuable insights and customized solutions to address your property tax needs effectively. Our property tax reports adhere to industry standards and guidelines, enhancing your credibility with taxing authorities and regulatory bodies.

PVS values long-term partnerships and prioritizes professionalism, ensuring your privacy and data security. You can trust us to uphold confidentiality and integrity throughout the property tax assessment process.

Contact us to gain access to a dedicated team focused on optimizing the value of your commercial properties for property tax purposes. We offer expert property tax advice and strive to achieve the best possible outcomes for your property tax liabilities.

The local assessor’s office reviews the returns filed and calculates a taxable value for the equipment, most often by depreciating the cost of the taxable equipment reported on either their own local depreciation schedules or the state depreciation schedules.

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Second Chance Appeals in Texas & Kansas: 25.25’s & PUPS

PVS Admin / Blog

Reasons Your Business Personal Property Taxes Could Increase

Texas real property owners and tenants who miss the annual property tax appeal deadline of May 15, or 30 days after the Notice of Appraised Value, have a second and final chance to challenge their current tax assessment under Texas Property Tax Code 25.25 (https://statutes.capitol.texas.gov/Docs/TX/htm/TX.25.htm). This type of appeal can be filed any time before the current year’s taxes become delinquent: February 1 following the assessment year. Taxpayers may file a 25.25(d-2) written protest to the Appraisal Review Board, seeking a reduction in appraised value. This type of appeal requires the commercial property owner or tenant to prove the appraisal district’s error resulted in the subject property being overvalued by at least one-third (1/3). It also requires that there was not a protest filed on the property in the same assessment year, and that the property is not delinquent on any taxes currently owed on the property (See Texas Property Tax Code 25.26).

The Texas Tax Code 25.25

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.

Case Studies/Examples:

A small retail strip center in Ellis County, TX, failed to appeal their 2019 property tax value after the appraised value doubled from the prior year. After contracting with PVS to represent the property, a 25.25(d) appeal was filed by PVS’ licensed Texas agents, who reduced the appraised value by over $400,000. This resulted in $30,000 in tax savings to the property owner.

A hotel in Harris County, TX, did not appeal their 2020 property tax value after the assessment increased instead of decreasing due to Covid-19. After engaging PVS, we used a 25.25(d) appeal to reduce the appraised value by over $400,000, which resulted in tax savings of over $40,000 to the hotel operator.

An imaging center in Dallas County sold its equipment mid-year, at a price below the assessor’s assessment. PVS filed a 25.25 (d) correction motion to the Dallas County ARB to lower the value on this taxpayer’s business personal property, to better align with the true market value of the equipment that they sold. PVS was able to reduce the value from over $800,000 to $420,000, saving this taxpayer nearly $10,000 in business personal property taxes.

The Texas tax code also allows for a real property owner or tenant to file a written protest to correct a clerical error that affects the tax liability on a real commercial property and business personal property under Section 25.25(c) of the Property Tax Code. This applies to the current assessment year and five proceeding years, provided there are no delinquent taxes outstanding. Various types of clerical errors qualify, including a mistake in calculation or mathematical error, multiple appraised values being applied to the same property (duplicate taxation), and taxation of non-existent property. Common examples include inaccurate gross or net leasable area on income producing properties (office, MOB, retail, warehouse), valuation of shell or unfinished space as fully complete square footage, an error in land square footage or calculation of value on site improvements (asphalt, exterior lighting) and more.

The same appeal mechanism is also applicable to business personal property assessments. A 25.25(c) motion can be filed to the Appraisal Review Board to request a correction to the information on file in the appraisal district’s records, or an error in calculating the assessment, the correction of a duplicate appraisal, or the assessment of equipment no longer present.

The gross square footage and number of units for a large apartment complex were inaccurately recorded in county records. This is crucial information that must be corrected, as most counties use this data to calculate the value of apartment complexes on the cost, income, and sales comparison value approaches.

An office building closed prior to the personal property tax lien date, but the property owner failed to note this fact on their annual personal property return filed to Harris County. PVS filed a 25.25(c) correction motion to Harris County, and ultimately received a favorable decision from the Appraisal Review Board, who agreed to remove the assessment and tax bill for the property. This saved the taxpayer over $4,000 in property taxes.

It is not uncommon for appraisal districts to errantly create a duplicate account for a business, perhaps based on an address or ownership change, leaving a property with two active business personal property accounts. Often these duplicate accounts do not become apparent until receiving two separate personal property tax bills in the mail at the end of the year. In situations like these, PVS has filed 25.25(c) correction motions to correct the duplication and remove/close the erroneous account.

Given the various types of 25.25 appeals and their specific requirements for application, it is essential to hire an experienced property tax agency such as Property Valuation Services, with proven success in Section 25.25 appeals.

Kansas: Payment Under Protest

Property owners in Kansas may appeal their real property or business personal property’s classification and/or appraised value in one of two ways: the value may be appealed by way of an informal appeal filed to the local assessor’s office in the spring after the appraiser has notified the taxpayer of the property’s current appraised value; or the value may be appealed when taxes are paid, typically in December of the assessment year. The latter appeal is referred to as a Payment Under Protest, or PUP for short. The property assessment may only be appealed once per tax year by either appeal method, but not both.

Case Studies/Examples:

A Johnson County, KS hotel owner missed the informal equalization appeal deadline in late March for their real property. This owner contacted PVS to see if we could still appeal his property. PVS was allowed to use the KS Payment under Protest appeal to appeal his property in early December.

A Payment Under Protest (PUP) must be filed to the local treasurer’s office when taxes are paid. Kansas owners have the option of paying taxes in two installments: one is due by December 20 and the second half is due by the following May 10. A PUP can be filed with either payment, but it is not necessary to file with both. If the owner’s mortgage company pays property taxes directly, an appeal may be filed with the county treasurer at any time after the tax bills have been mailed, but before January 31. All Payments Under Protest must originate with the county treasurer, not the property appraiser’s office.

It is important to note that the PUP appeal is not designed for appeals concerning land devoted to agricultural use or commercial and industrial machinery and equipment, because such property is not valued based upon its fair market value but on its agricultural use of the land and flat rates for machinery and equipment.

The same approaches to value that are used in a standard Kansas spring appeal are used in a Payment Under Protest for commercial real estate: the cost, income, and sales comparison approach. Equity or ‘equalization’ is also important to consider, so be sure the subject being appealed is not assigned a higher tax assessment than similar properties in the same county. This is especially useful in a PUP appeal, as most comparable properties are likely to have been appealed and resolved through the spring appeal process, and thus their assessments are already reduced upon appeal. This allows a property owner or their representative to utilize those lower assessments in comparison to the subject being appealed through a PUP in December.

The procedure for a PUP is nearly identical to the annual appeal procedure. The county appraiser will conduct an informal hearing with the property owner or their representative, to review and discuss any evidence the owner has to support their claim for a reduction. Additional small claims or formal litigation appeal options are available to taxpayers who are not satisfied with their PUP informal hearing results.

In Saline County, KS, an assisted living facility was being mischaracterized as a traditional apartment complex. After contacting PVS and filing a Payment Under Protest, the value of the property was reduced by $2,400,000 and the property owner enjoyed a $40,000 reduction in their tax bill.

The Payment Under Protest procedure is less commonly utilized for business personal property tax, as compared to real property. Due to a phasing out of business personal property tax, businesses are no longer paying property tax on equipment purchased after June 30, 2006, leaving only the older equipment still being subjected to property taxation. With this exemption covering so many years of equipment purchases, there is decreased necessity for personal property tax appeals in Kansas.

“All commercial and industrial machinery and equipment acquired by qualified purchase or lease made or entered into after June 30, 2006, shall be exempt from property tax. All commercial and industrial machinery and equipment transported into this state after June 30, 2006, for the purpose of expanding an existing business or the creation of a new business shall be exempt from property tax.” (https://www.ksrevenue.org/prtaxincentives-proptaxabate.html)

(http://www.ksrevisor.org/statutes/chapters/ch79/079_002_0023.html)

Due to this exemption and the intricate nature of an annual appeal vs. PUP appeal, the most reliable method of reducing business personal property tax liability is to file an accurate and timely rendition prior to the March 15 annual due date. CPA and general accounting firms are not always well versed in local tax law or procedure and may not have the necessary appeal experience should an error occur on a return. It is crucial to hire a property tax-specific agency such as Property Valuation Services, with proven success in Kansas appeals, to both prepare your return and handle any subsequent appeals.

The local assessor’s office reviews the returns filed and calculates a taxable value for the equipment, most often by depreciating the cost of the taxable equipment reported on either their own local depreciation schedules or the state depreciation schedules.

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Are Inventory & Supplies Assessed As Business Personal Property?

PVS Admin / Blog

Are Inventory & Supplies Assessed As
Business Personal Property in Your State?

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.

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.

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What Do Assessors Use to Assess BPP Taxes?

PVS Admin / Blog

What Do Assessors Use to Assess BPP Taxes?
Hint: It’s Not Federal Depreciation

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.

Many businesses don’t realize that federal depreciation isn’t what most assessors use to assess their personal property taxes.

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