With property valuations falling as a result of the economy, now is a perfect time to negotiate a more reasonable value for your business personal property assets.
“Taxing jurisdictions are trying their best to maintain revenue,” says Jenna Kerwood, principal and property tax practice leader at Brown Smith Wallace LLC. “Due to the downturn in the economy, states are conducting more audits and taking a more aggressive stance when valuing your property.”
Smart Business spoke with Kerwood about how property tax affects businesses and how a personal property review can help you cut costs.
What should a business owner understand about personal property tax?
Personal property tax is typically based on the fair market value of your tangible assets. The statutes refer to this legal standard of assessment in many ways, such as ‘true value’ or ‘cash value.’
The assessor typically requires property owners to report their assets’ historical cost by year of acquisition and then apply specific depreciation factors to arrive at an assessment.
Since historical cost of assets less depreciation rarely equates to fair market value, it is prudent to evaluate the propriety of your annual assessments by considering the accuracy of your fixed-asset accounting records, physical and economic life of assets, equipment utilization as compared to design capacity and the various state-offered exemptions.
What are the compliance requirements associated with property tax?
Currently, all but 10 states tax businesses’ tangible personal property. The states that tax personal property require a return or a personal property tax statement that must be submitted to each local jurisdiction, such as the county, township or village, each with their own due dates.
After filing, you’ll likely receive an assessment notice, although not all jurisdictions send notices. The notice will tell you the fair market value of your property according to the assessor.
Check the notice against your return value to make sure it’s what you were expecting. If it’s not, you can appeal the assessment. Time frames for appeals are often very short, some only 10 days. Because appeal deadlines are different for each state, and often each jurisdiction, the property owner must be aware of the timing. If you miss an appeal deadline, there is rarely any recourse.
Once you have appealed to the jurisdiction, you’ll have a hearing, which is your opportunity to prove your opinion of value. Sometimes these hearings escalate to the courts, but not often. Once you agree on a final assessed value, you’ll receive a tax bill for that year based on the revised value.
Another point to remember with property tax is that you’re responsible for paying it, even if you don’t receive the bill or it’s sent to the wrong address. No matter what the circumstances are, you have to pay the penalty if it’s late. It’s up to you to realize that your bill is late and call the jurisdiction to request a copy.
