No one wants to pay more in taxes than they should. Nevertheless, when it comes time for businesses to pay their property taxes, they often do, unknowingly, give more than they must. Companies and their CPAs spend most of their time and effort on federal income tax, where they likely have the most expertise. Inevitably, they follow the same income tax rules they know best when reporting and calculating their complicated property taxes.
Lyall CPA has decades of experience helping companies avoid property tax pitfalls. In a previous article, we discussed how to avoid paying more than you owe for real estate property taxes. In this post, we are discussing personal property taxes.
PERSONAL PROPERTY TAXES FOR BUSINESSES
For businesses, property taxes will generally fall into one of two categories, personal property or real estate. Effectively identifying your company’s property is vital for calculating what you actually owe. Real estate property taxes generally refer to land, buildings, and permanent structures. If an item cannot be removed without damaging a building, it will typically be taxed as real estate property. Personal property is everything else, including but not limited to:
- Furniture
- Computer equipment, phones, point of sale systems, office items, etc.
- Software
- Fax and copy machines
- Machinery
- Tools
- Vehicles
Some items may not clearly fit into either category; while other items may have designations that make them unique. Just like having a firm review and file your income taxes, having a CPA experienced in determining where your property fits within the property tax code can save your business a lot of money.
AVOID BUSINESS PROPERTY DOUBLE TAXATION
Unfortunately, items that are misidentified and relegated to the incorrect category inflate your tax bill beyond what it should be. Even worse, businesses may not realize they are paying both real estate and personal property taxes on some items.
Gas stations are often hit with this form of double taxation. Are gas canopies considered personal property or real estate? The answer depends on each specific county and municipality; therefore, gas station owners (especially those who have multiple stations) often end up paying taxes on gas canopies for both categories. The signage on canopies is another area of potential confusion for CPAs and officials.
Does removing the signage change the real estate value of the property; thereby, qualifying it under real estate property tax? Car washes, service bays, concrete pads for machinery, and many other items fall into this gray area. If owners and managers are not paying close attention, they may end up in double taxation situations for them all.
OTHER POTENTIAL PROPERTY TAX PITFALLS
At Lyall CPA, we see a lot of companies in a myriad of industries pay too much in business property taxes. Some of those potential pitfalls include:
- Asset Identification and Tagging: Many companies have assets on the books that are misidentified, no longer serve a purpose, or do not even exist. We wrote more about this [here].
- Asset Depreciation: A lot of companies and CPAs misunderstand how to accurately record depreciation for business assets. First, no asset is every fully depreciated. If an asset is on the books, a tax based on its original cost will be levied. Second, companies may apply the same standard depreciation method for assets that should belong to different and faster categories of depreciation.
- Pollution Control Equipment: Many companies, especially manufacturers, fail to take into account their pollution control equipment and the potential deductions and exemptions available to them.
- Tax Exemption Identification: Some assets have been identified by states, counties, and cities as exempt from being taxed. Often those assets require specific identification and registration to qualify for an exemption. The processes to obtain exemptions are often overlooked or simply unknown by clients and most CPAs.
Keeping up with all of the various business property tax pitfalls may seem like a full-time job, IT IS! However, it can improve your company’s bottom line significantly. Lyall, CPA has years of experience specializing in business property taxes. We are happy to offer your business a free review of your company’s assets, so we can show you where you can reduce your property tax bill. Contact Sharon Lyall, CPA for more information.