What type of property taxes are businesses responsible for?
For property taxes, most people automatically think of real estate property taxes. For businesses, there are also property taxes that may have to be paid on business personal property. It is usually easy for people to understand that real property includes buildings and land. This is due to most individuals having to pay yearly property taxes on their homes. Businesses, on the other hand, may have to pay property taxes on more than just their building and land. Business personal property (BPP) includes equipment, furniture and other moveable assets.
Are business personal property taxes the same in every state?
Not all businesses have to pay every type of property tax. The state that a business is located in will determine if they need to pay business personal property taxes. Out of the 50 states, there are 12 states that do not assess business personal property, including Delaware, Hawaii, Iowa, Illinois, Minnesota, North Dakota, New Hampshire, New Jersey, New York, Ohio, Pennsylvania and South Dakota. The District of Columbia falls into the group that does tax business personal property. There are some states that allow the local jurisdictions to decide if they are going to tax business personal property. For example, Maryland allows towns or counties to determine on their own if they want to assess business personal property.
The states that do assess business personal property do not always use the same criteria to value the property. Some states will include inventory and supplies in the assessments while other states do not include them. Also, other states may include only inventory or only supplies. Leased equipment is also treated differently. Some states will tax the lessor while others may tax the lessee.
How does ownership of equipment get determined?
Business personal property assessments are based on the ownership of the equipment as of a certain date. This date is referred to as the lien date and it varies from state to state. Most states use January 1 as the lien date. However, some states assess equipment as late in the year as of October 1, including Alabama and Connecticut. Maine and Vermont both use an April 1 lien date while the District of Columbia, Nevada and West Virginia all have a July 1 lien date.
Assessors require businesses to self-report their personal property. Most assessors will send out a return form requesting a listing of all assets owned by the business as of the lien date. This will include the description of the asset, acquisition date and acquisition cost. This list must include all owned assets regardless of the net book value. There are exceptions to this depending on the state you are reporting in. Adding to the complexity of the filing process, not only are there different lien dates, but states also may have different due dates for business personal property returns. Additionally, local assessors within a state may have different due dates. The due dates can range from January 31 through May 31 for the January 1 lien date while other lien dates are due much later in the year.
How does business personal property get assessed or valued?
Once the information is received by the assessor’s office, it is entered into their county or state-specific depreciation schedules. Each asset is categorized based on its description. The basic categories are typically computer equipment, furniture, office equipment and machinery & equipment. Some assessors use many more specific categories. The assessor generally has different depreciation tables for each category which calculate a taxable value based on acquisition cost and age of the asset. Most states calculate the value using this process but not all of them. For example, instead of creating their own depreciation tables, South Carolina uses Federal Income Tax net book values for the assessment. Any assets that are claimed on the business’ income taxes should be reported on the business personal property tax return.
The number of depreciation schedules used by an assessor can vary greatly from state to state. The most common system consists of schedules based on useful life. This can be as simple as 3-year, 5-year, 8-year, 10-year and so on. Each asset category is assigned to a different depreciation schedule. Generally, computer equipment is put in the shortest life while furniture is placed in a longer life. There are some assessors that use only one depreciation schedule for all categories of assets regardless of the expected life of the asset. Whereas some assessors fall on the other end and use a large number of different schedules. These schedules can get very specific within one type of equipment. For example, instead of having one schedule for computer equipment, it could be split between personal computers, computer servers or computer peripherals.
Business personal property taxes can be challenging, who can be trusted to assist with it?
As you can see, business personal property is a complex process that can be overwhelming for companies. Property Valuation Services (PVS) has been handling business personal property nationwide for over 20 years. Over the years, PVS employees have acquired the knowledge and expertise needed to handle a variety of assessor requirements. All states have different statutes regarding the taxation of personal property, some even vary between the counties within a state. With the experience PVS has, we have worked with many assessors to negotiate new values on accounts.
Can Property Valuation Services help reduce my business personal property taxes?
With over 20 years of experience, PVS has developed a myriad of methodologies to reduce business personal property assessments while still staying compliant with statutes. Different assessment reduction/tax savings strategies are employed for different circumstances:
- Identification of High Technology Assets
- Identification of Non-Taxable Cost Components
- Equipment Specific Depreciation Schedule
- Market Approach for Specific Equipment
- Equipment Appraisals
- Useful Life Analysis
- Replacement Cost vs. Reproduction Cost
- Ghost Asset “Clean-Up”
- Identification of Non-Taxable Assets
PVS utilizes a pre-rendition approach – whereby the application of these value reduction methodologies are implemented as the returns are filed to include an open dialogue with the assessor for full disclosure to improve the likelihood that the methodologies will be accepted.