Are you well-versed on how to report your company’s assets accurately, and forecast a reliable estimate for next year’s tax liability as well? Take a look below at some tips on how property tax professionals in the Lone Star State can best manage their assets for commercial property tax in Texas; and how to prepare for the 2021 budget season.
Texas Business Property Tax
For the most part, Texas has uniform rules with regard to key deadlines and reporting procedures. But there may be some variances across Texas Central Appraisal Districts (the term this state uses to refer to local assessors), so we recommend double-checking the policies that pertain to your specific district.
In general, however, these are the key dates that Texas business personal property holders need to know:
1/1 Lien date for all property
Businesses must report all assets on the books as of this date, in the current year.
4/1 Return deadline
Rendition (tax return) due date, by mail or electronically. (This date is new as of 2018; it used to be 4/15.)
5/1 Return extended deadline
Returns that have been granted an extension are due by this date. (This date is new as of 2018; it used to be 5/15.)
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All Texas Central Appraisal Districts are required to accept the Texas Comptroller of Public Accounts rendition form 50-144. However, they may require their own forms for assets such as leased equipment, aircraft, pipestock, etc. (Be sure to check with the specific district.) If returns are not filed by 4/1, or are filed late, the assessor will use an average assessed value based on comparable businesses, and may also add a 10% penalty on top of that assessment. (Note that the postmarked date is accepted.) Some larger counties allow filing electronically now in lieu of a form.
5 Things To Know About Texas Business Personal Property Tax
- Texas has one of the highest property tax rates in the country, with most properties seeing substantial tax increases year over year. The 2020 census revealed that the Texas population had grown by 16% (or 4 million people) in the preceding decade. Therefore, county governments are currently in need of tax revenue to support this rapid population growth and a growing economy. Upward-trending valuations are an issue for property owners, who aren’t experiencing bottom-line increases at the same rate as property tax increases.
- Intangible asset valuation is important for calculating accurate assessments for both real estate and personal property. Texas business property tax assessors frequently use the income approach to value property. Assessors sometimes claim that income generated from a property or business is the value of the tangible assets, ignoring the existence of intangible assets that generate part of the income. For example, personal property valuations of power or gas companies may simply look at the income stream to determine the fair market value of those businesses, despite the fact that a portion of that income is derived from intangible assets. Until you’re able to measure and remove the intangible portion of that value, your assessments may not be fair.
- If your opinion of the total market value of your business assets is under $20,000, you are not required to report detailed asset information such as asset classifications, costs, and acquisition years; it’s acceptable to provide a lump sum value. Even though a detailed report is optional in this case, we recommend furnishing as many details as possible in your return to increase the likelihood that the appraiser will accept your value.
- Although all counties in Texas allow the use of form 50-144 to report costs & values, keep in mind that all appraisal districts have their own valuation factors (depreciation tables). So it’s important to gather this information from any of the relevant 250+ Central Appraisal Districts to accurately report an opinion of value for your assets.
- Some Texas businesses filing commercial property tax may be eligible for special tax exemptions. A few are listed below. If any of these Texas business personal property tax exemptions apply to your business, they could lead to sizable reductions on your company’s value and reduced taxes. (Tweet this!) If you believe some of your business assets may qualify, you must file a separate form sometime between January 1 and April 30 of the current year. Keep in mind that, even if you’re applying for these exemptions, you still need to account for those assets on your actual return. If an exemption is granted, the assessor will reduce the total value by the amount of the exemption.
- Freeport Exemption—Inventory that resides in the state for a short period of time (175 days or less) and will be transported outside of Texas may be tax-exempt. (The Freeport Exemption does not apply to oil and gas.) Refer to Texas Tax Code Section 11.251 for more details.
- Exemption for Offshore Drilling Equipment Not In Use—This exemption may be requested for offshore marine or mobile drilling units, or offshore spill response containment systems. Reference Texas Tax Code Section 11.271(b) and Section 11.271(c) to determine if your property could quality for exemption.
- Pollution Control Property Tax Exemption—If your property has received a positive use determination from the Texas Commission on Environmental Quality (TCEQ), you may qualify for a Pollution Control exemption. The TCEQ issued determination is required to be submitted with your Application For Pollution Control Property Tax Exemption. (Texas Tax Code Section 11.31)
- Solar or Wind-Powered Energy Devices—Your company may qualify for an exemption from the installation and construction of solar and wind-powered energy devices if the primary use of the solar or wind-powered energy devices is for the production and distribution of energy for on-site use. (For more information, refer to Tax Code Section 11.27.)
Forecasting Your Texas Business Property Tax
Now that you’ve filed your Texas returns for this year, you need to forecast next year’s tax liability. To build an estimate, you’ll need three pieces of information:
- The value of your current assets, including the costs, classifications, and acquisition dates. To use this information for next year’s forecast, age them an additional year, and re-depreciate them to create an estimated value for next year.
- Estimated additions, or assets the company plans on acquiring through the remainder of this year. To determine this amount, determine what portion of your company’s capital expenditure (CapEx) is allocated to purchasing new assets during the year. Then depreciate those costs against age 1 depreciation factors (because those assets will be a year older next year) to come up with a rough estimate for your additions.
- Estimated disposals, or assets the company plans on getting rid of over the remainder of the year. Just like additions, you may not have the exact disposal information for your assets on hand mid-year, so devise an estimate based on historical percentages of disposed assets. You can apply it against the current year asset estimated value to reduce your total projected value.
Current assets + Estimated additions - Estimated disposals = Forecasted Texas business property tax
6 FAQs About Texas Business Personal Property Tax
1. What is business personal property?
Often called simply personal property, business personal property refers to business-owned, tangible assets (not real property) that are subject to taxation in 38 states, of which Texas is one. Texas taxes personal property if the property is:
- Located in the state for an extended period of time (not temporarily).
- Located outside the state temporarily and the owner resides in the state.
- Used continually in the state, whether regularly or irregularly.
Note that Texas considers property as being used continually if the property is used in the state three or more times on regular routes, or for three or more completed assignments occurring in close succession throughout the year.
In some states, a single state entity is involved in the administering of personal property tax. However, as noted above, Texas has more than 250 Central Appraisal Districts (i.e., local assessors), each with their own guidelines, valuation factors, and the like that govern personal property taxes.
2. How has COVID changed the process of filing business personal property returns in Texas?
The global pandemic has had a significant impact on the state. Due to Texas’ approach of assessing personal property at the local level, you should check with your jurisdiction’s assessor to learn about specific changes related to COVID, such as whether there are any extended filing deadlines.
3. What is a rendition for personal property? Who must file it?
A rendition is a form that includes information about property that you own. After you fill out and submit a rendition, appraisal districts use these forms to appraise your property for taxation.
Renditions must be filed by:
- Owners of tangible personal property that is used for business purposes.
- Owners of tangible personal property on which an exemption has been cancelled or denied.
Every business owner is required by law to report to their local appraisal districts all personal property owned or used as part of the business. Any business owner who fails to report, falsifies information on their rendition, or otherwise attempts to evade taxes will face substantial penalties. Owners can avoid these penalties by completing and submitting their rendition accurately and on time.
4. What types of property must be rendered?
There are two types of property you must address for tax purposes: personal property and real property. Defined above, personal property is also not permanently attached to the land or a building—think furniture, computers, cubicle components, equipment, machinery, and the like. Real property includes buildings and other items that are permanently attached to the land, along with the land itself.
Any personal property you use in a business or to produce income is required by state law to be rendered in the manner above. One exception to this law is intangible personal property—property that can be owned but does not have physical form—which is not required to be rendered. Computer software, goodwill, and other similar items are all examples of intangible personal property. You are also not required to render exempt personal property.
5. What happens if I file a rendition late or not at all?
Failure to file a rendition necessitates that an appraiser estimate the value of your property using comparable business types. Their appraised value may differ significantly than your own. In addition, you will face a penalty of 10% of the amount of taxes ultimately imposed on the property. Further, if a court finds you engaged in fraud or other tax-evading intentions, you will face a 50% penalty.
6. What options do I have if I cannot file the rendition on time?
Under state law, you are able to request a filing extension for renditions. However, you must submit the request to the appraisal district in writing before the rendition filing deadline of April 1. If approved, you will extend your filing deadline to May 1.
Need help managing your assets and forecasting your tax liability?
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Interested in learning more? Get in touch with us today to learn how TPT software can help your property tax team work smarter.