In states where business personal property is taxed, remaining compliant with the jurisdiction’s business personal property tax regulations can be challenging and time consuming.
So what exactly is business personal property, and why does it matter? Business personal property includes the machinery, equipment, inventory and supplies that companies need to operate and create products for their clients. If business personal property is managed the right way, you could secure savings for your client’s business.
Explore these facts every CPA should know about business personal property tax compliance and find out how to effectively manage business personal property.
1. Not All Property Is Taxable
For CPAs, determining what property is taxable and what isn’t requires an investment of time and resources. The first step is identifying your client’s business personal property assets – all movable property within the business, such as machinery, equipment, inventory and supplies. The second step is identifying assets that are not taxable, such as computer software.
Remember, real estate is taxed separately from business personal property assets. You have to invest in the review of the asset list so assets are not taxed twice.
If the state where your client is based taxes business personal property, they’re required to file an annual compliance return that lists the purchase costs and depreciated values of their assets. After the return is filed, the jurisdiction reviews it and assesses the business personal property.
This assessment from the jurisdiction could increase or decrease the amount of taxes due, depending on their adjustments to your business personal property return. If the jurisdiction increases the returned value, your client should consider filing a business personal property tax appeal.
2. Asset Lists Are Key
Many companies make the mistake of filling in values on their business personal property tax return without knowing how accurate each number really is or if the associated asset is still in use.
If your client’s business operates in a state that taxes business personal property, they should preemptively create and regularly maintain a thorough, detailed asset list. This list is their greatest tool for remaining compliant and securing additional business property tax savings through an appeal.
Your client’s fixed asset list should be checked every year for accuracy. Look for “ghost assets” (assets that aren’t in the business’ possession anymore) or broken assets, and go ahead and fully depreciate and retire these assets. You never want your client to be taxed for property that doesn’t exist, has been sold or is unusable.
Also, identify areas of obsolescence – functional and economic obsolescence, in addition to physical depreciation. When equipment ages or technology delivers a better way to operate, the business personal property return should include a calculation of the loss in the value of the no-longer-cutting-edge equipment.
Managing an asset list is tedious, and it is hard for many businesses to allocate resources to maintain it. However, it is an essential piece of the business personal property tax compliance process, and it could be used to reduce what your client owes.
3. Abatements And Exemptions Are Available
For businesses taxed on business personal property assets, opportunities for savings are available. The Freeport Inventory Exemption is especially beneficial. In states that have a Freeport Inventory Exemption, you can claim the exemption if you meet certain conditions. The most common requirement is that companies ship inventory out of state within 12 months. Data required by most jurisdictions include financial records for:
- Raw materials
- In-progress products
- Finished goods
Meticulously tracking this property every year and reporting on a timely basis is essential, as jurisdictions have the right to deny this exemption for incomplete or late filing.
Many jurisdictions offer benefits for environmentally conscious businesses, too. Look for ways your client’s business has lowered gas emissions or taken energy-saving measures. If they recently upgraded equipment or altered their infrastructure to make their company “green,” they may have additional exemptions they could file for, such as for pollution control equipment.
Many CPAs have experience in business personal property tax compliance, but they don’t necessarily know how to generate additional tax saving opportunities. Contact a business property tax advisor to ensure your client stays compliant with their business personal property tax return, avoids fines related to filing late or not at all and leverages opportunities to reduce their tax bill.
Business personal property tax compliance is so much more than filling out a form. Leverage the experience and resources of business property tax experts for increased savings and ensured compliance.
Identify more areas for business property tax savings using this free calculator.