Appealing Business Personal Property Tax Assessments In Texas

Appealing Business Personal Property Tax Assessments In Texas 1

Appealing Business Personal Property Tax Assessments in​ Texas
Collecting more taxes than is​ necessary is​ legalized robbery .​
These words of​ wisdom,​ spoken by the​ 13th president of​ the​ United States,​ Calvin Coolidge,​ still ring true in​ today's society for homeowners and business owners .​
Robbery may seem like a​ harsh word,​ but what would you​ say if​ someone tried to​ sell you​ one-year-old motel sheets for 90% of​ the​ original cost? Based on​ the​ appraisal district's depreciation schedule,​ this is​ a​ fair deal .​
Most people would not consider this a​ fair deal and either reject the​ offer or​ request a​ lower price .​
This should be the​ same thought process when the​ appraisal district overassesses your business personal property (BPP) .​
Texas law requires business owners to​ report BPP,​ personal property used for the​ production of​ income,​ to​ the​ appraisal district for assessment and taxation .​
Although there are no criminal penalties for not complying with the​ law,​ there is​ a​ penalty of​ 10% of​ the​ taxes .​
For example,​ if​ you​ have a​ BPP account assessed for $100,​000,​ your annual BPP taxes are $3,​000,​ based on​ a​ 3% tax rate .​
The 10% penalty for this BPP account would be $300 ($3,​000 times 10% equals $300) .​
The huge range of​ assessed value for business personal property (BPP) makes obtaining substantial property tax reductions highly probable .​
It is​ not unusual for the​ range of​ assessed value for BPP accounts for similar properties to​ vary by 5,​000%! For example,​ furniture and computers for companies within the​ same office building sometimes vary from $1 to​ $50 per square foot .​
Market value and unequal appraisal are two options for appealing BPP assessments .​
Given the​ inequity in​ BPP assessments and the​ subjectivity of​ valuing BPP,​ property owners have a​ high probability of​ success when properly prepared for a​ BPP assessment appeal .​
Protest both market value and unequal appraisal .​
How to​ appeal?
To appeal your BPP,​ you​ can either use the​ Comptroller's form,​ or​ send a​ letter to​ the​ appraisal review board (ARB) on​ or​ before May 31st of​ each year .​
The protest letter to​ the​ ARB should identify the​ property and the​ reason for your protest (section 41.44d of​ the​ Texas Property Tax Code) .​
· Since the​ appraisal district's staff tends to​ become more motivated to​ resolve appeals later in​ the​ season versus earlier in​ the​ season,​ it​ is​ better to​ appeal or​ protest on​ May 31st or​ shortly before the​ deadline date .​
· Even if​ you​ do not receive a​ notice of​ assessed value for your BPP account,​ it​ is​ still important to​ send a​ written notice of​ appeal or​ protest .​
The appraisal district does not have to​ send a​ notice of​ your assessed value if​ the​ value does not change by more than $1,​000 .​
If the​ notice of​ assessed value gets lost in​ the​ mail,​ and you​ do not send a​ protest notice,​ you​ lose your right to​ appeal for the​ current year .​
When sending a​ notice of​ appeal to​ the​ ARB,​ also send the​ appraisal district a​ House Bill 201 request .​
House Bill 201 refers to​ section 41.461 of​ the​ Texas Property Tax Code that allows property owners to​ obtain a​ copy of​ any evidence the​ appraisal district plans to​ use at​ the​ ARB hearing 14 days before the​ hearing .​
This request prohibits the​ appraisal district from using any information that was not provided to​ the​ property owner 14 days before the​ ARB hearing .​
Market Value,​ Book Value & Comptroller Schedule
Three popular options for describing value for BPP are: market value,​ book value,​ and the​ Comptroller's schedule .​
Market value is​ defined in​ section 1.04(7) of​ the​ Texas Property Tax Code that reads as​ follows:
Market value means the​ price at​ which a​ property would transfer for cash or​ its equivalent under prevailing market conditions if:
(a) exposed for sale in​ the​ open market with a​ reasonable time for the​ seller to​ find a​ purchaser,​
(b) Both the​ seller and the​ purchaser know of​ all the​ uses and purposes to​ which the​ property is​ adapted and for which it​ is​ capable of​ being used and of​ the​ enforceable restrictions on​ its use,​ and
(c) Both the​ seller and the​ purchaser seek to​ maximize their gains and neither is​ in​ a​ position to​ take advantage of​ the​ exigencies of​ the​ other.
Let's compare the​ differences in​ value resulting from using market value,​ book value and the​ Comptroller's schedule .​
The BPP for a​ typical motel room includes items such as​ bedding,​ linens,​ window air-conditioning unit,​ towels and a​ television .​
Based on​ market value,​ after one year,​ these types of​ items could probably only be sold for 10% to​ 30% of​ the​ original cost .​
Book value,​ based on​ federal depreciation schedules,​ indicates a​ value of​ 80% of​ the​ purchase price after one year .​
The Texas Comptroller's schedule for BPP for motels has an​ eight-year life with 10% depreciation for the​ first seven years .​
Hence,​ the​ Comptroller schedule indicates one-year old hotel furnishings are worth 90% of​ their original purchase price .​
This is​ clearly inconsistent with market value for these items .​
There are a​ number of​ controversial issues related to​ how inventory is​ assessed .​
These include shrinkage,​ damage,​ functional obsolescence and economic obsolescence .​
For example,​ what is​ the​ market value of​ merchandise returned during the​ week after Christmas on​ January 1st (the effective date for valuation)? Since returned merchandise has usually been opened,​ damaged,​ missing parts or​ may be an​ unpopular item,​ it​ is​ worth less than cost in​ many cases .​
Market value is​ relevant in​ determining the​ assessed value for inventory for Texas BPP taxes .​
Preparing a​ Summary For Your Hearing
the​ appraisal district would prefer to​ see a​ fixed asset listing,​ which includes the​ original cost and date of​ acquisition for every asset purchased .​
However,​ a​ fixed asset listing is​ not required .​
This is​ good news for small businesses that do not maintain a​ fixed asset listing .​
Unequal appraisal
Assessed values for BPP accounts often range from ten-times to​ fifty-times on​ a​ per square foot basis for companies in​ the​ same industry .​
For example,​ real estate brokerage offices,​ which have 10,​000 square feet of​ office space,​ may have assessments ranging from $10,​000-$500,​000 .​
It seems unlikely that the​ computers and furniture in​ one brokerage office are 50 times as​ valuable as​ those in​ a​ competitor's firm on​ a​ per square foot basis .​
Appraisal districts tend to​ accept the​ assessed value rendered by property owners .​
Many large companies render using fixed asset listings .​
Appraisal districts use the​ cost basis information and the​ Comptroller's schedule to​ calculate the​ market value for property .​
The valuations for these rendered accounts tend to​ grossly distort the​ actual value of​ these properties .​
Property owners who do not render have values on​ the​ lower end of​ the​ range of​ value .​
While it​ seems intuitive that appraisal districts would penalize owners who do not render by sharply increasing their assessed values,​ the​ practice is​ the​ opposite .​
Appraisal districts tend to​ reward property owners who do not render by leaving their assessed values at​ modest levels .​
This creates a​ disincentive to​ render .​
It also unequally taxes property owners who render with a​ fixed asset listing .​
These factors have caused a​ high degree of​ dispersion in​ BPP assessed values .​
How to​ Appeal on​ Unequal Appraisal
Contrary to​ popular belief,​ it​ is​ possible to​ appeal BPP utilizing unequal appraisal,​ a​ concept that is​ fairly new .​
Most property tax consultants and large property owners have not considered or​ utilized unequal appraisal regarding BPP .​
Appraisal districts are resistant to​ the​ concept of​ appealing BPP based on​ unequal appraisal .​
(It is​ inappropriate to​ tax property owners who render using a​ fixed asset listing at​ the​ highest level,​ based on​ utilizing the​ Comptroller schedule,​ when allowing property owners who do not render very lean levels of​ assessment.)
Preparing an​ appeal based on​ unequal appraisal for BPP is​ simple and straightforward .​
Start by obtaining information on​ the​ assessed value,​ and amount of​ office space/manufacturing or​ warehouse space for property owners similar to​ the​ subject property owner .​
This is​ typically done by using companies with the​ same Standard Industrial Code (SIC) as​ the​ subject property owner .​
You can obtain this information by sending an​ open records request to​ the​ appraisal district .​
When appealing,​ research the​ assessed value for your competitors .​
Compile data regarding the​ assessed value and building area for the​ subject and comparable accounts into a​ summary:
When should you​ appeal?
Appeal annually on​ market value and unequal appraisal .​
To effectively appeal on​ these two options,​ research unequal appraisal based on​ assessment comparables on​ the​ appraisal district's web site and evaluate the​ market value of​ your BPP .​
After reviewing both the​ unequal appraisal and market value options,​ determine your primary focus for appealing your BPP account .​
If neither market value nor unequal appraisal provides a​ basis for appealing your property taxes,​ you​ can withdraw the​ notice of​ protest or​ just skip the​ hearing .​
Tips for your hearing (Informal & ARB)
Informal hearing
· First meet with the​ appraiser and politely explain the​ basis for your adjustment .​
Give the​ appraiser a​ copy of​ your evidence and explain it​ in​ a​ methodical way .​
· The appraiser will review your information and the​ information he/she has available,​ and will then likely make an​ offer to​ settle .​
Consider the​ appraiser's offer and explain why your evidence is​ better than his/her evidence,​ and again request your value or​ a​ value between your value and his/her value .​
· You will quickly learn the​ lowest value the​ appraiser is​ willing to​ accept .​
At this point,​ you​ need to​ either agree to​ that value or​ proceed to​ the​ Appraisal Review Board (ARB) hearing .​
· If you​ settle the​ appeal at​ the​ informal level,​ you​ will not be able to​ pursue an​ ARB hearing or​ a​ judicial appeal .​
However,​ it​ does resolve the​ issue in​ a​ timely manner.
ARB hearing
· Introduction of​ the​ two parties at​ the​ hearing
· Explanation of​ the​ hearing process
· Property description (address any errors in​ the​ description of​ your property after the​ appraiser's description of​ your property)
· Property owner presentation
· Questions from the​ ARB panel members
· Appraisal district presentation
· Rebuttal and closing evidence from the​ property owner
· ARB announces its decision
Summary Points
· Annual appeals will minimize your BPP property taxes .​
· There are huge differences between the​ market value estimated by the​ Comptroller's schedule and actual market value .​
· Based on​ excessive assessments for BPP for companies who render using a​ fixed asset listing,​ a​ low percentage of​ property owners who render and the​ low assessed values for property owners who do not render,​ there are rich opportunities for appealing BPP by using unequal appraisal.

Appealing Business Personal Property Tax Assessments In Texas

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