Property tax assessments can be complex for both organizations and private citizens. Discover your property tax return needs and details with the following common questions and answers.
Do You Have to File Personal Property Tax Returns Every Year?
Yes, if you have assets in a jurisdiction that assesses personal property, there’s an annual filing requirement for personal property returns, also known as business personal property returns.
The assessment dates and filing deadlines vary depending on which jurisdiction the personal property is in. In some jurisdictions, there are de minimis rules for annual compliance that would require additional research for determining specific rules.
There are currently 38 states and the District of Columbia that require an annual personal property tax filing.
Can You File One Property Tax Return Per State or Jurisdiction?
Most jurisdictions require one personal property return per location. For example, if you have six locations in a particular jurisdiction, you’ll usually have to file six separate returns.
In some jurisdictions, there’s an exception to this rule for leasing companies or lease-like companies that are allowed to file a single return per jurisdiction, listing all their lessees and the location of the leased personal property.
Is Property Tax Software Required to File Property Tax Returns?
You don’t need property tax software to file tax returns.
Depending on the jurisdiction, personal property returns may be filed by hard copy or electronically on a platform listed on the assessing jurisdiction’s website. Some jurisdictions will allow only electronic filings, while others do not allow for electronic filing and all returns must be submitted or mailed to the jurisdiction and postmarked by the filing deadline.
While the use of property tax software systems isn’t required, there are definite advantages to using commercially available property-tax compliance software systems for preparing and filing returns.
Do Intangible Assets Need to Be Included in a Property Tax Return?
No, intangible property doesn’t need to be reported on a personal property return. The requirement is generally to report only tangible business personal property.
What’s the Penalty for Failure to File a Personal Property Tax Return?
Failure to file a personal property return will generally force the assessing jurisdiction to estimate the value of the personal property. A penalty may also be added, which varies from jurisdiction to jurisdiction.
For example, in California and Texas, the penalty for failure to file is 10% of the assessed value as determined by the assessor.
Are There Property Tax Exemptions or Exclusions?
Property tax exemptions may often be associated with not-for-profit entities, but some states have jurisdictions that allow for an exemption related to inventory held for resale or awaiting shipment out of the state, known as freeport exemptions. Freeport exemptions are based on the amount of inventory shipped out of state during the year.
Additionally, there are special-use exemptions in some jurisdictions that limit or reduce property valuation, such as agricultural exemptions and temporary exemptions for situations such as property damaged during natural disasters.
There are a number of common specific exemptions for residences, such as for primary homestead, for disabled veterans, and exemptions for people 65 or older. Regarding property tax exclusions, some jurisdictions allow exclusions for solar energy installations, fire-safety equipment, earthquake retrofitting, and pollution control equipment. Some jurisdictions also have exclusions for oak barrels used to age wine, computer software, and licensed vehicles.
What Assets Are Subject to Personal Property Tax Reporting?
The assets subject to personal property assessment vary from state to state, but generally would include fixed assets, including machinery and equipment, office furniture and equipment, IT equipment, farm or vineyard equipment, molds, tooling, and leased equipment.
In some states inventory, supplies, registered vehicles, leasehold or tenant improvements, and construction in progress of tangible personal property are considered personal property assets and are assessed. Assets generally not subject to personal property tax reporting include computer software, permit fees, intangible costs, financing fees, and items related to real property.
What’s the Difference Between Personal Property Tax and Real Property Tax?
Personal property tax is based on the assessment of tangible business personal property, as previously described. Real property tax is based on the assessment of land, buildings or structures, land improvements, and growing improvements such as vines or orchards.
What Is Business Personal Property Tax?
Business personal property tax is a tax based on the assessment of business personal property, which is based on the annual business property statement filed by the owner of the assets, for assets located at a particular location on the assessment date.
When Are Business Personal Property Tax Returns Due?
There is no definitive answer to this question, as the filing deadlines for the 38 states and the District of Columbia that require filing an annual personal property return varies.
Generally, a state will have a return filing due date consistent throughout the state. However, some states, such as Virginia, can have varying filing due dates from jurisdiction to jurisdiction throughout the year.
What Are the Indicators that Your Business or Personal Property May Be Overvalued?
While many different factors could indicate overvaluation of business personal property, some key considerations are:
- Is the property idle or not fully utilized?
- Are there outside economic factors keeping the property from its full use?
- Has the useful life of the asset been reduced or constrained in any way?
- Has the property been disposed of, but not reported to the assessor?
- Are there embedded costs beyond tangible personal property in the valuation including intangible costs such as software, fees, rights of way, or permits?
- Did the company acquire the property from an existing taxpayer in which the purchase price may be different from the original cost?
- Has the company evaluated all available exemptions including pollution control, foreign trade zones, and freeport?
What’s the Process for Appealing a Business Personal Property Tax Assessment?
Appeals for business personal property assessments are generally filed from receipt of either a notice of assessed value or from a personal property tax bill. Some jurisdictions require appeals to be filed with the assessor, while others require the filing with an assessment appeals board or the board of equalization.
Once filed, discussions with the assessing jurisdiction may occur and if an agreement is reached, corrections may be made without a formal hearing. If the assessor and the assessee cannot come to an agreement as to value, a formal hearing is held wherein both sides must present evidence supporting their opinion of value. The final decision is generally made by a board of equalization.
Who Pays Property Tax in the Year of Sale for a Business or Asset?
Each state has an assessment date—or lien date. While most states have a lien date of January 1, this can vary by state. Ownership on the lien date determines who’s responsible for paying the tax, although this can be negotiated between the two private parties involved in the sale of the business or business assets. One assessment per year is made as of the lien date and jurisdictions don’t prorate personal property taxes, regardless of the sale of an asset or a business.
Who Files Property Taxes on New Construction While in Progress?
Some jurisdictions assess construction in progress (CIP) for business personal property as a component of the personal property tax assessment. In the jurisdictions that assess CIP, the owner of the CIP of the lien dates is responsible for reporting those costs. Since most states do not require annual real property returns, this is not an issue for general construction in progress, as in the instance of constructing a building.
Do You Have to Report Net Book Value Zero Assets?
Assets that have a net book value of zero but are still in use by a business must be reported annually to the assessing jurisdiction. Only the sale, disposal, scrapping, or transfer of an asset will allow a taxpayer to cease reporting it.
What’s the Life Cycle of Property Tax Compliance?
The life cycle of personal property tax compliance can be summarized as follows:
- Obtain fixed asset listings, trial balances, and related financial information as of the assessment date for the situs to be filed.
- Review fixed asset classifications based on the appropriate taxing jurisdictions classifications and calculation of reportable supplies, inventory, and construction in progress, if applicable.
- Prepare and deliver the actual returns via the appropriate method—electronic or paper filing.
- Issuance of the assessed value notice or personal property tax bill by the assessing jurisdiction. Upon receipt of either the notice or tax bill, a review of the proposed assessment is recommended to verify accuracy of the assessment based on the personal property tax return as filed.
- As needed, an appeal of the personal property assessment may be filed to challenge the proposed assessment. If the proposed assessment is correct, no additional steps happen.
- Issuance of the personal property tax bill by the taxing jurisdiction. Upon receipt of the personal property tax bill, a quick review of the proposed assessment is recommended to verify accuracy of the assessed value. Personal property tax bills can be due as quickly as 30 days after issuance or several months later, depending on the taxing jurisdiction.
We’re Here to Help
Navigating state and local tax implications provides a unique set of challenges to every organization and individual. If you have more questions surrounding property tax or have specific questions regarding the state where you live or operate a business, contact your Moss Adams professional.