Computing personal property taxes can be a chore for businesses, particularly if the company’s locations cross various state and local jurisdiction boundary lines. Each state has its own statutes, due dates, assessment ratios and instructions that must be adhered to for a company to be considered “compliant.” These property tax requirements vary greatly and most often have late penalties for missing deadlines. However, digging into these very statutes and instructions can also provide an opportunity to minimize your company’s tax burden.
“Many will run the fixed asset ledger right out of the system and that’s what they’ll report,” says Jenna R. Kerwood, CMI, a principal in Tax Services at Brown Smith Wallace.
However, that usually results in paying more taxes than what is owed because not all assets are taxable. Often, fixed assets are capitalized at a project level, which results in inaccurate reporting for property tax purposes. There may be costs that are not taxable or components of the cost that should be removed. The taxability of these assets can be determined by examining the state and county websites, statutes, assessor manuals and return instructions.
Smart Business spoke to Kerwood about what constitutes personal property and why it’s worth the effort to keep an accurate track of assets.
What is the difference between real estate and personal property?
Real estate refers to land and buildings. Personal property is defined as tangible property that’s movable. It can be difficult to distinguish between the two, especially with manufacturing facilities, and each state has different rules and instructions.
Most states have a three-prong test:
- Can the item be moved without destroying the real estate?
- What is the primary purpose the item serves? The more special its use, the more likely that it will be considered personal property.
- What was the owner’s intent?
The key is whether it would destroy or cause permanent damage to the building if you were to remove the item.
What is the basis of property tax assessments?
The basis of value for real estate and personal property is fair market value — the amount a willing buyer would pay in a market when there’s no duress, such as a bankruptcy or foreclosure. Fair market value is subjective, which gives you an opportunity to analyze all of the capitalized cost to determine how best to reflect the ‘fair market value’ of the asset.
When reporting assets for property tax purposes, you need to understand their physical life, use, maintenance schedules, etc., in order to depreciate correctly. Items with a short life have faster depreciation. Manufacturing equipment might have computerized components that can be placed on a shorter life with a more reasonable depreciation schedule.
How can businesses lower their tax burden?
Start with fixed asset accounting records. When filing personal property tax returns, you report the original cost of the asset by year of acquisition. Companies might have a retirement policy by which they dispose of, melt down or cannibalize an asset, but that’s not reflected on the books.
It’s best to address problems on the front end. Review the asset ledger for listings that don’t look right — focus on the high dollar items or assets with ‘miscellaneous’ as the description. Scrutinize asset invoices and review them with the people who know them; it might be the plant manager for the manufacturing facility, facilities person for the furniture and IT people for the computer asset listing. Another area to consider is depreciation. The county will tell you the rate, but that may not be accurate and is negotiable.
How much can be saved?
Conservatively, businesses can lower personal property taxes by 20 percent. Most state rates are at 2 percent. When you tell a company that cleaning up asset lists can save $30,000 or more, it gets their attention.
Jenna R. Kerwood, CMI, is a principal, Tax Services, at Brown Smith Wallace. Reach her at (314) 983-1360 or email@example.com.
For more on this and other tax topics, visit Brown Smith Wallace's Tax Insights.
Insights Accounting is brought to you by Brown Smith Wallace
You don’t have to be pirating software to get in trouble during a compliance audit.
“Where companies get ensnared is in the deployment phase. It’s not that they are trying to get away without paying, they get caught up in the terms of conditions found in the fine print of licensing agreements,” says Heather Barnes, an intellectual property attorney with Brouse McDowell.
Smart Business spoke with Barnes about what businesses can do to make the software audit process go smoothly.
What prompts an audit?
Software companies include the right to request audits as part of the terms and conditions of the software license agreement. The fine print contains the right for the software company to audit your computers and systems. Sometimes audits are performed because that organization received a tip from a discharged employee. There also are companies that conduct audits as a regular course of business, either itself or through a third party, such as The Software Alliance. Because of the economy, software revenues have decreased, so software owners are replacing lost revenue by ramping up enforcement with compliance audits.
Once you’re notified about an audit, what should you do?
If you are an organization with in-house counsel, contact them immediately. Smaller companies should retain outside counsel, because attorneys can make a big difference in the final outcome.
The first thing an attorney will do is assist with the parameters for the audit — how and when it will occur, as well as the scope. If there is a noncompliance issue, legal counsel can draft a settlement agreement; they may even negotiate the settlement to a more reasonable number. Even if there are no compliance issues, you still want a document drafted that acknowledges how the audit was conducted and what was found, as well as a release of any claims the software company could have brought.
What problems can occur if you proceed without legal counsel?
Much is dependent on the particular company, but the audited company wants to prevent the software owner from having free reign of its systems, and that is a role legal counsel can help control. For example, legal counsel can assist in defining the scope of the audit by determining which computers are included in the audit. Do you include every computer? Just computers in use? What about the computers that are older and sitting in a warehouse? A software company could attempt to include any computer you own, even those that are obsolete and unused.
Another potential issue is how the audit concludes. You might come to an agreement at the conclusion of the audit and think a settlement is in place. Without legal counsel involved, a company could find itself with no settlement agreement or other document detailing what occurred and the responsibilities of each side going forward.
What are typical noncompliance issues and how much do they cost to fix?
Terms and conditions of the software license agreement vary by company. Many companies allow you to use older versions of software when you obtain a license for their latest product, but some do not. However, many people think that it’s an industry standard that you can deploy older versions.
Another problem is maintenance of business records proving owned licenses for software. You need to have documentation and keep those records current and accessible. That can be complicated when the software was purchased from multiple third-party vendors and for software that is old. Companies should conduct internal audits to ensure they are in compliance with what their records reflect, which could help mitigate exposure when an audit occurs.
Normally, if you are out of compliance, you’ll be charged the licensing fee you should have paid. If it is $200, $300 or $500 per license, multiply that by the number of computers out of compliance and it can get expensive quickly.
Further, if you’re found to be noncompliant, develop internal procedures to ensure compliance in the future. If you are audited once and are found to have compliance issues, it is just a matter of time before the software owner is back to check again.
Heather Barnes is an intellectual property attorney at Brouse McDowell. Reach her at (330) 535-5711 or firstname.lastname@example.org. Learn more about Heather Barnes.
Insights Legal Affairs is brought to you by Brouse McDowell
On-site workplace centers have grown in recent years from being traditional in-house occupational health clinics where someone who was injured on the job could get basic care, to more extensive total health management centers that offer acute care treatment, health and wellness programs, health coaching, behavioral health assistance and chronic disease management.
Not all on-site facilities are right for all employers, but many different-sized companies are finding models that make sense for them.
“Studies have shown that only about 25 percent of large, self-insured firms offer some type of workplace center,” said Leonard Eisenbeis, director of Clinical Health Operations for UPMC WorkPartners, an affiliated company of UPMC Health Plan. “But, studies have also shown that the number of companies planning to open a worksite center doubled between 2007 and 2011 because employers are looking for a way to lower health care costs and support their bottom line.”
Smart Business talked with Eisenbeis about on-site services and why they can make sense for some employers.
What are some of the benefits that employees receive in on-site centers?
An on-site health management center is attractive to employees because it provides convenient and timely treatment for a set of acute conditions. It also replaces what, for the employee, would be a more costly visit to an emergency room or urgent care facility. Additionally, the center can monitor employees’ chronic conditions, which can easily be relayed to their primary care provider or medical home, improving overall total health management.
What are some of the benefits employers see with on-site centers?
Employers like the fact that on-site centers reduce employees’ lost time from work, which increases productivity. In addition, a good on-site center can help generate employee awareness through physician referrals by engaging at-risk employees in a comprehensive management of lifestyle behavior and disease management. Also, directly avoidable health care costs — such as physician visits, urgent care and emergency room use — can be diminished through on-site centers.
What are some features you can expect at an on-site center?
On-site center staff provide primary care support and on-site care for acute health care services, such as headaches, minor injuries, sore throats, sprains and strains.
You can expect the center to be a front door to occupational health services, where occupational injuries can be reviewed quickly and triaged, and occupational health exams, drug testing and OSHA reporting could take place. Good on-site total health management centers provide health and wellness education and referrals. Employers may include prescription medication services by providing a courier service to deliver prescriptions to employees.
Is there one model for on-site centers?
No. Employers can choose from several delivery methods to find the one that works best for their individual companies. For instance, they can have on-site health centers, or they can have a ‘near-site’ center within several miles of the employer’s campus to be used by employees who work at different sites. Another form of on-site services is mobile medical units, which are a cost-effective option for targeted medical services or testing.
Employers also may take advantage of telehealth technology within an on-site center to effectively service a number of worksite campuses. Telehealth is a remote health management application that links employees from an on-site health center to a physician or provider using interactive videoconferencing, voice and data systems, and embedded peripheral devices.
Telehealth is becoming more popular because this technology could allow an employer to install telehealth equipment with a nurse or medical assistant and transmit a patient encounter to a provider, greatly increasing the affordability of on-site care and financial return on investment. There are many options in the deployment of telehealth that make providing total health management care very scalable to companies of all sizes.
Leonard Eisenbeis is a director, Clinical Health Operations at UPMC WorkPartners. Reach him at (412) 454-4960 or email@example.com.
Save the date: Join UPMC WorkPartners for an upcoming webinar, “The Next Generation Worksite Health Center,” at 10 a.m. April 24. To register, contact Lauren Formato at (412) 454-8838 or firstname.lastname@example.org.
Insights Health Care is brought to you by UPMC Health Plan
Having a driver training or fleet safety program is likely something your insurance company already has on its radar. Companies with five or more vehicles and a history of claims could be required to complete the insurance company’s fleet seminar or safe driving training.
But even if your company has a good driving record, some type of driver safety class and/or additional training benefits your business directly, as well as the insurance company.
“It does have an impact on your rates, only because if you do implement a fleet training seminar, each year or every other year, you will start to see an improvement in your rates because it’s less likely that you’re going to have an accident,” says Marc McTeague, president of Best Hoovler McTeague Insurance Services, a member of SeibertKeck.
Smart Business spoke with McTeague about the importance of driver training and steps to consider taking that could help you maintain a motor vehicle safety program in your workplace.
What’s the first step to driver safety for business owners?
Business auto happens to be one of the bigger exposures to a business because, if there’s an accident, depending on injuries, it can be a pretty significant. So first, you want to start with employee drivers who have a good driving record.
If job candidates are applying for a position that requires them to drive, you can require a check of their motor vehicle report to make sure they are acceptable. Insurance carriers can provide you with what they recommend to be acceptable. Of course, if their record were clear, that person would be a good choice.
What are some conditions that affect auto rates or how much training employees need?
A number of things affect the underwriting, such as the radius of operation — a long distance radius of 200 or more miles could mean a higher rate. Other considerations can depend on the size and weight of the vehicles.
Often companies don’t have a choice with what kind or how much training employees need. Many insurance companies provide it through their loss control department at no cost. A loss control engineer may require drivers to attend a two- to three-hour class and take a test, or just listen to a seminar.
What, then, can employers do to create and maintain a motor vehicle safety program in the workplace?
Having formalized vehicle maintenance and a safe driving program of some kind are must-have risk management tools. However, some employers may feel reluctant to institute them because of the amount of time to set them up in their office. The idea is that improving driver training and fleet safety programs only can help your company, as the business auto exposure is lowered.
Some best practices that could help are:
- Safety policy statement indicating that the company has established a fleet safety policy to emphasize a commitment to the safety of its employee drivers and the general public.
- Seat belt use to reduce the severity of injuries.
- Restrictions on personal vehicles for employees using a personal auto for company use.
- Driver selection and qualification, including application for employment, reference checks, motor vehicle report investigations and an annual review of driving records.
- Vehicle inspection and maintenance.
- Post notices and signs in your building and in the yard reminding drivers to be safe and maintain their vehicle.
- Driver training annually, either online or conducted by a loss control engineer.
- Accident reporting and recordkeeping.
Keep up with the latest insurance news and how your company could be impacted by signing up for SeibertKeck's newsletter.
Marc McTeague is the president of Best Hoovler McTeague Insurance Services, a member of SeibertKeck. Reach him at (614) 246-RISK or email@example.com.
Insights Business Insurance is brought to you by SeibertKeck
Credit insurance, which has been around for many years, is a custom financial tool that protects a business from losses due to insolvency or past due/slow pay from their customers.
This problem of insolvency or past due/slow pay from customers isn’t expected to stop any time soon, either. U.S. corporate default rates are expected to rise this year, as marginal companies that already refinanced debt in the last few years stumble because they didn’t reduce debt and just pushed out payment schedules, according to a USA Today article.
“This insurance product can be a cost-effective device for transferring risk — premiums are tax deductible while reductions in bad debt reserves are not,” says Shelley C. White, assistant vice president with SeibertKeck.
Smart Business spoke with White about why the value of this insurance is consistently being demonstrated during economic financial crisis time and time again.
How does credit insurance coverage work most effectively?
If your company does business in which it extends a line of credit for merchandise orders or other accounts payable, then this insurance protects you against losses because when you extend credit to a business, your own financial solvency gets tied in with that account. Coverage can apply to a single debtor or a greater spread of risk by including all of your unquestioned buyers in excess of a certain dollar amount. Annual sales of at least $1 million can make the program more cost effective.
Why should employers look into buying this type of coverage?
Business owners must be more attentive regarding the management of their accounts receivable in the face of this global economic climate. There are more business failures both domestically and internationally. This was borne out by increased worldwide demand for credit insurance across all geographies in the first quarter of 2012, according to the Global Insurance Market Quarterly Briefing. The United States saw a modest increase in demand of less than 10 percent, with the largest demand increase in Asia.
Credit insurance provides catastrophic loss protection that can be used by businesses of all sizes and by all business sectors. There are many benefits as to why a business owner will purchase this coverage. Some include:
- Increasing credit to your existing customer base and extending credit to new customers.
- Improving cash flow.
- Enhancing bank financing by increasing borrowing capacity. Banks will lend more against insured receivables.
- Reducing bad debt reserves and freeing up cash.
- Utilizing it as a risk management tool to improve business planning by elimination of unknown risk.
How does credit insurance protect you better than just looking at a customer’s payment history?
Unfortunately, payment history is not a valid predictor of default. Close to 50 percent of all payment defaults rise from stable and long-term customers. One sudden loss could have a devastating impact on you and your business. Consider that your receivables are a concentration of all your cost and profit, and in many cases, you create them based on a customer’s promise to pay. Therefore, there is a tremendous amount of risk facing your business. Credit insurance is a great tool to remove this disastrous risk from a balance sheet.
What do business owners need to know about purchasing this insurance?
The level of indemnity ranges from 80 to 100 percent depending on your credit management experience, accounts receivable portfolio and premium target. Policies are designed to fit a business owner’s need for coverage. Risk retention comes in the form of co-insurance and deductibles and helps in lowering the premium. Co-insurance is a percentage of the loss you retain on each insured account.
There are only a small handful of carriers that specialize in this type of coverage. Each will have their own risk appetite, underwriting philosophy, and method to how they structure and administer their policies.
Underwriters will research, approve and monitor the accounts you want to insure. They also will approve coverage limits on the customers you want to insure. You will want to provide underwriters with a balanced spread of risk that will offer best pricing and terms. It’s important to clarify with the underwriter your maximum terms of sale, lead times for customer orders and note any special circumstances that might require additional coverage.
You can insure the entire accounts receivable portfolio or a select number of accounts. The premium will be based on your loss history, customer credit quality, spread of risk, and deductible and co-insurance levels in the policy. Usually the premium is less than half of one percent of insured sales.
Your customers’ payment history is not a valid evaluator of their failure to pay. Having a carrier watching over your covered accounts and helping evaluate credit limits is a great advantage to a business owner’s risk management plan. Nonpayment and slow pay by your customers will weaken a company. Credit insurance can help protect a company’s biggest asset — your own business credit.
Shelley C. White is an assistant vice president with SeibertKeck. Reach her at (330) 867-3140 or firstname.lastname@example.org.
Insights Business Insurance is brought to you by SeibertKeck Insurance Agency
A business’s continued success is most fundamentally determined by its reputation in the marketplace.
And in today’s environment, in which scandals seem to occur on a daily basis, people often think of reputation only in terms of integrity or ethics. But it is much more than that, says John F. Schlechter, director, Auditing & Accounting at Kreischer Miller.
“Certainly being ethical in business practices is critical, but reputation includes such things as leadership and vision, quality of products or services, the workplace environment, financial results and corporate citizenship, to name just a few,” says Schlechter. “The challenge is to balance all of these elements in a way that produces a reputation that leads to a successful business.”
Smart Business spoke with Schlechter about how to build your corporate reputation — and how to protect your good name.
What are some keys to building a company’s corporate reputation?
A company’s reputation is most significantly impacted by its management team, which is responsible for developing and nurturing the company’s vision or mission. The tone is set at the top.
Many companies have well-thought-out and articulated mission statements, codes of conduct and business practices. Employees are indoctrinated in these practices through training sessions, and a company’s hallways are filled with constant reminders of key components of the company’s mission. But the single most important factor in building a company culture is how management models it on a daily basis. Management must walk the talk. When management leads by example, employees get the message that mission, codes of conduct and treatment of the customer are important and they must follow if they want to be successful in the organization. A strong corporate culture develops, which ultimately leads to a positive reputation in the marketplace.
Fundamental to building a corporate reputation is providing quality products and services. Branding and marketing efforts, while they might help to create a corporate image, do not build reputation. You can have the world’s greatest marketing campaign, but if you do not produce quality products and services, you will not create a sustainable business. The focus on quality is paramount to a sustainable customer base. Other shortcomings may be overlooked if people love your product.
How can the work environment contribute to reputation?
The workplace is an important aspect of creating reputation. Organizations known for having a great working environment have no trouble attracting quality people. Quality people, typically, help produce quality products and services. If people are challenged, treated respectfully and properly rewarded for their efforts, they have a positive view of the organization, which affects how they work and how they talk about their employer in the community.
If you have sound leadership, quality products and good people, financial results will typically follow. Solid financial results are, obviously, an important indicator of the success of the business, which enhances the public’s image of the company.
Dealing fairly with suppliers, i.e., paying a fair price for the vendor deliverable, and paying bills on time are also important contributors to corporate reputation. Financial results at the expense of the business’s supply chain can create another kind of reputation.
How else can a company enhance its reputation?
Getting involved in the community by participating on nonprofit boards, sponsoring community events, or making charitable donations is another key element of creating corporate reputation, but these things must be done out of a genuine desire to contribute. Being self promotional in such endeavors can lead to less-than-desired results. Having a keen interest in the project and enjoying the participation is the key to corporate citizenship.
How do you maintain your reputation once you have earned it?
Corporate reputation takes years of cultivation, but it can be destroyed in an instant. A lapse in judgment, an uncontrollable event, a misspoken word, a bad product batch, or even a simple misunderstanding can suddenly impair the best of reputations.
Particularly in this technological age, when information flies around the Internet at unfathomable speed, businesses need to be vigilant about their good name. However, even with the utmost diligence, high-profile events can occur that are outside the business’s control. In these situations, it becomes important to deal with the issues as quickly as possible. Speed can only be a mistake if the response is made before there is a full understanding of what has occurred and what all the implications may be.
How should a business respond to a reputational crisis?
A business does not want to have to make continual responses or modifications to initial responses unless it is a fluid situation and the circumstances warrant a continual dialogue with the marketplace. As with most problems, the quicker a problem can be dealt with, the quicker the healing can begin.
Taking responsibility for a mistake is also an important element in responding to a problem. Most people are more forgiving of businesses that acknowledge their mistakes and fix them than they are of those that either try to cover them up, or make excuses as to why the mistake happened. Taking responsibility and fixing it as fast as possible are measures that go a long way to preserving corporate reputation, or at least minimizing the damage.
A strong reputation is fundamental to successful businesses. Build your reputation with great care, and closely monitor and guard it once it is established.
John Schlechter is a director in the Audit & Accounting Group at Kreischer Miller, Horsham, Pa. Reach him at (215) 441-4600 or email@example.com.