Business Personal Property & Taxes
By: George D. Abraham
CEO, Business Evaluation Systems
As stated in the tax code1, “Personal property” means property that is not real property. ”Tangible personal property” means personal property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does not include a document or other perceptible object that constitutes evidence of a valuable interest, claim, or right and has negligible or no intrinsic value. In other words it is a company’s furniture, fixtures, machinery, equipment and inventory.
In a recent article in the Galveston County News, more than one million property owners rushed to file protests after 9.6 million appraisal notices were mailed across Texas in 2006, a half million resulted in appraisal review board hearings that were conducted at county appraisal districts, and 5,600 resulted in lawsuits filed in state district courts. Since then, property values still increased and the protests and filings have continued. Needless to say there is a real need for machinery and equipment appraisals to help businesses establish the fair market value of their personal property.
Having spent three years with the Galveston County Central Appraisal District as a Panel Chairman of the Industrial Review board and settling over 1,400 protests, I can tell you that the Appraisal District welcomes a certified appraisal on a company’s personal property because it establishes the correct value that will benefit the company and the Appraisal District for many years to come.
The Appraisal District knows its values are weak, but it is up to the taxpayer to prove it. If the taxpayer does not correct (notice the word correct instead of whining) their value, the Appraisal District assumes they are probably correct or too low since they seem to be satisfied with the value.
Initially the Appraisal District sends out forms for each new company to list their values for personal property. If the value seems low, then an appraiser from the Appraisal District visits the facility. He may or may not introduce himself or speak to the owner. Based on his or her visual assessment the value will stay the same or is adjusted and the owner will find out the results on the next tax statement. Many of the adjustments are made from ratios of similar companies in that industry. If the company feels the resulting values are too high then the company can file a protest with the Appraisal Review Board and can present their case as to why the values are not correct. The Appraisal Review Boards are made up of private citizens and few have any appraisal training. It is their job to listen to the taxpayer and then hear from the appraiser from the Appraisal District that valued their property. Once each side has presented their case, the 3 members of the panel will vote to see who they think is right and what to do about the value. All of the hearings are recorded and are conducted like a mini court room.
From my experience, most of the members of the Review Board are always sympathetic to the taxpayer, but can only lower values for solid appraisal reasons such as functional or economic obsolescence. In almost all cases, when the business has an appraisal from a credible appraisal firm, the panel has to accept that value as it is a true appraisal and not an estimate that the appraisal district came up with. The Appraisal District understands this and has no problems with adjusting the values per the appraisal.
Establishing the correct fair market value benefits both the business and the Appraisal District as it established the correct base for their computer to depreciate the assets over their remaining useful life (RUL). Industry tables for RUL are pretty much accepted by each industry and are generally accurate.
Business Evaluation Systems appraisers can help a business owner in any state with the value of their business personal property including inventory.
1 State of Texas, Property Tax Code, Section 1.04 (4)(5)