Business Personal Property Tax – A Consideration for All Seasons

No matter what season you’re reading this blog, there is likely something to prepare for regarding business personal property. Since most personal property returns have a January 1 assessment date, we’ll use that as the basis for our recommended timelines.

What Is Business Personal Property Tax?

Before delving into the nuances of seasonal considerations, it's essential to understand what business personal property tax (PPT) is.

At its core, PPT is a tax levied on the tangible personal property businesses own. This can encompass everything from machinery, equipment, tools, furniture, computers, supplies, inventory, and other assets that aren't classified as real estate.

Unlike real property, such as land or buildings, personal property is often movable and utilized in the business's daily operations.

And just like how individuals pay taxes on their belongings, businesses pay taxes on these tangible items. Now that you have a basic understanding let’s look at the different PPT seasons so that each one runs smoothly.

1. Fall/Prior to Year End
2. Start of Calendar Year/Spring
3. Late Spring/Summer

Fall/Prior to Year End

Here’s a basic checklist for getting your fixed assets in order before the end of the year:

1. Confirm the accuracy of your fixed asset ledger.
2. Perform physical inventory and on-site inspections of fixed assets.
3. Review bulk imported assets, then break them down to report correctly.
4. Record all your fixed assets in a timely manner.
5. Ensure proper treatment of closed or new locations.
6. Consider the implications of an acquisition.

Your business should get its fixed assets in order during the fall season and before year end.

Start by scrutinizing your fixed assets ledger. Your business must confirm you’re using the correct general ledger coding and that you map your assets correctly.

Your business cannot solely rely on these records, though. Some businesses may need to perform site inspections and physical inventories to verify the existence of their assets.

Here’s an example… say a new owner purchased an existing hotel. A purchase price allocation was completed, which assigned amounts to fixed asset accounts based on room counts and an average value per room. The hotel may need to perform a physical inventory of its fixed assets, including their original cost, to properly report those allocated assets on its upcoming business personal property return.

Did your business bulk import some of your assets into the general ledger? This may have seemed easy when you did it, but now your business faces a compliance issue. Separate your bulk or lump sum assets to report them correctly on the upcoming returns.

In addition, your business must record your fixed assets in a timely manner. When omitted or back-dated assets appear during an audit, your business could experience hefty penalties and back taxes.

Then your business needs to consider its locations – any closed locations or new locations opened recently.

If your business just closed one of its locations, you’d need to review the fixed assets from the closed location and determine if they were disposed of or moved to a different facility.

If no assets remain at this location at year end, you will need to determine if a final return needs to be filed in this jurisdiction.

Or perhaps your business opened a new location around mid-year. In this instance, you would need to determine any new filing requirements for the coming year, then review the assessor’s manual and filing forms. This information can generally be found on the Department of Revenue (DOR) or assessor’s websites.

Lastly, if your business acquired another company this calendar year, there are other considerations:

• A stock or asset purchase will impact the valuation of the associated fixed assets.
• An appraisal may have been performed; consider the purpose of that appraisal and if it can be used to support your personal property filings.
• States have varying requirements for the cost basis of reporting fixed assets. Ensure you know how it varies from state to state. Here are a few general examples:
• California – historical cost to original owner/trade level
• Virginia – original cost
• Texas – historical cost when new or fair market value

With the year wrapping up, it's also an opportune time to forecast and strategize for the following year. Consider any anticipated changes within your business that could affect your fixed assets.

Also, create and update your assessment and tax tracker for the current tax year. That way, you can easily compare year-over-year expected and actual values for consistency and reasonableness in the spring.

Ending the year in a secure place with your fixed assets will ensure the following year will run much smoother.

Start of Calendar Year/Spring

Here’s your basic checklist for the start of the year:

1. Review internal documentation.
2. Maintain records of your disposed assets.
3. Track your expensed assets.
4. Research whether your supplies and inventory are taxable.
5. Consider any leased equipment.
6. Determine if any construction in progress is assessable.
7. Maintain copies of agreed-upon exemptions.
8. Ensure you meet all compliance filing deadlines.

Now is the time to be diligent with your property tax filings and ensure you meet all deadlines while complying with each jurisdiction’s requirements.

Your business should review its internal documentation toward the beginning of each year. You’ll want to ensure you keep the necessary workpapers and maintain documentation for your disposed assets.

This means your business needs to keep track of asset disposal dates and reasons for disposal – equipment replacement, site renovation, replacement of obsolete computer equipment, etc.

Next, look at your expensed assets. Is your business tracking these by location?

Expensed assets are reportable and assessable in many jurisdictions. Just because your capitalization policy allows for assets under a specific dollar amount to be expensed, they are generally reportable and taxable if they are tangible assets, versus consumable supplies.

Your business must keep detailed records of those purchases by year and location.

When it comes to supplies and inventory, your business needs to understand where they are reportable and taxable.For example, commercial inventory is taxable in Texas and Georgia but not in Florida or Washington; supplies are reportable and taxable in Kentucky but not Virginia.

Many businesses will overlook equipment that's not directly owned. However, any leased equipment a business uses plays a role in your PPT considerations. Understand who is responsible for reporting those assets and who is responsible for the associated tax (based on the lease agreement).

Construction work in process (WIP/CWIP) is also something your business needs to consider towards the beginning of the year.

You’ll need to understand if this is assessable in the jurisdictions in which your business operates. Then, determine how it must be reported on the return based on its percentage complete.

Lastly, ensure your business has copies of agreed-upon PILOT or FILOT agreements, exemptions, audit findings, and prior settlement or valuation agreements with jurisdiction. Documentation of these agreements will be necessary to ensure your future assessment is accurate.

Past the items on the previously mentioned checklist, your business must keep an audit trail of any material changes to your assets.

Once you have prepared your current year's personal property returns, it is also a great time to calculate your expected assessment and tax liability and compare this to the previous year.

Any significant variances? They’re worth investigating to better understand historical changes and future projections, as well as to be prepared for rapidly approaching appeal deadlines.

Late Spring/Summer

Here is your basic checklist for late spring and early summer:

1. Track down any assessment notices for each of your business locations.
2. Reconcile these assessment notices and compare them to the expected assessment.
3. Confirm any prior agreement or exemptions with the jurisdiction were applied.
4. Appeal your assessment if necessary.
5. Verify your PPT bill was paid on time with no penalties.
6. Reflect on any material changes in preparation for the following year.

Your business will likely receive assessment notices during the late spring and summer seasons.

Start by tracking down all those assessment notices for your business sites.

Now, take a moment to reconcile these with the expected assessment and tax figures based on the return filed earlier in the year.

Next, your business should confirm that the assessment reflects any prior agreements, audit adjustments, and jurisdiction exemptions. If the assessment is not accurate, this may be an opportunity for your business to file an appeal. Keep in mind many appeal windows are short, so you need to act quickly.

Make sure that you are tracking and filing all your tax bills on time so no penalties are incurred. If you do appeal, make sure you know the local regulations related to paying a tax bill if the associated assessment was appealed.

Then, just like that, it’s time to gear up again for the next filing year. Spend time focusing on your personal property throughout the year to ensure your future liabilities are accurate, you can take advantage of any tax savings opportunities, and any exposure is limited.

Navigating the intricacies of PPT compliance is a year-round endeavor that demands meticulous attention to detail. Whether you're just wrapping up the previous year's obligations or gearing up for the next, staying proactive, organized, and well-informed is vital.

Regular check-ins at key intervals — like during fall, the start of the calendar year, and late spring into summer — ensure that your business meets compliance standards and optimizes your PPT strategy for the best financial outcomes.

However, many organizations don’t have the internal resources to stay current with the ever-changing complexities of PPT compliance.

Though the checklists provided can guide your business through the various seasons of PPT compliance, they definitely aren’t all-encompassing. The PPT compliance environment has many unique requirements and potential changes that affect your business.

‍Let our experts guide you through every jurisdiction and every nuance of each PPT season. Get started with Personal Property Tax Services.