In most States, returns have been filed for the current tax year listing assets in which the filer of the return has reporting responsibility for the assets in their control. The assets reported are generally based upon the fixed asset schedules of the business. Often, these tax forms are prepared without significant analysis of their proper property tax asset classifications since the fixed asset schedule has been reconciled to financial reports, income tax filings, or other schedules. Your business could benefit from a careful analysis of the assets being recorded in these annual reports.
An important consideration is the value of the assets that are subject to the personal property tax. Many times an asset can be quickly, or even immediately, expensed for income tax purposes. This is not the same for personal property taxes. Usually assets are depreciated slower and over a longer timeframe when calculating the current value for property tax assessments. Additionally, the assets often have a minimum value for a property tax assessment (never zero). Don’t confuse property tax with income tax. Income tax depreciation is based on cost recovery while property tax depreciation is based on fair market value.
Due to minimum assessments, we recommend periodically reviewing your fixed asset ledger and removing old assets that have been previously disposed but continue to be reported on personal property tax renditions. Any previously disposed property that is still reported on these filings will cost you unnecessary personal property taxes each year. Likewise, if you still own property no longer in use that is collecting dust; you should consider disposing of it to reduce your taxable property base.
The classification of assets on the property tax forms is important since different types of assets are subject to different rates of property tax. Additionally, many taxing jurisdictions exempt certain types of personal property from taxation. For example, Virginia exempts computer application software from the local personal property tax. As part of your review, make certain the assets are reported in the correct categories when reporting your taxable property base. In many States, amended returns for corrections based on classification errors can allow for refunds for up to the prior 2 years.
Between the time your returns are filed and the assessment notices are released are the best time to address possible valuation issues with the jurisdiction appraiser’s office. Millage rates are often set after final values are determined for assessment use. Jurisdiction appraiser’s have the most latitude to work with you on value during this time versus waiting and filing appeals. If there has been a major change in filing methodology, we recommend meeting face-to-face with the jurisdiction appraiser’s office in order to explain the change and gain their understanding and approval.
Silver Oak Advisors is a full-service compliance and consulting property tax service provider. Take this time to contact us regarding your future. As a potential service provider, we want to compete for your business and be involved in future RFP’s.
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