Business property taxes - is your company paying too much? financial articles
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Business property taxes - is your company paying too much?

a global business valuation and consulting firm


There are some obvious, and not so obvious, ways to determine if you may be paying too much in property tax. Learn the top five reasons your company might be paying too much in property taxes, and how a business valuation company can help.

You may be paying too much in property tax if you have fixed assets that have been retired but are still being carried on the books.

Corporations often have not been able to solve the problem of maintaining accurate property records. Unfortunately, a problem in this system can lead to consistent overpayment of property taxes. One advisory firm estimates that up to 30% of U.S. companies' fixed assets have been retired but are still being carried on their books.

Ghost assets or unrecorded retirements are a common source of over-assessment. If corporations are not adequately tracking their dispositions, they will be over-reporting and, therefore, be over taxed.

You can fix this situation by making sure all disposals are recorded in the fixed asset system. A periodic review or inventory of all assets is often necessary to clean up fixed asset accounting issues which may have been compounded over the years. Business valuation companies familiar with machinery and equipment can be engaged to assist with updating fixed asset listings.

You may be paying too much in property tax if you filed for protection under Chapter 13.

Property taxes are secured by assessed property, and the lien created by the assessment is a lien superior to any other. Discharge of the debt under Chapter 13 will not eliminate responsibility for real and personal property taxes. Additionally, penalties and interest will continue to accrue at the statutory rate.

Rather than ignoring those tax bills, this might be the perfect time to look at them and pursue an assessment reduction. Your company has not gone into bankruptcy proceedings because everything is rosy; generally, it is the result of changes in the market. Depending on the type of property being assessed, there could be an opportunity to receive an assessment reduction through a business valuation firm.

You may be paying too much in property tax if your company has idle or underutilized assets.

The idle assets in your plant may be eligible for a lower property tax assessment. In many states which tax personal property, idle or underutilized assets can be assessed separately from the rest of a plant's equipment at a lower value. Depending on the state, it is possible that the statute of limitations will allow you to apply for assessment reductions for several years' worth of overassessment.

In order to qualify for the reduced assessment, it may be necessary to provide the local assessing jurisdiction with documentation of the reasons that the equipment is idle and to demonstrate that the idle equipment has a reduced fair market value. If your equipment is idle because of a reduced demand for you product, then the economic obsolescence that is inherent in your equipment can be quantified by utilizing various appraisal techniques through a business valuation company. If your equipment is idle because the new equipment that you installed can produce twice the product in less time, with lower operating costs, the functional obsolescence inherent in your equipment can be quantified.

Once the obsolescence is quantified in a manner which meets the specific requirements of the taxing jurisdiction where the equipment is located, you can request tax relief.

You may be paying too much in property tax if you have not investigated your eligibility for tax incentives for your investment in pollution control equipment.

According to the U.S. Department of Labor, 37 states provide pollution control tax incentives. These incentives, which differ by state, can provide taxpayers with property tax exemptions, sales and use tax exemptions, income tax credits, or accelerated amortization.

Real and personal property related to the pollution control facilities which are installed in the normal course o; business may qualify for a permanent exemption from property tax assessment. Some key states which are offering these include: Michigan, Indiana, Texas, North Carolina, South Carolina, Florida, Georgia, and Tennessee.

Although the tax exemption requirements vary depending on the assessing jurisdiction, the basic requirement for eligibility is that the real or personal property be primarily used to control or abate air or water pollution. It must also be certified as pollution control property by the required state agency to be eligible; however, it is possible to certify as exempt specific parts of a larger piece of equipment, which meet the criteria.

Due to the cost of complying with the state's requirements, many taxpayers have not received the full benefit available. Often states require significant documentation and cost information before certifying the equipment as exempt. The information can sometimes come from divergent sources such as county or township permit records and building plans, engineers, plant and project managers, and cost or fixed asset accountants.

But increasing regulation related to pollution control equipment has resulted in the fact that most industrial processes involving a significant investment in machinery and equipment would benefit from a review of this nature. Capital costs include all of the delivered costs for the equipment, including all of the actual pollution control equipment, auxiliary equipment and accessories, and field installation. It also includes all installation costs, project management and engineering, freight, taxes, subcontractors, start up cost, working capital, and other capitalized costs.

You may be paying too much in property tax if your property has been damaged by a natural disaster.

In the aftermath of a natural disaster, some states offer some type of real and personal property tax relief. However, you need to file for that relief within a specified period of time after the damage has been incurred.

For example, in Indiana, disaster relief may be available to flood victims who complete Form 137R, which is a petition to the county assessor. This form will allow the Assessor to review the damage to any real and personal property and, if warranted, to grant a temporary assessment reduction. This reduced assessment will affect the taxpayer's 2010 property tax bill, which is not paid until 2011.

In Minnesota, victims of tornadoes may be able to apply for property tax relief if they are in the area classified as a disaster area and if more than a 50% decline in value is sustained.

If your business has been adversely impacted by a natural disaster, it is critical to contact the local assessing jurisdiction of any property you own or lease which experienced damage to determine whether relief is available.

Legal notice: It is important to note that property taxes are administered on a local level and that not all states tax business personal property. It is important that you seek the assistance of a professional business valuation company to discuss the specifics of your situation. Nothing in this column should be construed as tax advice.

About the Author: is a global business valuation and consulting firm that helps companies "up" their success by providing a broad range of business valuation and asset management solutions, including inventory valuation, purchase price allocation, asset impairment studies, 409a/ASC 718-505 (formerly FAS 123R) equity valuations, and intellectual property valuations that empower companies to confidently make strategic business decisions.


Published - August 2010

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