Benefits Of Business Personal Property Tax Savings

Benefits Of Business Personal Property Tax Savings During A Time When Companies Are Looking For Ways To Save Money

Some thought this was going to last for years. Some thought this wasn’t a big deal. Others even thought it was a hoax or government conspiracy. No matter where you fell on the scale, we can all agree that 2020 was filled with anxiety as no one really knew what was going to happen long-term.

No more going to work, with the lucky ones being able to transition to working from home. Businesses struggled to find ways to mitigate their losses. Restaurants and movie theaters closed, hotels became virtually empty, schools shut their doors and everyone had to learn to live a different life.

According to the New Jersey Business Magazine, 81% of small businesses lost revenue at an average rate of 30% during the pandemic. Nearly all business types saw decreases in revenue, had to lay off or furlough employees, figure out working from home and many shut down all together.

COVID-19 has hit small businesses particularly hard, with 81% reporting that they have financially suffered this past year, according to a new survey by Wiss, a Florham Park-based full-service accounting and strategic growth advisory firm, and Sapio Research. Twenty-seven percent of respondents said they experienced a “dramatic income loss” because of COVID-19, with 30% being the average revenue loss.

Small business owners and executives impacted by COVID-19 have made budget cuts, applied for loans and have even tapped into their personal savings to survive.

Nearly half of small businesses surveyed have cut spending because of COVID-19.
60% applied for a PPP loan,which 26% received (including 41% of those in 100 – 499 employee-sized companies and just 17% of under 25 employee companies)
21% have furloughed staff and 16% have laid off staff
20% used business savings or borrowed from a business line of credit (12%)
21% tapped their personal savings; 8% borrowed from their retirement accounts; and 7% took out a personal loan.
Nearly 10% of businesses reported closing due to the financial impact of COVID-19.

Our clients include major health care organizations, manufacturing facilities, water sanitation and movie theaters who had to find ways of surviving just like most did. In a time where everyone is looking for ways to increase profitability by increasing revenue and/or decreasing expenses, there is an untapped resource that most companies have no idea could be their saving grace (pun intended).

Every year, all businesses (except in a handful of states) are required to pay property taxes on the assets they own and utilize to operate their business. This includes equipment, computers, furniture and, in some states, inventory and supplies.

The Texas Taxpayers and Research Association states there was over $231 billion in taxable Business Personal Property value in the state of Texas alone in 2016. This association goes on to clarify:

“Texas’ property tax applies to all real estate (land and improvements). Texas’s property tax also applies to tangible personal property (furniture, machinery, supplies, inventories, etc.) used in the “production of income,” i.e. business-owned property. Personal property owned by individuals is specifically exempted. Inventories of raw materials and finished products is a key part of business tangible personal property.”

For some, this is negligible. For others, it means hundreds of thousands, if not millions, in tax liability. It is an odd truth that this is usually an overlooked accounting function, even though it results in one of your largest annual expenses. Also, most have no idea what goes into filing these returns as it is just something their accountant handles every year.

So what is the problem? There are thousands of property tax firms across the country, over a million accountants and 32.5 million businesses in the United States, all who prioritize federal taxes, income taxes and real estate property taxes. Most of these companies do not fully understand there are opportunities to reduce their business personal property tax burden. It is commonly thought of as an annoyance that includes filing an annual return and paying a tax bill.

The solution? Revaluing business personal property assets and analyzing asset lists. First, communication efficiency needs to improve within the company’s departments. When a company stops using a piece of equipment, whether it is a plastics molding processor or phone system, no one thinks to tell the accounting department. The only reason someone in accounting or tax knows of a new acquisition is due to the purchase process. Years later, one of my experts gets a hold of an asset list to scrub and finds multiple assets we can delete due to their removal or possible lack of use. These are called “ghost assets” and result in large reductions. It is unfortunately a common occurrence for an asset list to be inaccurate.

Next comes revaluing assets themselves. With the right expertise and data, high-tech equipment can be revalued. We look to first break an asset down into component costs. With information our licensed equipment appraisers obtain through collaborations with manufacturers, we can identify exemptions on certain components or aspects of the equipment. The trick is not only having the data and expertise to perform this type of calculation, but also understanding the thousands of taxing jurisdictions’ different statutes and exemptions possibilities. For example, what can be exempt in Dallas County might be different than Tarrant County. This leads to lower costs, lower values and therefore lower taxes.

Additionally, with the right information certain assets can be moved into faster depreciation so that each year you are responsible for less taxes.

Last, and closest related to property taxes on the real estate side, would be finding comps. With a database that searches and finds the resale of our client’s assets we can argue for a fair market value of some of these larger assets.

There are multiple states who tax inventory and supplies that also allow for the partial exemptions of their inventory based on the percentage of products sold outside of said home state. This is not as easy a calculation as you would think, so having a tax expert file your returns who can also analyze your inventory and sales is huge. We have saved clients six figures in property taxes in a given year by properly filing for their Freeport Exemption.

For those of you who feel as though this seems like a lot, it is. Our consultants spend much more time filing a return than your current accountant. Scrubbing asset lists looking for errors and ghost assets, revaluing equipment, reviewing potential changes in depreciation, analyzing inventory and sales for exemptions and filing the most accurate return possible to save you tax dollars is not a ten-minute process. What most deem an annual burden, we look at as an opportunity.

PVS was started in 1997 with the unique expertise in high-tech medical equipment valuation. For nearly 15 years, their expertise and reputation grew to where they worked with nearly every major healthcare company in the country. Virtually every for-profit hospital corporation, imaging company, surgical organization, dialysis group, oncology and others now use PVS to file their returns and have benefited from hundreds of millions of dollars in tax savings.

In 2011/2012, PVS started working with a joint venture movie theater projector distribution/leasing company and saved them $4.2 million in property taxes by utilizing the same methodologies they had used on high-tech medical equipment. Then they started working with manufacturing facilities, water treatment equipment and other types of assets in the same manner.

These savings should be found during the process of preparing a Business Personal Property Tax Return (or rendition as it is called in Texas) for our clients. Most jurisdictions will accept our returns as filed, considering we provide the assessor all backup data and support for valuation changes.

Assuming you have already filed your return, the other option is to let PVS file an appeal of your assessment and see if there are any reductions we can make this year. Most jurisdictions have an appeals process, with a deadline listed on the assessment notice sent to the taxpayer. While these reductions are harder to obtain than if we had filed the return, it is an opportunity to run an analysis to file next year and save you money this year.

As we all look for ways to reduce our costs and increase our profitability, tax liability should be a no-brainer. How can we reduce our tax liability? First, hire PVS to monitor and analyze your real estate assessments, file appeals and reduce your real estate property tax liability. Hire a company like SALT Solutions (State and Local Tax Solutions) to review your AP and product taxability so they can obtain refunds on sales and use tax paid on items they can exempt. Last, have PVS revalue your business personal property assets and file your return. If already filed, let them look to appeal your BPP values.

According to the New Jersey Business Magazine, 81% of small businesses lost revenue at an average rate of 30% during the pandemic. Nearly all business types saw decreases in revenue, had to lay off or furlough employees, figure out working from home and many shut down all together.

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Real vs. Personal Property: The Fight Against Duplicate Taxation

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Real vs. Personal Property: The Fight Against Duplicate Taxation

What is Real Property vs. Business Personal Property?

When most companies think about property tax, real estate property tax typically comes to mind. Real property consists of land and improvements, such as a house, building and land improvements like paving, asphalt and lights. Payment of commercial real estate tax varies, as these taxes may be paid through an escrow account similar to a residential mortgage, by a tenant to a landlord through rent or paid directly to the local tax collector by property owners.

Real property tax is most familiar because of its size; depending on the building type, size and location, it might be the largest expense item for tenants or building owners. But it isn’t the only type of property tax in most states. Business personal property tax should not be overlooked.

While not as familiar to most business operators, business personal property tax is assessed and collected on the equipment, furniture and fixtures inside a building, or on other movable items such as RVs, boats and vehicles. Real estate is typically thought of as fixed or permanent, business personal property is considered ‘moveable’ and tangible — items that would be taken if a business were to vacate their building. Examples include computer and IT equipment, manufacturing equipment, interior signage, cabinetry and more. Depending on the state, it may also include interior building changes made by the tenant, referred to as leasehold or tenant improvements, which are the most common assets facing duplicate taxation.

The Valuation of Business Personal Property

Personal property assessments are based on a company’s fixed asset listing, and potentially include inventory and/or supplies and leased equipment, depending on the state in which the property is located. Each year companies are required to file a business personal property rendition to the appropriate taxing jurisdiction, listing all assets owned by the business as of the lien date, including acquisition date and cost. There are 38 states which tax business personal property, and a majority use a January 1 lien date, or date of valuation. Each state has its own due date for the personal property return. Most dates fall between January 31 and May 15; however, there are outliers where returns are due much later in the calendar year.

The tax assessor’s value of each asset is calculated using the acquisition cost less depreciation, which is based on the type and age of the asset. But depreciation varies widely. The tax assessor groups assets into classes or categories such as office furniture, manufacturing, medical equipment, computer, telephone equipment and more. Rather than utilizing book or federal depreciation, most tax assessors have their own depreciation schedule for each class of asset. Some states do not create their own depreciation schedule. Instead, they use federal property tax classifications to establish appropriate depreciation for assets.

The Valuation of Real Property

Like business personal property, real estate is valued as of a lien date, which is most commonly January 1. Unlike personal property, the valuation process for real estate does not generally require or begin with the filing of an annual return. While several states do require that real property owners provide building changes, new construction and/or income and expense data to the local assessor each year, most do not require any filing regarding the building or land.

Instead, the real property valuation is initiated by the local tax assessor, who sends notice to the property owner of their current valuation. The assessor has generally reviewed the property by means of a physical inspection or a desk review. Depending on the state, real property may be reviewed and reassessed annually or on a set cycle or schedule. In Texas, Kansas and Georgia, real property is reviewed annually. The state of Iowa and Missouri review real estate every odd-numbered year, and Tennessee and North Carolina reassess real property every four to eight years by state law. After issuing a notice of valuation, taxpayers have a set timeline during which they can challenge the assessor’s estimate of market value on their property. They must supply property data, such as an income statement or lease or market evidence to support their claim for a reduction in assessment. There is often a formal appeal process to follow, which may require meetings or discussion with the local appraisal staff, or a formal hearing before a board of local citizens, commissioners or appraisers.

Duplicate Taxation: When Real Property Becomes Personal Property

According to most state statutes and laws, the real estate assessment is an estimate of the fair market value of the building and improvements as of the lien date, meaning the anticipated price at which it would sell in an arms-length transaction between a willing buyer and seller. Logic asserts that the sale of a building would include the exterior walls and everything inside, in addition to the land and land improvements. This seems like a simple concept, but many states across the country complicate the matter but arguing that various real estate components are business personal property, such as leasehold improvements or tenant buildout. If the tax assessor is taxing real property at its reasonable selling price and taxing building components on the personal property account, that’s double taxation — and illegal.

Knowing the components of a building and industry terminology is important when discussing the double taxation of property on the real and personal sides. The term “shell” is a building composed of four walls, a floor and a roof. It has exterior walls and windows installed, concrete or other base floors, but does not contain interior dividing walls, like exam rooms in an MOB or cubicles in an office. It does not contain any other finishes like tile, carpet, acoustic drop ceiling, interior lighting, paint, wallpaper or common area décor. Those are often called “tenant improvements” or “leasehold improvements” — interior buildout inside the four walls of a building. It’s common for the developer or owner of the real property to construct or build both simultaneously – a fully functioning building from the start. But it’s also common for a real property owner to construct and own only the shell building, and for tenants to construct or install their own interior buildout, specific to their liking, use or industry. This happens frequently in special use properties, like those in the medical community, or in buildings with a high rate of turnover and generic use space, like retail or office buildings.

Regardless of ownership, most buildings in existence are fully complete — meaning they contain both shell and tenant improvements — and are a fully functioning piece of real estate. But who owns or installed each component can lead tax assessors in various jurisdictions across the country to tax them separately, and often twice. Duplicate taxation also commonly occurs when the business owner lists real-estate-related assets from a fixed equipment or leasehold improvement account on their business personal property tax return. In-house accounting staff and CPA firms alike make this common mistake, listing items from fixed equipment or leasehold accounts as tangible or movable assets. When reviewing such renditions, tax assessors are most likely to accept a return as it is filed rather than question the taxpayer on these assets. After all, it’s additional revenue for their county and city.

Connecticut is a great example of the struggle with duplicate taxation on tenant improvements. A large portion of the tax assessment offices in the state use a third-party appraisal firm to analyze and set the town’s real estate values. In PVS’ experience, these real estate assessments are typically at market value for a fully built-out building. That means the real estate valuation is the estimate of what that building would sell for with shell and tenant improvements, exactly how it sits as of the lien date. The assessment office or their third-party firm reviewed local market sales of similar properties and current lease rates and listed market rents to estimate what the building would generate in revenue for a potential buyer. This real estate assessment, therefore, includes the entire building as it stands, including tenant improvements.

At the same time, Connecticut assessors, who typically handle the valuation of business personal property in-house, will value interior buildout completed by tenants in a building on their business personal property account. This is largely because the tenant paid for and installed those walls, flooring, etc., so they appear on the tenant’s fixed asset listing or general ledger. They will assert that any physical additions or changes inside the building, not installed or owned by the real property owner but rather the tenant, are taxable as tenant improvements.

How to Avoid or Resolve Duplicate Taxation

The fight to eliminate this double taxation can be a tough one, which is why firms like PVS are engaged by owners/landlords and tenants alike. The process requires proving that the real estate assessment is at full market value, which requires appraisal and industry knowledge, access to market data and valuation experience. Simultaneously, knowing exactly which personal property assets, like certain fixed equipment, should be taxed as personal property is critical. The resolution typically requires a formal appeal on the business personal property account, so the taxpayer must possess knowledge of both forms of property tax.

Alternatively, firms like PVS know that how the annual business personal property rendition is prepared and filed can provide a large head start in duplicate taxation issues. Having an expert prepare the personal property return can also avoid costly and time-consuming audits, which can often review up to four prior years of personal property data. Hiring a firm with real and personal property expertise and experience is invaluable when duplicate taxation issues plague your property tax expense.

Most businesses are aware that real property taxes are a very large expense line item. But business personal property tax should not be overlooked. It can easily become one of the largest and most dynamic expenses a business faces, especially if a tenant is paying both real and personal property tax on the same component or asset. Attention to detail, industry knowledge and experience, and knowledge of legislative changes are important in the skill set of the company filing your business personal property returns. PVS specializes in business personal property taxes and has been preparing returns and challenging tax assessments since 1997. Please contact us if you would like to see how we can help you and your company file your renditions.

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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Personal Property and Real Estate Property Tax Appeals Process

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Personal Property & Real Estate Property Tax Appeals Process

Throughout the United States, every taxing jurisdiction calls the process of disagreeing with the assessed value of property different – they will either refer to it as a property tax appeal or a property tax protest. These two processes are treated in the same manner but called in different names. For example, in Kansas, it is referred to as a property tax appeal, but in Texas, they refer to the process as a property tax protest.

Business Personal Property

Determination of Filing an Appeal or Protest

After receiving a notice of value, a taxpayer or their representation will decide if they want to file a property tax protest on their account. This process will be the same for both personal property tax and real estate tax.

For business personal property tax, renditions are required to be filed on an annual basis to the assessing jurisdictions. If these aren’t filed annually, assessors can place arbitrary assessments on the account. In most cases, the acquisition date and cost of the assets are used to place the assets on a set of depreciation tables to account for the loss in value as the assets get older. As assets depreciate differently, these typically include several tables that account for the loss of value at different rates. The calculation of this value plus inventory and/or supplies (if taxable in the particular jurisdiction) is how the appraised values are calculated for personal property taxes.

Property Tax Appeal or Protest Process with the Assessor

Once you or your designated agent have decided to appeal your value, each jurisdiction has a process to follow. Pay attention to deadlines and the procedures for your particular jurisdiction. With your Notice of Value, there is typically an appeal form that needs to be filled out. If there isn’t a form, you can send in a letter, or some will allow you to file the appeal on their website. Some jurisdictions ask that you provide your documentation to support the value you are requesting prior to the hearing. If they have requested the information, perhaps the assessor and/or board is willing to work with you informally to resolve the discrepancy prior to the hearing.

Determination of Who is Correct

Because the State or County Assessor are government employees, it is often assumed that they are following state statutes or guidelines regarding general valuation, and they would like to believe they are correct in their methods. This is not necessarily the case, as PVS has developed multiple revaluation methodologies for assets to reduce our clients’ property taxes. That being said, solid backup data, research and sometimes legal arguments by experts are needed to support and defend value calculations or the board will ultimately side with the assessor.

If the discrepancy is unable to be resolved informally, then you will want to attend the hearing to present your case. Once you have presented your case and the assessor has presented theirs, the board will either issue a ruling at that time or will wait until after everyone has left to determine the outcome. Once the outcome is determined, a notice will be issued to the taxpayer or tax agent regarding the case.

If the board does not side with the taxpayer, there is usually another step that can be taken. This step usually involves going to the State Board of Equalization. At this step, most of the time an attorney must be hired.

Real Estate Property

Almost all states across the country that impose real property taxes have a legal process in place for taxpayers to keep their real property assessments in line with the market. These assessment appeal processes are almost always annual and typically do not require use of an attorney. It is however recommended that taxpayers utilize industry experts such as property tax consulting firms since property tax consultants have a great deal of expertise and resources at their disposal to combat erroneous property tax assessments.

Determination of Filing an Appeal or Protest

Property tax assessments are often viewed as set-in-stone or predetermined — out of the taxpayer’s control. Assessors in towns and counties across the country are widely presumed to be correct in their valuation of real property and property assessment laws are generally written with the assessor’s presumption of correctness as a starting point.

Tax assessments are supposed to reflect the fair market value of one’s property. The market value of your real property is constantly in flux due to sales, changes in rental rates and changes in construction costs. For this reason, your real property assessed value should be monitored regularly. When was the last time you reviewed your property’s tax assessment?

Real Property Tax Appeal or Protest Stages

The real property appeal process varies from state to state, but in most cases, there are three main appeal stages: informal negotiations, board of review and litigation. Just as with business personal property appeals, there are deadlines to be mindful of when filing a protest of your real property assessment.

Many taxpayers can find success at the informal level when being proactive and reaching out to their local assessors. If assessors begin to dig their heels in and decline to alter their assessment within the taxpayer’s requested valuation range, states typically have a process in place to have the appeal reviewed by a third party. This secondary appeal stage consists of either a hearing officer or a board of review composed of multiple members.

Hearing officers and Boards of Review/Equalization do not always look at evidence as impartially as they should, so states have a third level of the appeal process established which generally requires engaging an attorney who specializes in property tax litigation. A cost-benefit analysis should be run when considering the litigation stage of a real property assessment appeal due to the costs involved with this extra stage. Not only are legal fees required but this stage will most likely require a full appraisal report to sway the opinion of the court.

The litigation process for real property tax appeals can sometimes take years or even longer to resolve in certain instances. If the original assessment is far enough out of line, however, most will find that seeing the assessment appeal all the way to the end is worth the additional legal fees and appraisal costs.

Let PVS Assist With A Personal Property Or Real Estate Tax Appeals Process

Whether we are discussing real estate or business personal property, the bottom line is the same: do not assume that the values placed on your property and the corresponding property taxes are accurate. These values are computer calculated with minimal information involved. Reputable property tax firms, like PVS, have been cultivating and implementing valuation methodologies, developing relationships with assessors, and working to reduce our clients’ property tax liability for decades. There is something you can do about your high property taxes, and we can help.

Whether we are discussing real estate or business personal property, the bottom line is the same: do not assume that the values placed on your property and the corresponding property taxes are accurate.

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Choosing the Right Property Tax Firm: A Comprehensive Guide

PVS Admin / Blog

Choosing the Right Property Tax Firm: A Comprehensive Guide

When it comes to property taxes, business owners often seek ways to reduce their tax burdens. Selecting the right property tax firm can have a significant impact on achieving these savings. In this comprehensive guide, we will explore different types of property tax firms, discuss their advantages and disadvantages, and provide insights to help you make an informed decision.

Types of Property Tax Firms and Considerations

Big4 Accounting Firms

Big4 accounting firms, renowned for their comprehensive financial services, also offer property tax assistance. However, it’s important to note that property tax might not be their primary focus. If you require a broader range of financial assistance beyond property tax, partnering with a Big4 firm might be appealing. However, if you seek specialized property tax services, you may not receive the same level of attention and personalized support.

Local Firms

Local property tax firms operate within specific cities or counties. They often emphasize their close relationships with assessors as a selling point. While this can lead to high percentages of property reductions, there may be a potential conflict of interest due to their strong ties with assessors. Additionally, if you own properties in multiple jurisdictions, managing separate local representation can be burdensome.

Law Firms

In some states, legal representation is required for property tax appeals. Hiring a law firm specializing in property taxes becomes crucial in such cases. However, it’s important to note that not all states mandate legal representation. Texas, for example, has a significant number of property tax representatives who are not attorneys. It’s advisable to evaluate if legal representation is necessary based on your specific state requirements.

National Property Tax Consulting Firms

National property tax consulting firms specialize in property tax matters and often have a wider presence across multiple jurisdictions. These firms offer expertise in property tax reduction strategies and have experience handling diverse portfolios. They can provide personalized attention and have appraisers on staff to enhance their capabilities. Choosing a reputable national property tax consulting firm ensures comprehensive coverage and expertise tailored to your needs.

Considerations for Choosing the Right Firm

Value over contingency fees

Base your decision on the value provided rather than solely focusing on the lowest contingency fee. Quality and effectiveness should be prioritized over cost.

Team Qualifications

Evaluate the qualifications, experience, and expertise of the professionals who will handle your property tax appeals. Look for a firm that emphasizes communication and transparency.

Specialized expertise

Consider if the firm has appraisers on staff to provide a higher level of expertise for property valuations and appeals.

Jurisdiction coverage

Consider if the firm has appraisers on staff to provide a higher level of expertise for property valuations and appeals.

Service-oriented approach

Look for a firm that prioritizes personalized service, effective communication, and a commitment to achieving maximum savings and protection for your company.

Let PVS Help Navigate The Complexities Of Property Taxes

Selecting the right property tax firm requires careful consideration beyond contingency fees. By evaluating expertise, team qualifications, communication, and jurisdiction coverage, you can find a firm that will deliver significant savings and safeguard your business interests. Make an informed decision and partner with a reputable property tax firm to navigate the complexities of property taxes effectively.

Considerations for choosing the right firm include value over contingency fees; team qualifications; specialized expertise; jurisdiction coverage; and a service-oriented approach.

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