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
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
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
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
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
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
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:
http://www.AccuVal.net/ 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