Clients often ask if there are ways to reduce their tangible personal property tax on their business assets. While not all property qualifies for a deduction, a company can consider and apply some steps to lower property taxes or file for property tax appeals. Some of these steps are simple, but time consuming. Others may require the assistance of an experienced third party. Machinery and equipment appraisers experienced in property taxation may provide the expertise you are looking for. Below are some common tax reduction methods employed by property owners and tax advocates.
1.Reconcile your asset list
Each year, companies report taxable asset lists to their taxing authorities. Larger companies will either have an in-house tax department or outsource this reporting to other professionals. More often than not, these asset lists are not updated annually when assets are disposed or go missing. Reconciling the asset list to the results of a physical inspection of the assets allows the tax preparer to report only the property in possession as of the tax effective date. The missing, disposed, or otherwise “ghost” assets can be reported as Disposals, relieving the company of the tax liability on those assets. Often, property tax appeals are not required to get this reduction.
In states that tax inventory, one simple first step is to report any quantity variances, as discovered through a representative sample count by a third party. Inventory is a highly volatile asset type that changes continually. Changes in the inventory’s mix can result in wide difference of the inventory’s total value. Additional depreciation factors may apply, as determined by an experienced inventory appraiser.
2.Consider all forms of depreciation
Did your equipment suffer from excessive physical depreciation due to exposure to the elements, heat processes, or other above average usage levels? Property tax assessments assume that the assets are in average condition for their age. If your property has depreciated rapidly, report it to the taxing authorities with your tax return for a valuation reduction.
In some cases, a functional obsolescence adjustment can be made to the asset’s value. When newer technology can produce more units and produce them faster, the older property has suffered from technological obsolescence.
Are you still paying taxes on unused equipment? Idled equipment may be eligible for an economic obsolescence adjustment. When equipment will be idled for a period of time due to bottlenecks, decline in demand, or other external factors, an obsolescence reduction can result in tax savings year after year. If the equipment is not expected to return to production, why not sell or scrap it? Sometimes it’s more economical to get it off the tax books.
3.Apply for pollution control discounts
Assets required to be in compliance with regulatory agencies may have special taxation allowances. For example, in Florida, pollution control equipment is taxed at the lower rate of 10%. Check with your local taxing authority to see whether your assets qualify as pollution control for the reduced property tax rate.
4.Tangible Personal Property tax appeals
Are you certain that your assessed value exceeds market value? Not getting anywhere with your local tax agent? States often provide a system for property tax appeals. In Florida, property owners may meet with their county property appraiser, bring the matter before a Special Magistrate in a Value Adjustment Board hearing, or sue the county property appraiser in circuit court. Any of these options is available without having a prerequisite of first applying the other two methods.
While not intended to cover every state’s individual regulations, our white paper series addresses many of the same issues that taxpayers face when preparing for and attending tax mediation meetings. Written from a Special Magistrate’s perspective, you will learn why proper preparation and presentation are critical in communicating your evidence and conclusions in a hearing.
5.Hire an experienced, expert appraiser
An inspection by a third-party, such as a Machinery and Equipment Appraiser or Inventory Appraiser can be a valuable tool in defending a reduction of property values in property tax appeals cases. Not sure if your CPA has been recording disposals on your tax return? You may realize significant savings on your Tangible Personal Property taxes by having an appraisal expert perform a reconciliation of your assets to your tax return. Our inspection will include an assessment of physical condition and note where condition should be reported for lowering the taxable value. Concurrent to the inspection, we can also provide asset tagging to help track additions and disposals for future tax years.
In addition to asset reconciliation and asset tagging services, our accredited equipment appraisers provide Machinery and Equipment Appraisals and Inventory Valuations for determining taxable value. Our ASA-accredited appraiser is experienced in defending her valuations in Value Adjustment Board hearings and circuit count as an expert witness. Tammy Blackburn, ASA, has served as a Tangible Personal Property Special Magistrate for ten counties within Florida for seven years. This experience has been helpful in determining which assets are taxable and should be recorded on a tax return. Contact us today to see how we can help reduce your tangible personal property taxes.
About the Author
Tammy Blackburn, ASA is an Accredited Senior Appraiser with over 15 years of experience performing Machinery & Equipment appraisals and Inventory valuations. As an expert witness, Ms. Blackburn has defended her appraisals in Federal bankruptcy court and in Value Adjustment Board hearings. Having served 7 years as a Special Magistrate in 10 counties for ad valorem Tangible Personal Property, Ms. Blackburn is uniquely qualified to perform appraisals to be used for establishing taxable value.