Businesses are often cost-conscious and looking for ways to maximize profits while reducing prices to consumers to remain competitive. One way to reduce expenses is by minimizing your property tax liabilities. A majority of state and local governments impose both a personal property tax and a real property tax. A property tax applies to the equipment and fixtures used to operate a store. A real property tax, on the other hand, applies to the land and building.
Personal Property Tax Savings Opportunities
If you can move it, it is personal property. Taxpayers generally report personal property taxes annually, and then a state or local government asses them. Only these 12 states don’t have personal property taxes: Delaware, Hawaii, Illinois, Iowa, Minnesota, New Hampshire, New Jersey, New York, North Dakota, Ohio, Pennsylvania, and South Dakota. If you are planning to invest in a new facility in one of these states, you’ll need to have a good understanding of the tax burden.
You may receive multiple tax bills for a single property, depending on the state/jurisdiction where the store is located. When comparing tax rates, some states apply an assessment ratio to the property value before applying the tax rate. Many states exempt intangible assets from taxation.
Many business owners don't know the tax impact of every internal procedure implemented. The lack of resources or expertise calls for guidance on handling matters such as property tax compliance to ensure the company is paying the correct property tax amount.
Some challenges that arise relating to personal property taxes include:
- Tracking of the fixtures and equipment physically located at the grocery store
- Identifying assets physically replaced as a result of wear and tear or the result of a departmental remodel
- Assigning appropriate physical useful lives to the fixtures and equipment in each location
Besides, personal property reporting requirements vary by local jurisdiction. Complying with the laws of each jurisdiction can cause confusion.
How to ensure you are only paying taxes on assets helping you produce revenue?
- Review view all of the fixtures and equipment in your store for reasonableness compared to other stores with similar floor plans or similar equipment types.
- Assess the equipment's classification based on the accounting records as compared to the jurisdiction's requirements for reporting that equipment. This ensures that the most appropriate statutory depreciation table is applied to the equipment for assessment purposes.
- To determine if the equipment was recorded appropriately, the purchase needs to be broken down into its parts to classify property tax reporting assets.
- Note assets reported on the personal property return that may be part of the real estate. Consider exemptions due to the nature of the property.
- Compare the property's fair market value to the assessment as determined by the state or local assessor.
- Rate the value of the store's equipment compared to similar equipment for sale in the open market, which will help determine if an appeal is warranted on the current year assessed value assigned to the grocery store's tangible property. It may be difficult for a business owner to determine if their property is reasonably valued.
- If needed, consider engaging with a consulting firm specializing in property taxes.
Real Property Tax Reviews
In most cases, the real property tax paid will exceed the amount of personal property taxes. Property tax revenue is a significant source of state and local revenue. There are complex regulations, filing requirements, deadlines, exemptions, abatements, and all can vary with each taxing jurisdiction.
Ensure that your organization has a plan to review your assessments annually to determine if the appraisal overstates the property's fair market value.
When analyzing, consider one or more of the three approaches to value - cost, income, and sales. You should also check competing properties to see their assessment on a per square foot basis.
In conclusion, if filing an appeal, check for factual errors with the assessment and summarize your findings impacting value. Otherwise, you could miss an opportunity to obtain tax savings. Paying only the minimum tax amount and meeting all compliance requirements often requires a professional property tax consulting firm's help.
Cost segregation and tax depreciation services help operators take full advantage of accelerated depreciation deductions for federal income tax purposes.