Top 6 Personal Property Tax Compliance Issues

Thirty-seven states impose a personal property tax. For companies that conduct business and own property in multiple states, a top concern is maintaining compliance. This article explains how to manage the top six personal property tax asset categories our clients inquire about. 

  1. Supplies. Consumable items, or supplies that are a part of the end product, are treated differently across the country. Some jurisdictions allow them to be excluded from reportable supplies. All supplies should be reported as requested by the individual state; for example, by ending balance or annual average. 
  2. Inventory. Some states exempt inventory entirely, while others offer specialized exemptions for portions of inventory. These exemptions can be extremely substantial. Freeport exemptions, for example, provide an exemption on goods detained in some states for a prescribed period. 
  3. Expensed Assets. Most assessors require all assets physically located on-site as of the lien date to be reported. This can include assets that fall below a taxpayer’s capitalization threshold. All reportable personal property should be considered, including assets that have been expensed.
  4. Leased Equipment. Most jurisdictions require the disclosure of assets on-site that are leased by a taxpayer. Filing requirements should be carefully reviewed. 
  5. Soft Costs. Some states explicitly require the inclusion of soft costs, such as freight and installation, in the reportable business personal property original cost. Others allow the return preparer to remove freight, installation, and sales or use tax. Removing soft costs can result in substantial tax savings on expensive, complex, or voluminous assets.
  6. Software. Many jurisdictions grant exemptions for software. Others treat internally developed software and purchased, or canned, software differently. Return instructions and state statutes should be reviewed to determine if software costs are reportable.

From return filing to value review to tax bill processing, consider outsourcing your property tax compliance. You’ll gain the benefit of professional experience in accurate return filing, and eliminate late filing and tax bill payment penalties.