All businesses are required to file a personal property declaration with the Washoe County Assessor each year and pay tax based on the taxable value of their personal property — 2021/2022 Notices to File personal property declarations have already been mailed and are due by July 31, 2021. Note that if a business fails to file a personal property declaration, the Washoe 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. With that in mind, here are five common errors taxpayers make that result in overpaying property tax: 1. 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. 2. 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. If you have a computer from 1998, chances are it was thrown away years ago. Remove it from the declaration and save a buck two in taxes. 3. 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. Correct lives can be found in the Nevada Personal Property Tax Manual; go here to find the 2021-22 tax year manual for Nevada. Pay particular attention to life expectancy guidelines by industry. Most industries have short life categories. Are you taking advantage of these? 4. 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 it cannot be removed without substantially damaging the item or land, then it is considered a fixture that 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 nonattached item. For federal depreciation purposes, many fixtures are listed as tangible personal property. Don’t make the mistake of including them on your personal property declaration. If you do, you will be double paying the tax, because they are often included in the real property tax assessment. This is always the case if you prepared a cost segregation study to take bonus or accelerated depreciation on your real estate. 5. 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. For example, if you owned a restaurant that was decimated by COVID, and the pandemic has a lasting negative impact on your business, you may be entitled to a reduction on BOTH real and personal property taxes. Make sure you have a fresh set of eyes look at your personal property declaration to ensure you are not overpaying your tax. Also, know that you can request an extension of time to file the form. Please note that this article is not designed to answer specific questions. Contact your tax advisor to get details on your specific situation. Michael D. Bosma, CPA, is Principal-in-Charge of Keystone CPAs. His monthly NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mbosma@keystone.cpa.
