3 Personal Property Tax

Depreciation Versus Market Value Is Costing You Thousands

The property tax code defines the valuation method for personal property as “market value.” However, most appraisal districts still assess your property on a depreciated cost basis, resulting in your overpaying every year – especially on software, technology assets, and office furniture.

Three Common Mistakes

There are three primary mistakes that assessors routinely make when determining your tax bill. These three mistakes are, in most jurisdictions, a valid basis for a successful appeal.

1. Taxing Intangible Property. Goodwill, service agreements, software, trade secrets, non-compete agreements, patents and trademarks, and other intangible assets may be exempt from personal property taxation. In many jurisdictions, you may need to conduct a segregation study to determine the portion of an asset’s value that is intangible versus tangible. This is the biggest mistake we see and can be a multi-million dollar error.

2. Using the wrong depreciation table or asset classification. Assessors use a physical-life depreciation schedule that can grossly overvalue personal property. For example, the standard depreciation schedule would value a 1-year old computer at 90% of its cost. Hence a $3,000 computer is valued at $2,700 when in reality it’s only worth $1,500 at market value.

3. Including depreciable costs for the IRS in your local personal property schedules. In most jurisdictions, the costs for set up, shipping, configuration are NOT included in the cost basis for personal property taxes – even though they ARE included in the depreciable basis for the IRS. Many businesses don’t realize this and report too high a taxable basis in their assets to the local assessor.

Have you reviewed your personal property tax schedules to ensure accuracy? Deadlines for appeals are strict and the windows are small. Make sure this is part of your annual review process and closing procedures.