Does it seem like every time you turn around you’re searching for a replacement part for an ancient boiler, trying to upgrade your dated power grid to handle new equipment, or patching the roof again to delay the inevitable cost of a full replacement?
For countless manufacturing CFOs and executives in charge of a commercial property portfolio, this is reality. Aging assets dominate your portfolio; you cannot get cap ex approved to build a new state-of-the-art facility. Moving to another facility isn’t an option either because the cost of transporting equipment and the downtime required is too cost-prohibitive to consider.
It’s up to you to keep your buildings competitive to support key processes and production that might require advanced robotics, 3D technology and/or process automation. But many dated facilities aren’t physically equipped to handle the requirements of new technologies.
Here’s a tip that could help you generate a significant cash windfall: Your aging assets — and the fact that they are old — could generate tax savings that you can reinvest back into your business.
A Missed Opportunity
The Great Recession and now the volatility in the oil and gas markets have forced manufacturers nationwide to cut shifts, furlough employees, replace salaried positions with temporary workers and outsourced services, and consolidate or even shut down facilities altogether.
These are tough financial decisions, for tough times. Many companies tackle cost savings first but most overlook the opportunity to realize cost savings by appealing commercial property assessments to reduce tax payments.
Contrary to popular belief, building and personal property taxes are variable as owners have the statutory right to appeal to have the assessed value lowered. Aging assets can be appealed on the basis of physical depreciation of buildings, equipment and machinery and the lack of functional utility in relation to state-of-the-art processes. You can also prove economic impact of forces beyond the property line that negatively impact the market value of the property.
Commercial Property Tax Savings From Your Aging Assets
The law states that taxing jurisdictions must assess commercial property at fair market value.
But what is the “fair market value” of a dated manufacturing building (real estate) and the equipment housed within (personal property)?
The fair market value of an old building packed with aging assets is going to differ from a brand-new facility delivering the same type of manufacturing work in the same neighborhood. Your daily challenge to keep a roof over your company’s equipment could be the basis for a commercial property tax appeal. The same is true for machinery and equipment – the market value of your property is less than the cost of new state-of-the-art replacements.
We Have Aging Assets. What Next?
When a 40-year-old furnace malfunctions (and its maker has long gone out of business), finding replacement parts and repair services becomes difficult. Outdated building design (such as inadequate fire protection) places limits on many manufacturing facilities, while antiquated floor plans stifle process automation and hinder productivity.
If you’re operating in a decades’ old manufacturing facility, you may be able to gain real commercial property tax savings through the functional and economic obsolescence of your real and personal property.
For instance, one manufacturing facility in the southeastern U.S. saved $128,000 thanks to an $8M assessed value reduction justified by an analysis and comparison of the current layout and the ideal, state-of-the-art facility.
After weathering the Great Recession, many U.S. companies are now in growth mode, looking to expand after years of focusing on getting as lean as possible to survive the economic downturn.
If you’re seeking creative ways to reduce operating costs while still finding room in your budget for growth, consider seeking assistance from a commercial property tax consultant when evaluating your commercial property portfolio. A sizable commercial property tax refund could be the ticket to offset the cost of the equipment necessary to grow your business.
Leverage your aging assets and grow your business while controlling costs through commercial property tax savings. Learn more with RPTA’s free e-book, The Corporate Taxpayer’s Guide To Reducing Commercial Property Taxes .
