Everything You Need To Know About Business Property Taxes

Managing business personal property taxes can be a tedious and intimidating process, especially if you don’t know where to start.  Businesses often overlook critical aspects during the filing process and are unaware that there are valuation methodologies they could be using to lead to a reduction in their tax liability. 

Understanding your assets and your local jurisdiction’s assessment guidelines will ensure you are only paying your fair share of taxes and will prevent your business from encountering problems further down the road.  Don’t let excessive business personal property taxes stand in the way of your business’ success.  The following guide will help you understand what to look out for this upcoming tax season.

Real vs. Personal Property Taxes

When most business owners hear the term “property tax”, they likely think of their real estate property taxes.  Just like homeowners must pay property taxes on their house, most understand that a business must pay property taxes on their commercial real estate.  A lesser understood concept is that businesses must do the same with their business personal property.  According to Smart Asset, a business’ property taxes will be listed under one of two categories: real property or personal property. 

Real property includes stationery assets such as buildings and land.  Personal property is categorized as intangible or tangible. Intangible property is property that does not derive its value from physical attributes.  Examples of intangible property are things like trademarks, patents, copyrights, intellectual property, and software. Movable items, such as equipment, furniture & fixtures, and computers, that are necessary to conduct day-to-day business fall into the category of tangible personal property (TPP). These assets are what a business would report when filing their business personal property tax return. 

Distinguishing between real and personal property isn’t always simple. For example, a heavy piece of manufacturing equipment that is attached to a building could be considered real property or personal property.  Filing hundreds of thousands of personal property tax returns and working thousands of personal property audits has taught us that this can also be confusing to county appraisers. Furthermore, there are times where a personal property appraiser considers an asset to be tangible personal property while their real estate counterpart down the hall included that same asset in the calculation of the same property’s real estate value.  Unfortunately it is not uncommon to find double taxation issues where an asset is assessed as both real estate and personal property. If there wasn’t an expert keeping an eye on both property tax types, the taxpayer could be out tens of thousands of dollars.

What is Business Personal Property Tax?

Items included on your business personal property tax return should be reported properly to ensure the account is being assessed correctly.  It is also important to review any assessment notices to confirm the assessor’s acceptance of the return or look to identify changes that may have been made. 

Business personal property tax is a self-reporting tax, meaning the taxpayer files a return that lists the tangible assets in their possession as of a certain date.  In most cases, the date the assets were acquired, and the cost of the assets are used to place the assets on a set of depreciation tables to account for the loss in the assets value as they get older.  As assets depreciate differently, the set of tables typically includes several tables that account for the loss of value at different rates.  In order to avoid over assessment, and therefore, overpayment of property taxes, it is imperative that the assets be placed on the appropriate table.  For example, furniture & fixtures might depreciate over 10 years while computers will depreciate faster due to advances in technology.  Assets that fall into business personal property include:

  • Furniture & Fixtures
  • Machinery & Equipment
  • Computer Equipment
  • Office Equipment
  • Vehicles
  • Inventory

How To File

Business personal property filing requirements are different in each state. Additionally, in some states, each jurisdiction may have unique guidelines and protocols to follow.  As technology advances, some states are also now offering online options to file your return.  As a business owner, you must stay up to date on guidelines and deadlines. Also, be aware that not all states tax personal property – Crowd Reason identifies twelve states that don’t assess business personal property taxes. Check each assessor’s guidelines to know how and when to file to avoid any penalties.

 Outsourcing the filing of your business personal property tax returns reduces the risk for mistakes and can save you money on your taxes. Hiring a property tax consulting firm like Property Valuation Services can help you better understand your state and local statutes regarding the taxation of personal property. PVS specifically tracks and evaluates the value of business personal property efficiently through their customized tracking and filing system. They have developed asset specific valuation methodologies that allows for the revaluation of equipment, much like they do for real property accounts.

One of the major issues facing the 2021 filing season is the impact of COVID-19, according to Technical Director, Chip Saam. The pandemic may have affected the fair market value of equipment. The impact COVID-19 has had on equipment is not as straightforward for each industry. For example, some would argue that medical equipment has depreciated faster due to increased usage during the pandemic and, therefore, has lost value. In this view, the market value for certain pieces of medical equipment has decreased compared to normal market conditions. On the other hand, businesses like movie theaters and restaurants may be seeing the fair market value of their equipment depreciate at a slower rate due to decreased usage.  This change in the normal fair market value assessment process may cause drastic changes to previous business personal property appraisals depending on your industry.  Businesses should keep the effects of COVID-19 on the market value in mind when looking at the valuation of equipment. 

States with high property tax rates, like Texas and Virginia, thrive on tax revenue to support economic growth. Increasing valuations pose a problem for business owners who have little understanding of valuing their business personal property when comparing values to market data. Texas also often levies forced assessments on those businesses who are not properly filing their renditions.  In addition to the proven reduction/revaluation techniques listed above, PVS has a bot that consistently searches and populates a database with the resale costs of high-technology equipment, so they can prepare returns based on actual market value as another means to save you money.

How Business Personal Property Audits Affect Your Business

A Business Personal Property Tax Audit can result in unexpected tax liabilities, penalties and interest that can bring unexpected consequences to a company’s financial situation. PVS makes tax audits simple by reducing the amount of financial information auditors have control over and can defend audit assessments with concrete data to support lower values and taxes. Services like theirs can save your business from these additional taxes and possible penalties and interest. 

The auditing process can be a time burden on your company. When auditors examine your business’s financial information, they often request items outside of the scope of completing an audit of your personal property tax return and this can take up time from your staff.  Additionally, some audits can cover periods of up to four years resulting in a time-consuming information gathering process.  PVS consultants give auditors what they need, nothing more, and work in your best interest to reduce liabilities and protect your rights as a business owner.

Other Issues That May Impact Your Personal Property Tax Liability

Your business may qualify for tax exemptions that aren’t currently being incorporated into your personal property tax return filing. Led by experienced property tax professionals and a licensed ASA Equipment Appraiser, PVS has been able to save companies millions of dollars by reviewing the methodologies used in preparing prior returns. They were able to save three movie theater corporations over $4M in property taxes through these methodologies, in addition to hundreds of millions of dollars saved by their healthcare clients.

Property Valuation Services Is Here to Help

Property Valuation Services is changing the way businesses file their business personal property tax returns. As a recognized leader in providing property tax solutions, PVS aspires to be the first choice for a broad range of property tax and appraisal needs. They are committed to being a customer-focused organization whose detail-oriented work is embodied with quality, integrity, ethics, respect, and exceptional communication with our clients.

Completing an analysis of the previous year’s filings will mitigate risks involved in your business personal property taxes. PVS can do the work for you by analyzing your previous year’s filing, revaluing assets, accelerating depreciation, tracking assessments, reviewing tax bills for accuracy, and semi-annual reports.

Your property values are top priority at PVS. If you are already a PVS customer, thank you for trusting us with your property tax responsibilities and we hope that you learned a little more about the detailed process PVS goes through in providing personal property tax services.  We’d like you to consider us an extension of your tax department and we look forward to continuing our relationship. If you are not a PVS client but would like more information concerning your specific situation or would like to discuss the opportunity of becoming a client with PVS, please call 888-862-2722. For more information, please visit the website.

Real property includes stationery assets such as buildings and land. Personal property is categorized as intangible or tangible. Intangible property is property that does not derive its value from physical attributes.

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