The telecom industry has some unique aspects of assessment that don’t apply to other industries. In this post we’ll cover the issues associated with telecommunications tax assessments so you can ensure accurate valuation.
Telecommunication Taxes: Asset Valuation & Allocation
Due to the nature of their services, telecommunications companies tend not to have their primary assets—such as fiber optic cables, for example—isolated within county borders but rather spread across county lines. That creates a challenge when it comes to business personal property tax filings, because taxes are typically assessed at a local level, on property located within specific jurisdictions.
So there’s a need to determine how to properly assess those assets, whose value is only derived when considered as part of the entire telecommunications entity. To address this issue, oftentimes telecommunication assets are centrally assessed. Rather than county assessors determining asset value, state officials (usually those associated with a department of taxation of a department of finance) are tasked with the job; they then allocate asset values to the appropriate jurisdictions, where the correct tax rates are applied. Some states, however, have made a legislative decision to perform telecom assessments at a local level. (Note that sometimes those rules change—in recent years Oregon went from local to central assessments for cable companies, and Utah is currently considering localizing for telecommunications properties specifically.)
It’s important for you to determine if your telecom’s assets are being properly assessed, whether it’s done centrally or locally. Focus on two areas:
- Is the method of allocation statutory? If not, is there a better way of representing value to jurisdictions than traditional methods? Central assessments use one of two types of valuation methodologies: the cost-based approach, where the historical cost is translated into a fair market value using trend tables, depreciation values, and obsolescence factors; and the income approach, which determines value based on future cash flow.
Many states use the cost-based approach and attempt to apportion the fair market value of an entity to various taxable assets. However, allocation methodologies are not perfect—and not always mandated. It may be that your assessor uses a simple mathematical formula to allocate value, for example, based on the portion of fiber optic cabling located in a particular jurisdiction as compared to the whole network. If you believe there’s a better way of representing value than this traditional method and the method is not mandated, then build your case and make an appeal.
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- Are you being assessed only on the taxable assets? Some jurisdictions don’t tax intangible assets, but the income approach has intangible assets embedded in it. (The deregulation that occurred within the industry years ago relinquished telecoms from being a rate-based entity—where income could be attributed directly to tangible assets; now, their value doesn’t necessarily relate to the tangible assets and depends in part on things such as licences, custom software, customer relationships, branding, and reputation.) Deriving property value without the intangibles can be challenging—but it can also present an opportunity. Work with the assessor to make sure you’re being properly assessed only on tangible assets, if intangibles in your state are exempt.
Better Managing The Telecommunications Tax Cycle
There’s more to the business personal property tax cycle than assessments. For some telecommunications companies, the business personal property tax cycle generates tens of thousands of documents—all of which need to be tracked and managed, and the various associated due dates met.
- Even before your assessment happens, you need to prepare and file your returns accurately and on time. You’ll file on a state level if you’re being centrally assessed, and on a local level if you’re being locally assessed. For filing, you first categorize your assets and depreciate them based on their useful life, then determine the total value of your assets located within a particular jurisdiction. Business personal property tax software can simplify the classification process and speed up filing time by preparing thousands of returns in minutes. (There are also software tools available to automate data entry for this stage.)
- Next, track the assessments and review them for accuracy when they come in. Are the values correct? Are they accurate? Again, 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 and tracks appeal deadlines if necessary.
- Paying tax bills on time and in the right amount for multiple jurisdictions can be challenging; a tax payment automation solution ensures nothing falls through the cracks.
If you’d like to learn more about how our next-generation business personal property tax software, TotalPropertyTax (TPT), can help you better handle the complexities of telecommunications asset allocation, visit our website or contact us.