Common errors to avoid when paying personal property tax

All businesses are required to file a personal property declaration with the county assessor each year and pay tax based on the taxable value of their personal property. The 2013/2014 Notices to File personal property declarations will be mailed in the coming weeks, and are due by July 31, 2013. Note that if a business fails to file a personal property declaration, the county assessor will make an estimate of the property’s taxable value. Even if a business owns no property, it is still required to submit a declaration stating that fact.

The taxable value of property is determined based on the type of property, the amount paid for the property, and the year placed in service. The taxable value is reduced by a statutory amount of depreciation each year.

Some common errors that taxpayers make which result in overpaying property tax are:

Declaring the wrong cost of equipment. Many taxpayers report the same amount on their personal property declaration that they have on their tax depreciation schedules. The amount of cost declared on your personal property declaration should be reduced by certain adjustments, including the sales tax paid when items were purchased.

Reporting assets that are no longer in service. Property does not fully depreciate for personal property tax, regardless of how old it is. Even though the taxable value is reduced each year for depreciation, there is a residual amount that remains on the declaration and is taxed each year, unless removed by the taxpayer. If an asset has been removed from service in your business, make sure that it is also removed from the personal property declaration.

Selecting incorrect lives for assets. As part of the declaration you are required to select the appropriate asset class for each piece of property. If the wrong asset class is selected, the property may depreciate slower than it should, resulting in a taxable value that is higher than it should be.

Reporting assets that are exempt from personal property tax. The property required to be reported on the declaration is all property that is not “real estate” or “real property.” Whether an item is considered personal property or a fixture of real property can sometimes be confusing. Generally speaking, if an item is permanently attached to or permanently resting upon land or an improvement, and cannot be removed without substantially damaging the item or land, then it is considered a fixture which is not included in personal property. Also, a piece of property that is not permanently attached to the land is considered a fixture if it is a necessary, integral or working part of the land improvement, designed or committed for use within the land improvement, or so essential to the land improvement that the land or improvement cannot perform its desired function without the non-attached item.

Not adjusting for assets that have lost value. If the property, or the total business, has a fair market value that is lower than the taxable value of the property, you can request a reduction in the taxable value.

This article is not designed to answer specific questions. Contact your tax advisor to get details on your specific situation.

Jack Buice is a manager of the Bosma Group PC in Reno. Contact him at 775-786-4900 or through thebosmagroup.com.