How To Leverage Obsolescence To Lower Property Tax Liability

Posted by Anne Sheehan on Jun 1, 2016

How_To_Leverage_Obsolescence_To_Lower_Property_Tax_Liability_.jpgHaving an accurate understanding of the value of your business’s personal property is essential to ensuring that you’re not paying more than your fair share of property taxes. For many companies, taking obsolescence into account is the key to lowering their personal property tax liability.

So, what exactly is obsolescence? It’s any form of depreciation in value that your property experiences due to internal or external factors.

For example, perhaps you own a manufacturing plant that has hundreds of employees coming through its doors. If, however, your competition has replaced its employees in recent years with machines that perform those manufacturing duties, you might have a case of obsolescence, as your manual process is no longer competitive and has an impact on the valuation of the property itself.

When you’re unaware of the impact obsolescence has on your personal property or you’re not monitoring changes that affect future property taxes, you could miss out on significant tax savings. Find out how to use obsolescence to your advantage and lower your property tax liability.

4 Key Actions For Leveraging Obsolescence

Obsolescence in real estate holdings comes in a number of forms. It’s important to understand which areas of your business you should monitor and how to determine the impact of these depreciations on property value. Getting an accurate valuation of your property when the value diminishes helps you build a strong case for property tax savings.

Take the following actions to monitor obsolescence:

Identify changes in your business processes. Are you laying off employees because your largest oil customer has cancelled all of its orders? If changes in the way you operate business have caused you to cut back on your workforce, this could have a significant impact on the value of your property.

For example, one change in business process that would fall under the category of obsolescence is processing orders for an online retail distributer. Today, robots perform nearly all of these responsibilities. If you still have employees picking and packing, your distribution center is less valuable.

Identify functionality gaps in your physical structures. Are there features of your property that impair business functions? Consider the example of a large manufacturer facing functionality-based obsolescence. This manufacturer, which produces industrial HVAC equipment, added onto its property over the years until it more than doubled in size. However, with each addition, production became less and less streamlined. The assembly process crisscrossed and backtracked from one end of the large property to the other. This transporting back and forth caused a lot of lost time and diminished the functionality of the property itself.

What features of your property are inhibiting business performance? This may be a form of obsolescence.

Identify economic changes to your industry. Businesses rapidly change every day. New innovations make old ways of functioning obsolete. But, many industries are facing economic obsolescence and taking no note of it.

Look at the coal industry, for instance. Earlier this year, the government put a moratorium on issuing leases for coal mining lands in an effort to move toward greener energy consumption. This economic change has had a direct effect on the industry by impacting company revenue and, subsequently, the property values of coal processing and distribution plants. This is the kind of industry-based economic obsolescence that could impact your property value.

Identify exterior forces that have affected financial performance. Sometimes, changes outside of your walls or industry have a big impact on the value of your property. Maybe new power lines or high-voltage towers have gone up near your property, or perhaps a landfill is being constructed. These are forces outside of your control, but they still affect your property value.

To pinpoint the exact monetary impact of external forces on your property, it’s best to consult a property tax expert. They’ll be able to determine how these external features have changed your property’s value.

Identifying and roughly calculating these different areas of obsolescence is only the first step to leveraging them. Partnering with a commercial property tax expert allows you to tap into the experience and knowledge these professionals provide. They’ll help your business identify changes in property value and leverage those changes to ensure you’re getting the most in property tax savings.

Learn more about the potential factors of obsolescence affecting your property. Schedule a free consultation with Real Property Tax Advisors now.

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