Property tax is a complex world where exceptions are the rule. These rules can vary by jurisdiction, and no two places refer to the same thing in the same way! There are in-depth publications and countless county websites that define their own unique property tax terminology, however, we decided to condense all that information into some core concepts that, once you know them, will help you navigate more proficiently through these complexities.
The definitions that follow are sorted according to the area of the property tax cycle they primarily apply to; some general definitions are also included in the first section. In case you need a refresher, the stages of the business personal property tax cycle are:
- Preparing & Filing Returns—the most time-consuming of them all, this stage is focused on determining the value of your assets and submitting that information to the assessor’s office.
- Tracking & Managing Assessments—this stage involves tracking incoming assessments and recording pertinent information in your own records.
- Protesting Values—not all businesses choose to protest a valuation, but if you do, there’s paperwork and research involved to help support your claim.
- Track & Pay Tax Bills—once your values are finalized, this stage is all about paying the bills on time and making sure payments are received.
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30 Business Personal Property Tax Definitions
The following definitions are core business personal property tax concepts:
Ad Valorem: A tax amount based on the value of a property, i.e., property tax.
Assessor: The assessing jurisdiction responsible for placing a value on property. Personal property returns are filed to the assessor. The assessor typically sends assessment notices reflecting the valuation of the assessor account (see assessor account).
Assessor Account: The assessor’s unique identification pertaining to either a grouping of assets for personal property or parcel for real estate in their boundary. This serves as the point of reference when filing a personal property return or receiving a notice from the assessor. The account number can be referred to differently across states; common terminology may include account number, property number, key number, tax ID, assessment number, schedule number, owner number, map number, and folio number (to name a few!).
Centrally Assessed Property: In certain states and industries, companies can be taxed uniformly across the state if property crosses county lines (railroads, utility lines, etc.). An operating entity will typically file a return to the state with costs, values, and financial reports. The state will then uniformly allocate the taxable value across all counties to produce property tax.
Collector: The collecting jurisdiction that acts on behalf of all taxing districts (schools, hospitals, etc.) allotted a portion of the owed taxes. The collecting jurisdiction is responsible for the billing, collecting, and distribution of the property tax.
Collector Account: The collector’s unique identification pertaining to one or many assessor accounts. This serves as the point of reference when receiving tax bills from the collector.
Personal Property: Personal property is all property that is not permanently attached to a physical location. Examples include furniture, fixtures, inventory, and supplies. Most assessing jurisdictions require businesses to file personal property returns reflecting the owner’s asset information, specifically pertaining to cost, classification, age, and value.
Property: Most assessing jurisdictions segment property by real versus personal property. Each property type follows different processes and can have varying rules pertaining to deadlines, valuation methodologies, tax rates, etc.
Property Tax: Although every jurisdiction in the U.S. has its own rules and regulations, the primary concept is that the property you own is valued and taxed based on the tax rates in a particular jurisdiction. Many states and counties get the necessary funds to support their communities from the property taxes paid by local organizations such as hospitals, schools, and police and fire services.
Real Property: Real property is the rights to land and improvements to the land; land is commonly referred to in parcels.
Taxing Jurisdiction: The actual taxing authorities that impose tax rates on the properties within their boundaries, such as school districts, hospitals, utilities, counties, etc.
The following are definitions related to tax returns:
Business Personal Property Return: Documentation on the assessor accounts’ assets such as cost, classification, age, and value derived from the depreciation process. Also known as a rendition.
Depreciation Tables: A depreciation schedule consists of a series of factors to apply to each asset based on acquisition date & asset classification. Every jurisdiction can have its own collection of tables and factors. There are three types of schedules:
- Non-composite/Percent Good—actual straight-line depreciation.
- Trend—used to calculate an asset’s replacement cost based on inflation or deflation. These factors are typically derived from the U.S. Department of Labor, Bureau of Labor Statistics.
- Composite—a “blended” factor that is the product of non-composite factors and trend factors.
An asset’s value therefore can be calculated as either:
- Cost x (Non-Composite Factor x Trend Factor)
- Cost x Composite Factor
Fixed Asset: A fixed asset, technically movable, is a personal property asset such as furniture, fixtures, inventory, supplies, etc. Typical attributes of the asset are asset number, asset classification, acquisition date, original cost.
Return Deadline: Every assessor has different deadlines for when a tax return must be filed. If the return is not filed or filed late, the owner may be penalized in the form of a fee or loss of protest rights. Some assessors do allow return extensions; however, some extensions come with a fee and also must be granted by the assessor.
The following are definitions related to assessments:
Abatements/Exemptions: Some taxing jurisdictions may provide exemptions on properties based on business incentives, specific land uses, etc., that will reduce the ultimate taxable value of the property.
Appeal Deadline: The date at which a protest must be filed to the assessing jurisdiction if the owner has cause to do so, such as a disagreement over assessed values.
Assessed Value: Calculated by property’s market value x assessor’s assessment ratio.
Assessment Notice: Represents the physical documentation reflecting the assessing jurisdictions valuation of the account. Some assessing jurisdictions may send one notice, others may send multiple in the event of value adjustments common from protests. Or, they may send none at all, in which the final tax bill serves as the assessment.
Assessment Ratio: A ratio set forth by the assessor or state given valuation studies to ensure the potential property tax burden is equal within the jurisdiction. Many states use a 100 percent assessment ratio, thereby using the market value. There are also a good number of states that apply a fraction against the market value. These ratios can also vary by property type.
Market Value: Also known as fair market value, appraised value, etc. Depending on the property type, an assessor may use one of the following valuation methods:
- Market approach—estimates value by comparison with similar properties for which sales prices are known.
- Cost approach—original cost of an asset less depreciation.
- Income approach—uses capitalization to convert anticipated benefits of the ownership of property into an estimate of present value.
Taxable Value: The actual property value that will be taxed. This typically is the assessed value less any abatements/exemptions from the jurisdictions.
Valuation Methodologies: The three generally accepted property valuation approaches are the market approach, cost approach, and income approach (see market value). Real property typically uses the market approach, while personal property could potentially use any of the three.
The following are definitions related to protests:
Appeal Hearing: A scheduled date to discuss the protest. This can be formal or informal.
Protest: Also known as an “appeal,” it is the process of arguing a property’s value with the assessor. Protests can be informal or formal, in the form of a board hearing or litigation. Support for disputing a value of a property can be derived from the various valuation methods such as market, cost, or income (see market value). Some assessors allow protests to be filed for multiple accounts, others for one account per filing. Also, some states allow owners to protest for free while others require a fee.
Settlement: The act of accepting the assessor’s final valuation as a result of the protest process.
Withdrawal: The act of accepting the assessor’s valuation and stopping the protest process.
The following are definitions related to bills & payments:
Installment: An actual payment with due date, amount, and the payee. Each bill lists the various payment options and rules to apply, for example, regarding paying in full or in installments.
Tax Bill: Represents the physical documentation reflecting the taxes due. Some collecting jurisdictions may send one bill a year; others, like Michigan, may send a winter and summer bill, or, like Massachusetts, send quarterly bills. Many collecting jurisdictions may offer discounts for paying early (as in Florida), and most, if not all, will impose fees for late payments. After original bills are sent, collecting jurisdictions may send a supplemental bill, usually a result of a taxable value correction from an ongoing protest or other activities.
Tax Rate: Tax rates are set at the taxing jurisdiction level and can change annually. The term “millage” is commonly used to describe the rate in terms of tax per thousand dollars of assessed value.