Managing business personal property taxes can be a daunting task for companies of all sizes. It often requires tracking hundreds or thousands of assets, managing multiple deadlines and preparing tax returns. After all of that, a business must decide whether to pay a tax assessment or protest it.

Companies generally look at personal property tax compliance as routine and try to keep up with the volume of filings and payments. They may not realize that they could be incorrectly reporting and potentially overpaying their property taxes by overlooking favorable asset classifications, exemptions and other items. Implementing a business personal property tax compliance process can help companies avoid costly errors and identify tax savings opportunities.

The following article provides an overview of the business personal property tax compliance process and offers some insights for managing this complex area of taxation.

Types of Business Personal Property

Generally, any item a company uses to conduct business, and that is not real property (generally speaking, items that are permanently attached to physical property, such as buildings, pavement, land, electrical, plumbing, etc.), is consideredbusiness personal property. Business personal property is subject to tax in most states at either the state, county or city level.

Depending on the state, certain typesof business personal property may be exempt from tax, such as inventory, manufacturing equipment, software, and leasehold improvements.

Items that may be considered taxable as business personal property include:

• Furniture and fixtures
• Office equipment
• Supplies
• Machinery
• Tools
• Inventory
• Computer equipment
• Vehicles

Business Personal Property Tax Compliance Process

With so many taxing jurisdictions, varying tax forms, lien dates and due dates, the compliance process can be overwhelming. However, the best practices listed below can help a company gain control of the process and potentially reduce their taxes:

• Maintain a Tax Calendar
  • ​The tax calendar is critical in tracking lien dates, return/rendition due dates, assessment dates, tax payment due dates and appeal deadlines.

• Manage Asset Information
  • Compile a list of assets as of the assessor's lien date.For most states, this is based on the assets on a taxpayer's books as of a specified lien date (e.g., January 1). In compiling the list of assets, identify asset disposals, transfers and additions.
  • For locations where inventory is located, consider freeport exemptions. If inventory is located in a jurisdiction that imposes a personal property tax, there may also be a possible freeport exemption, which is an exemption for inventory that is shipped out of the jurisdiction within an allowable time frame.
  • Determine the asset's correct acquisition year given the assessor's rules.Just because a computer was acquired in mid-2021 does not mean that 2021 is the acquisition year for property tax reporting. Acquisition dates may be based on either a calendar or fiscal year or some other method depending on the assessing jurisdiction. Using the correct asset acquisition date will determine the depreciation rate that is applied to the asset.

• Prepare the Rendition
  • Locate the correct business personal property tax return form.Every state/county/city can potentially have a different form. Forms may be available on the assessor's website, through the assessor's office or by compliance software.
  • Complete each form.Forms vary by jurisdiction, but typically taxpayers will need to provide an asset description, acquisition year, original cost, additions, disposals, etc. Taxpayers will need to be familiar with or review the assessor's rules to determine if they are exempt from filing. Some states have filing thresholds, while others require returns to be filed regardless of the value reported.
    - Calculate the value of the company's assets.
    1. Many jurisdictions will ask for original cost of assets, and then
    calculate the depreciated value based on tables after the rendition
    is submitted. It is important for the taxpayer to also calculate the
    value in order to compare results with what the jurisdiction will
    return as an assessment.
    2. Every jurisdiction can have its own depreciation method.
    Depreciation tables may also change each year, so maintenance is
    important.
  • Supply supplemental information if necessary.Forms may ask a taxpayer to attach a detailed listing of assets.
• File the Rendition
  • Filing deadlines vary and late filings may result in losing the right to protest the assessed valuation.
  • File via mail or online.Many jurisdictions require online filing.
  • Track and manage all accounts to ensure returns have been filed timely.
  • Retain copies of returns and proof of mailings/online filings.
• Track and Manage Assessments – After returns/renditions have been filed, it may take weeks or months before assessment notices are received. Once notices are received, the assessed value should be verified.
• Protest Inaccurate Valuations – If a review of an assessment notice determines that the assessed value is too high, the taxpayer may want to appeal the assessment. To appeal the assessed value, the taxpayer will need to notify the assessor's office.The taxpayer will need to be familiar with appeal procedures, forms and deadlines, whichdiffer in every state, county and city. Filing via certified mail provides evidence that the appeal was filed timely. The taxpayer will need totrack any appeal responsesreceived throughout this process to avoid missing an important appeal hearing.

• Manage and Pay Tax Bills – This is the final step in the business personal property tax cycle. The taxing jurisdiction applies its various tax rates to the assets' taxable value to calculate the total tax amount due. Even though a single return/rendition is filed, a taxpayer may receive multiple tax bills (i.e., fire districts, school districts, county governments, etc.), which should all be reconciled. Each tax bill should be verified to ensure it is correct. If the taxpayer is not tracking payments, the potential for overpaying (or missing out on a refund) is much higher. Tracking payment information is also essential for purposes of determining tax accruals for accounting and budget purposes.

The Takeaway

Business personal property tax compliance can be a time consuming and complicated task given the number of taxing jurisdictions that impose this tax and the large number of assets, disposals, transfers and additions that need to be tracked and reported. Keeping up with compliance deadlines and payment due dates can quickly overwhelm a company's tax department.

Andersen has the tools and expertise to assist clients with all aspects of implementing a system that will help them gain control of the business personal property tax compliance process from data management, compliance and reporting, bill payment, notice resolution, appeals and revaluation of asset values resulting from acquisitions or mergers.