For many managers and business owners, property taxes seem like the one huge expense they have no control of. But a common-sense approach makes controlling business property tax expenses easy.
Most companies understand income and sales taxes but lack clarity on business property taxes. American businesses pay more in property tax than any other state or local tax. Most companies try to manage income tax by maximizing deductions and credits. But their most significant tax expense —property taxes —gets neglected.
In this post on controlling property tax expenses, we’ll discuss what makes property taxes tricky and provide six tips for managing your property tax expense better.
WHY BUSINESS PROPERTY TAXES ARE DIFFICULT TO CONTROL
Business property taxes encompass two types of taxation: real and personal property. Real estate taxes include any land and buildings. Personal property includes assets owned and used by the business. Examples of personal property include equipment, furniture, computers, and supplies.
While the U.S. tax code is complicated, income tax regulations are more standardized than property taxes. Most states that collect income taxes use Internal Revenue Service guidelines as a starting point.
Property taxes lack common standards. The same property owned by the same company in different parts of the country is taxed in different ways or not at all. The definition of real versus personal property often varies by jurisdiction. And while most states collect real estate taxes, not every state charges businesses personal property taxes.
Who processes your tax return also impacts how much you pay in property tax. Property tax regulations and categorizations include an element of judgment. Local tax offices receive thousands of personal property tax returns. Each person who processes returns uses their own experience and judgment when determining if your company used the proper depreciation schedule.
Companies struggle to manage and budget for property tax expenses because of property tax regulations' subjective and variable nature.
6 TIPS FOR CONTROLLING BUSINESS PROPERTY TAX EXPENSES
Despite the complex nature of business property taxes, companies can get better control and visibility of their tax expenses by implementing some best practices.
1. COMMUNICATE WITH YOUR LOCAL TAX OFFICE
Don’t make the mistake of blindly mailing in your return and hoping for the best. Establish a relationship with your location tax officials. Let them know you’re interested in the process and ask questions. Each local tax office has different rules. Ask about any special rules related to your industry or type of property.
2. KNOW WHAT YOU OWN
Business personal property taxes fall under self-assessed taxes. You tell the tax office what you own and how much your business owes. The county just checks to make sure it’s accurate. But they’re not looking for mistakes in your favor. For example, suppose an asset could fit into one of two categories, and you submit your return with it in the higher tax rate category. In that case, the county probably won’t tell you how to save money by switching the category. You must know what you own and find the most tax-efficient category for each asset.
3. REVIEW YOUR RECORDS
You shouldn’t pay taxes on property or assets you no longer own. Once again, the tax office won’t know if you include the equipment you sold on your tax return. A thorough asset review and clean-up will ensure you don’t pay too much in personal property tax. Removing ghost assets from your books will decrease your tax bill.
4. KNOW WHERE YOUR ASSETS ARE
Remember, tax regulations vary by location. Businesses must know the accurate location of each asset. Many companies list the same piece of property in multiple locations. You should not pay taxes for the same item in three counties. We often find this issue in companies that recently merged, including nursing homes and doctor’s offices.
5. CHECK FOR SPECIALIZED EQUIPMENT
Specialized equipment, such as that for pollution control, recycling, or water treatment often qualify for favorable tax breaks. Counties either reduce the assessment or exempt the equipment from taxation. These types of tax breaks vary by location. If you have multiple locations, you’ll want to check with the local tax office for each site.
6. USE COMMON SENSE
Dealing with your local tax officials requires a “catch more flies with honey” approach. If you barge into their office making demands, you likely won’t get the results you want. These offices deal with thousands of returns. Like every business in America right now, many of them are short-staffed. Do your homework. Pick your battles. Only appeal when you have a strong case.
If you followed the first tip and already have an open line of communication with the tax officials, you’ll have a much easier time anytime you find an issue with your tax bill.
GETTING HELP CONTROLLING PROPERTY TAX EXPENSES
Deciphering tax bills and navigating tax appeals can be overwhelming. If you need help controlling your business property tax expense, Sharon H. Lyall, CPA, and staff can help. Our firm specializes in business real and personal property tax. We understand the complex regulations and unique nuances to help identify the best tax savings for your business. To get started, contact us today about a free no-obligation asset review. We’ll review your asset lists to see how we can help you reduce your property tax expenses.