Should You Appeal Your Business Personal Property Tax?

“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 harsh, but what would you say if someone tried to sell you one-year-old motel sheets for 90% of the original cost? This is a fair deal based on the appraisal district’s depreciation schedule.

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). Many jurisdictions require business owners to report BPP, personal property used for the production of income, to the appraisal district for assessment and taxation.

The vast 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?

You need to understand your state and local procedures to appeal your BPP. These are often found on the treasurer’s or Assessor’s website.

Tips:

Since the appraisal district’s staff tends to become more motivated to resolve appeals later in the season versus earlier, it is better to appeal or protest shortly before the deadline.
Even if you do not receive a notice of assessed value for your BPP account, sending a written notice of appeal or protest is still essential. 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, send the appraisal district a request. s to obtain a copy of any evidence the appraisal district plans to use at the ARB hearing. This request prohibits the appraisal district from using any information not provided to the property owner.

Market Value, Book Value & Assessor’s Schedule

Three popular options for describing value for BPP are market value, book value, and the Assessor’s schedule.

“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 difficulties of the other.

Let’s compare the differences between market value, book value, and the Assessor’s schedule. The BPP for a typical motel room includes bedding, linens, a window air-conditioning unit, towels, and a television. Based on market value, these types of items could probably only be sold for 10% to 30% of the original cost after one year. Based on federal depreciation schedules, book value indicates a value of 80% of the purchase price after one year. The Assessor’s schedule for BPP for offices may have an eight-year life with 10% depreciation for the first seven years. Hence, the Assessor’s schedule indicates one-year-old hotel furnishings are worth 90% of their original purchase price. This is inconsistent with the market value for these items.

Inventory

There are several 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 unpopular, it is often worth less than the cost. Market value is relevant in determining the assessed value for inventory for 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 to fifty times per square-foot for companies in the same industry. For example, real estate brokerage offices with 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 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 Assessor’s schedule to calculate the “market value” of property. The valuations for these rendered accounts tend to distort the actual value of these properties grossly. Property owners who do not render have values on the lower end of the value range. 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, appealing to BPP utilizing unequal appraisal is possible, a reasonably new concept. Most property tax consultants and large property owners have not considered or utilized unequal appraisal regarding BPP. Appraisal districts resist the concept of appealing BPP based on unequal appraisal. (It is inappropriate to tax property owners who use a fixed asset listing at the highest level, based on utilizing the Assessor schedule, when allowing property owners who do not render very lean assessment levels.)

Preparing an appeal based on unequal appraisal for BPP is simple. 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 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 to these two options, research unequal appraisal based on assessment comparables on the appraisal district’s website and evaluate the market value of your BPP. After reviewing 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 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 methodically.
The appraiser will review your information and their available information and will then likely make an offer to settle. Consider the appraiser’s offer, explain why your evidence is better than theirs, and again request a value between your and their value.
You will quickly learn the lowest value the appraiser is willing to accept. You must either agree to that value or proceed to the Appraisal Review Board (ARB) hearing.
If you settle the appeal at the informal level, you cannot pursue an ARB hearing or a judicial appeal. However, it does resolve the issue promptly.

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 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 AssAssessor’shedule and the 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.