If you’ve worked with property taxes for any length of time, you know audits are an unfortunate reality. Just when you were sure you had everything just right—all your assets tied to the right locations, placed in the right asset classifications, and depreciated appropriately—an auditor points out various errors and wrong decisions, and calls out your unorganized recordkeeping.
Every experienced property tax professional will face this type of situation at some point. Admittedly, it’s not a great feeling, but there are ways you can prepare and lessen the blow. A business personal property tax audit can happen anytime and may cover one or multiple years’ worth of returns, though some states and jurisdictions have scheduled audits. California, for example, performs audits every four years, so these audits will cover the last four years of returns.
Before being audited, you should receive a letter alerting you to the impending action. The letter will provide pertinent details, including:
- When the audit will occur
- Which accounts will be audited
- What tax years will be covered
If you don’t want to get caught off guard come audit time, keep reading. We walk through what you can expect from a business personal property tax audit and how to prepare for one.
Is preparing for your audits overly time-consuming? Are auditors finding too many mistakes? See what other signs may indicate you need to acquire or switch property tax software in this free white paper.
Business Personal Property Tax Audits: What To Expect
Audit letters usually request a fair amount of information. Generally, you can expect to provide:
- Copies of the returns they’re auditing
- Chart of accounts
- Detailed asset listings related to those accounts
- General ledger & trial balances
- Leased equipment status (what you leased and from where)
- Other details depending on the rigor of the audit
You’ll gather and send the requested documentation to the auditor. Ideally, the auditor will say everything is accurate or acceptable, but they may come back with questions or corrections. For example, they may ask about installation charges you had on your asset listing but didn’t file in your return. Jurisdictional rules indicate those charges are taxable and should be filed, so you should expect a supplemental tax bill to cover those charges for each year included in the audit.
Consider a misreporting example. You may have filed all assets but depreciated some assets incorrectly. For instance, you may have used a depreciation schedule that had a shorter life than the jurisdiction requires for a certain asset. The auditor would assign the appropriate depreciation schedule, and you would be billed accordingly.
Once your business personal property tax audit begins, be sure to keep track of the auditor’s changes and the resulting impact on your tax liabilities. This way you know what to expect regarding supplemental bills, and you can avoid penalties.
Keep in mind you can appeal an audit by providing appropriate reasoning and supporting documentation. For example, an auditor may not understand how certain equipment works. An explanation on your part may alter their initial determination and help mitigate additional tax liabilities.
Lastly, don’t forget to keep auditor changes in place going forward. So if they corrected a depreciation schedule, use that same schedule in future return filings.
How To Prepare For A Property Tax Audit
Here are a few actions you can take to ensure you’re ready come audit time:
- Find out who’s performing the audit. Depending on the jurisdiction, an audit may be performed by the assessor’s office or a third party. In addition, in states with frequent audits, one auditor may cover multiple counties. These details impact how you deal with the auditor and what liabilities may be on the line.
- Check your records and identify discrepancies. Look at your records and see if you, say, have $1 million on your asset listings but reported only $500k. For any discrepancies you find, be prepared to say why you did something a certain way so you have the answer ready for the auditor.
- Know jurisdictional rules. Brush up on the rules and guidelines for the jurisdiction auditing your account. Doing so may help you anticipate some specifics of their investigation, and possible corrections they may make.
Remove The Headache Of Business Personal Property Tax Audits With Property Tax Software
CrowdReason’s property tax software was built to simplify all aspects of the property tax cycle—including audits. Our TotalPropertyTax (TPT) solution offers a single repository for all your returns and associated asset listings, making it simple to pull documentation when requested.
With TPT, you can:
- Quickly download asset listings and actions taken on assets for each tax year—reported vs. not reported, classifications, depreciation schedules, etc.
- Easily change asset reporting status, move assets between accounts, transfer and dispose of assets, lock assets against changes, and add notes for yourself or other team members.
- Set reminders for important dates and bills so you’ll never miss a due date or a supplemental bill as the result of an audit.
And that’s just the tip of the iceberg. TPT has so much more to offer to ensure you’re not only prepared for your next business personal property tax audit, but also ready to conquer the entire property tax cycle. See for yourself how our advanced tax automation software works—schedule a demo of TPT today.