For companies of all sizes, handling business personal property taxes can be a beast.
Tracking hundreds or thousands of assets is challenging; on top of that, there are deadlines (often multiple ones!) to manage, returns to prepare, protest decisions to be made, and bills to pay. But too many tax teams are working the cycle inefficiently, spending time where it doesn’t need to be spent, and missing opportunities to do more worthwhile, high-value tasks that could actually lower tax bills.
If you’re interested in learning how you can manage even the most complex tax cycles more seamlessly, take a look below. Along with the steps involved in each stage of the business personal property tax cycle, we’ve provided some “efficiency tips” highlighting areas where advanced tax software, specifically TotalPropertyTax (TPT), can help. By employing software for the mundane tasks, your team can complete all the necessary compliance tasks faster and easier, managing the tax process more masterfully. (Tweet this!)
But first, a quick primer:
What is considered business personal property?
Essentially, any item a company uses to conduct business, and that the business may take with them if they moved locations, such as furniture, machinery, supplies, tools, etc., is considered business personal property. (In contrast, real property refers to items that are permanently attached to a physical location, such as buildings, pavement, land, electrical, plumbing, etc.)
How do you know what is taxable with regard to business personal property? Unfortunately, there are no generalizations to be made from one state to the next—which makes things more complicated. Some states don’t tax business personal property, while others do. (Here’s a list of the states that don’t tax it.) In addition, some specific types of business personal property are exempt from taxation in some jurisdictions. Examples of business personal property that is taxable in some jurisdictions and not in others are inventory, supplies, and leasehold improvements. Finally, there are a few states that tax both tangible assets (those that have a physical form) and intangible assets—those that have no physical form but do have value. Most states do not tax intangibles. (You can read more about taxation regarding tangible and intangible assets here.) A short list of tangible personal property would include things like:
- Office equipment (including computers and printers, cash registers, shredders, etc.)
- Office supplies (calculators, staplers, USB thumb drives, etc.)
- Cell phones
- Cable, pipes
- Security/alarm systems, surveillance cameras
- Satellite dishes
- Coffee machines
- Microwave ovens and refrigerators
- Book cases
- Filing cabinets
A short list of intangible personal property would include:
- Royalty agreements
- Insurance contracts
Business Personal Property Tax: The Life Cycle
Here’s an overview of the compliance stages in the business personal property tax life cycle, along with estimated time percentages companies typically devote to each stage:
Clearly the time requirements center around preparing and filing returns! However, there are ways to reduce the time required for this step—and all the rest.
One of our customers who switched from a legacy system to CrowdReason’s applications has reduced time spent on compliance activities by 70%, giving team members more time to concentrate on lowering tax assessments.
Stage 1: Prepare and file returns.
For companies with thousands of accounts (an “account” being a group of assets identified usually by office location or geographical location, as in region or county), it can be a nightmare to get business personal property tax returns out the door. It’s all based on your asset information, so the better handle you can get on the first step below, the better off you’ll be.
- Manage your asset information. You need to figure out the value of your individual assets in order to come up with an overall value of your personal property for the assessing jurisdiction.
- Procure a listing of assets as of the assessor’s assessment date. For most states, this is based on calendar year—for example, a list of all the assets on your books as of 1/1/2018. There are tons of ways to handle tracking, like Oracle or an ERP system; the one you choose depends on your company’s preferences. In compiling the list of assets, identify and apply asset disposals and additions. A “disposal” refers to partially or completely removing an asset from your books. If you get rid of old computers or furniture, for instance, you must report those removals to an assessor. If you’ve gained additional assets, those must also be tracked and reported.
- Manage asset transfer activity between locations. If you moved something between offices, in the same county or another location, you need to track that activity. Transferred assets should appear as “transfers-in” for the new account and “transfers-out” from the prior account.
- Determine the asset’s correct acquisition year given the assessor’s rules. Just because you acquired a computer in mid-2017 doesn’t necessarily mean that 2017 is the acquisition year. Acquisition dates may be based on either a calendar or fiscal year, depending on the assessing jurisdiction; some states even have additional nuances when it comes to acquisition date. (Check Indiana!) You’ll need to find this business personal property tax information by jurisdiction and calculate it, unless you’re using software, which should ideally take those rules into consideration and calculate the acquisition year automatically. This is a very important step as asset age will ultimately determine the correct depreciation rate of the asset.
- Determine the taxability of an asset class based on assessor rules. Some assets are not taxable and do not need to be reported. You can either research this information yourself, or use software that “knows” those rules and applies them automatically.
- Calculate the value of your assets.
- Procure the assessor’s depreciation tables. Unlike federal depreciation tables, every jurisdiction can have its own flavor. As a result, there are thousands of tables covering various parts of the U.S.! Finding these tables takes a good amount of research, and they must be verified every year.
- Identify the correct table to apply to each asset. A particular county might have 20 different depreciation tables—software goes to one, desks go to another, etc.
- Calculate the depreciation: asset’s cost x depreciation table factor. This step can be quite tedious, since you first have to research and download the right tables, convert them into a format to run formulas (like Excel), and calculate correctly based on the asset’s classification & age. Software can do all this with a minimum of effort.
Efficiency Tip For Asset Valuation
Today there are tools that can help with asset valuation. TPT can allocate assets to specific jurisdictions, and quickly calculate the taxability and reportability of each asset based on jurisdiction rules. You’ll spend less time buried in spreadsheets, and be able to create a returns process that can be fully audited.
- Prepare the return.
- Locate the correct business personal property tax return form. Every state/county can have a different return form; to find it you’ll need to visit the assessor’s website or call the assessor’s office.
- Fill out the form information. It’s all fairly similar across forms, including things like owner name, property, and basic account information. Per the assets, you’ll also need to input things like acquisition year, prior year cost, additions, disposals, etc. If you’re not using software you’ll need to do this by hand, one account at a time. And don’t forget to review the assessor’s rules to determine if the account is exempt from filing. In some states, if your value is less than a certain amount you don’t need to file a return.
- Supply supplemental information if necessary. A lot of forms ask you to attach a detailed listing of assets with their classifications, age, costs, and values. Analysts may do this manually using Excel; or they can use software to quickly produce spreadsheets for asset listings, additions, disposals, transfers, etc.
- File the return.
- Research the various assessors’ return deadlines. (Hopefully you’ve known this since the beginning!) There’s not a single standard filing date for the U.S.; it varies by state and by county. Filing late may have penalties, such as a penalty fee or the loss of your right to protest the assessor’s valuation.
- File via mail or online. For physical mailings you’ll need to research addresses, possibly print labels, and send the filing via mail. Some assessors are becoming more proactive and allowing you to file online.
- Track and manage all accounts to ensure returns have been filed.
Efficiency Tip For Filing
Software can automate the filing process by creating return packages complete with cover letters, return forms, and attachments (even custom attachments such as authorization letters). With one click, our TPT software populates all your asset data on the appropriate state or local form, all of which are automatically updated every year, for every jurisdiction. You can generate and file 500 returns in under 15 minutes with TPT—error-free.
Stage 2: Track and manage assessments.
At this stage, you’re waiting to hear from the assessor and tracking your incoming assessments. It’s important to track the protest deadlines because you need to make sure assessments are received in plenty of time to prepare for a protest if needed.
Every assessment notice has valuable information that will be recorded in your books, including the assessor’s estimates of market, assessed, and taxable values. Compare the values against those on your return or the prior year assessment to help you determine whether or not to protest the valuation. You’ll make that final decision in this stage. If you do plan to protest, you’ll move on to stage 3.
Efficiency Tip For Tracking Assessments
In TPT you can track missing assessment notices and compare notice values to prior year values. Software makes it easy to identify numbers that don’t match at a central level vs. a local level; it also securely stores your property data.
Stage 3: Protest the valuation.
Unfortunately, most companies are so focused on just getting things done on time that they have little time or inclination to protest. This stage does require more research and paperwork, but it’s a valuable exercise in saving your company money. Property tax consultants can be helpful in this stage, as they have the necessary expertise to conduct a successful appeal.
The first step is to notify the assessor’s office that you want to appeal. Once you’ve done that, conduct research based on valuation studies and an analysis of valuations for comparable properties in your county to support your case. When you’re ready to file the appeal you’ll need to look up the rules; it’s different in every state and county. Finally, you’ll want to track any appeal responses you receive throughout this process (you don’t want to miss an important appeal hearing!).
Efficiency Tip For Appeals
Congratulations—if you’re following all the software tips listed in this article, your team has more time to spend in this stage, strategizing ways to lower your company’s business personal property taxes. But software can also be useful here: Instead of manually creating and tracking appeal information, let TPT do the job. It also provides immediate access to rich data, and lets you easily perform “what if” analysis using different depreciation scales and lifespans for assets, so you can readily deconstruct an assessor’s valuation methods.
Stage 4: Track and pay tax bills.
At the end of the business personal property tax cycle a value is finalized and it’s time to pay. The county applies its various tax rates (i.e. school, hospital, or other taxing districts) to your account’s taxable value to come up with a total tax amount due. Payments can be made in installments or in full, depending on the county’s payment options and your company’s cash flow requirements.
Track the tax bill due dates and receipt of payments to ensure that nothing gets lost in the mail. Managing your tax bills should include a check of the tax amounts to ensure they are correct, even comparing them against the prior year’s payment. Record all payments made so you can manage additional supplemental bills and/or refunds. In some states, like California, for example, you might pay a tax bill on a particular account and get another bill three years later on that same account for that same year. If you’re not tracking payments to the letter, the potential for overpaying (or missing out on a refund) is much higher. Tracking payment information is also essential for accruals purposes.
Efficiency Tip For Tracking & Paying Bills
Instead of printing returns and documents, generating checks, and stuffing envelopes, use a print-to-mail automation system. TPT links directly to your accounts payable solution, which automatically takes care of check requests and bill paying. And once your bills are paid, they can then be linked to the relevant supporting documents stored in the system for future reference. Using software for bill-paying reduces mistakes (and thus avoids penalties), and minimizes the time your team spends tracking and managing.
5 Tips For Managing Business Personal Property Taxes
Now that you understand the life cycle of business personal property tax, keep reading to get a few general tips that could help your tax team become even more successful.
1. Know your depreciation options when it comes to filing returns.
Tracking and classifying assets are time-consuming tasks, but depreciation poses an even greater challenge. Some teams are not aware of their depreciation options, and as a result, they miss the opportunity to reduce their asset values.
For example, your team may choose a five-year schedule by default when they could assign a three-year depreciation schedule instead—the latter of which would achieve a reduced valuation faster and produce a lower tax bill. Further, assessors sometimes provide guidelines as to which depreciation schedule to use for which class of assets, which can save you time.
2. Ensure you comply with filing requirements.
States—and sometimes local jurisdictions—have their own sets of requirements for filing returns. It’s critical that you know the requirements that apply to each location:
- Return forms. Select the proper return forms—which differ depending on the assessor—so you don’t wind up having to refile with the correct paperwork.
- Due dates. Keep up with due dates so you file on time and avoid penalties.
- Assessor addresses. Know the correct addresses so you mail returns to the right place.
3. Renew your historial asset classifications.
Remember last year when you and your team were neck-deep in applying depreciation schedules to thousands of assets? It’s probably hard to forget because it was a headache. There’s no need to repeat the process this year for those same assets; instead of reviewing and reapplying schedules, simply carry forward the previously applied depreciation to save time. Keep in mind you will have to go through the process with new assets.
4. Be proactive with tax appeals.
Appeals offer the opportunity to challenge valuation amounts, but few teams are in a position to be able to take advantage of those opportunities consistently. Meeting appeal deadlines alone is difficult when you have hundreds of valuation notices coming in. Building a calendar or using tax calendar software are both helpful for keeping up with appeal due dates.
Beyond due dates, you also need to be aware of whether you need to complete an official notification form—such as in California and Texas—or submit an appeal letter. The letter should state your intention to appeal, among other aspects. You can use this sample letter to save time and ensure you include the necessary information to start the appeals process.
Lastly, be prepared with evidence to support your appeal. It can sometimes be more challenging to find supporting documents for business personal property; however, it pays to be resourceful. For example, assume you work for a manufacturer that owns expensive equipment. A third party may have conducted a study that determined the equipment depreciates faster than a standard depreciation schedule may indicate. You can include this study as supporting documentation for the appeal.
5. Verify bill amounts.
Most tax teams pay tax bills on autopilot. But those that do are missing opportunities to save money. People create tax bills, which makes the bills fallible—so don’t take them at face value.
It’s essential to verify whether bills match the final valuation, especially if it was the result of an appeal. In some cases, the bill may reflect the original valuation amount instead of the adjusted amount from a successful appeal. Of course, there could also be simple human error involved, such as the tax collector mixing up accounts.
Do you have questions about business personal property tax management?
Created by property tax professionals, our software makes it easier to perform and manage every aspect of the tax cycle, from beginning to end. We’re always happy to talk with you about ways to make the business property tax cycle easier. So if you’re struggling—or just getting started in the business personal property tax field—get in touch! Or, if you’d like to know how our property tax software solution can help, visit our website.