May 29, 2020 Understanding Business Personal Property Tax Impact

Q&A With Chip Saam, Property Valuation Services

Q:           Tell us about yourself, your background?

A:            I completed my undergraduate work at the University of Michigan and earned an MBA at Wayne State University in Detroit.  I have been in the property tax field for over 30 years – earning the CMI designation from the Institute for Professionals in Taxation and receiving my equipment appraiser designation from the American Society of Appraisers in 2008.

Q:           What is Business Personal Property Tax, how does the equipment impact a company’s taxes?

A:            Personal property is typically defined as anything that can be felt or touched that is not real estate (land and building).  Another characteristic commonly associated with personal property is that it is movable.  Business personal property tax is a tax based on the estimated fair market value of a business’ equipment, furniture, and fixtures.  Effective property tax rates generally range from 1% to 4% across the United States but not all states tax personal property.

Q:           How is equipment currently valued on returns and by the local Assessor?

A:            Typically, equipment is classified by type and then placed on a depreciation schedule.  The cost of the equipment is multiplied by a percentage of depreciation to get an estimate of fair market value.  An assessor may use their own depreciation schedules or there may be state mandated schedules.  There are also some states that base the valuation of personal property on federal income tax depreciation information.

Q:           What can be done differently?  Isn’t that the way it is supposed to be handled?

A:            We do a thorough review of a business’ asset listing and compare it to items in a database we’ve built over 25 years to help identify opportunities for savings.  During this process, we review the age, cost, and manufacturer of the equipment and compare that information to market data for additional opportunities. We look to revalue personal property using multiple valuation methodologies, similar to what might be used with regards to different real estate valuation methods, so we can lower personal property values.

Q:           What methods do you use to revalue these pieces of equipment?

A:            With the right evidence, assets can be classified differently and placed on depreciation schedules that depreciate faster.  The taxable cost of an asset can also be modified to reduce the taxable basis, we have developed this methodology, unique to PVS, over the past 20+ years where we are able to identify exempt component costs of the equipment and remove those from the initial tax base.  Both of these approaches will result in a lower estimate of fair market value.

Q:           How does that save a company money?

A:            By using the methodologies discussed above, we lower the estimated fair market value of equipment.  Anytime you can do that, a company’s corresponding tax liability is reduced.  We also review the filing methodologies used on prior year returns to see if there are any opportunities for classing assets as non-taxable or exempt from taxation.

Q:           Will they have to do this every year?

A:            Typically, the filing methodology is maintained from year to year and the analysis would only need to be done on new equipment purchased within the prior 12 months.  However, we are always researching equipment to identify new possibilities for tax savings.

Q:           Give an example of the type of assets/equipment where this might apply?

A:            Any equipment with computerized components, an MRI machine for example, or assets that have a more rapid decline in value than is indicated by the depreciation schedules used by an assessor.  We have been successful in using our methodologies on major medical equipment such as MRI, CTs, and PET scanners as well as manufacturing equipment and movie projectors.

Q:           Is this type of valuation work what sets PVS apart?

A:            That, along with our attention to detail and level of customer service.

Q:           How has the COVID-19 Pandemic changed how PVS has filed returns and provided services for their Clients?

A:            Honestly, the only change is that we are working remotely.  Some jurisdictions have extended the due date for personal property tax returns, tax bills, and appeals but, other than that, it has been business as usual.  We gather most information electronically and through various programs we can work as if we were in the office.  We have a limited staff in the office processing and mailing returns.

Q:           How has this Pandemic changed the landscape of Business Personal Property Tax?

A:            The impact of COVID-19 will likely be more evident in the valuation and taxation of real estate as that is often based on income.  In regards to personal property, there could be a case made that certain pieces of equipment were used much more frequently during the pandemic and, therefore, should receive some consideration for additional depreciation due to increased wear and tear.  Also, there likely will be more assessor’s offices developing systems and allowing for electronic filing in the future based on their experiences this year.

Chip Saam

Chip Saam is PVS’ technical director, overseeing our hospital department returns and managing the hospital team. He is also a licensed ASA equipment appraiser specializing in high-tech medical equipment valuation. Chip was formerly the tax director for one of the largest hospital corporations in America before coming to PVS and is now the foremost expert in valuing high-tech medical equipment assets.

https://propertyvaluationservices.net

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