What makes filing a personal property tax return so complicated?

Property tax isn’t just for businesses that own real estate. Suppose your business owns enough valuable personal property like machinery, equipment, or technology assets; personal property tax obligations can kick in depending upon your business’s location and your business’s jurisdiction(s).

Much like real property, business personal property taxes can be assessed (in certain states) based on the presumed value of company assets. Companies are responsible for maintaining an accurate inventory of all qualifying personal property. 

But it isn’t just managing company assets that complicates personal property tax. Filing returns can be enough to make any finance professional’s head spin. So, let’s look at what the challenges are and how to simplify the process of filing personal property tax returns:

• Property tax is primarily a paper-based tax type  
• Companies can have property in multiple jurisdictions 
• Companies need to assess the value of personal property 
• Personal property tax records need to be audit-ready

While many tax types are moving to electronic formats for filing returns, personal property tax isn’t one of them. Usually, one must prepare a return, print it on paper, and file it via physical mail. In rare cases, you must file them electronically.

If you find discrepancies between locations at any point after filing returns, you’ll need to incorporate the changes and amend your returns. Therefore, communication between operations, accounting departments, and business locations must be seamless.

Depending on where you’re filing, your returns must either be postmarked or received by the filing deadline — and in many cases, metered mail is not accepted. If it’s the latter, filing them in advance helps ensure mail service delays don’t impact your returns. Failing to submit on time can result in late fees or penalties, so it’s critical to understand when you need to mail your returns.

As with sales tax, having offices, storefronts, or warehouses in different locations can trigger personal property tax obligations in multiple jurisdictions. If that’s the case for your business, you must maintain accurate records of business personal property in each location. Suppose the jurisdiction is in a state that taxes personal property. In that case, you’ll receive a personal property tax assessment from the local assessor. 

Each jurisdiction can set its rules around appeals windows, filing deadlines, and form requirements, and can have many other nuances. Creating and following the proper process for each jurisdiction is the responsibility of your business, regardless of how many locations you have personal property tax obligations in. 

And jurisdictions can change the rules and regulations at their discretion — and often do. You must understand and follow the correct procedures for every jurisdiction where you file.

When your company has business personal property tax obligations, you must maintain an accurate record of all qualifying property. Property appreciation, or depreciation and inflation, can cause fluctuations in property values from year to year.

And, of course, it isn’t a straightforward calculation. For instance, the value of your employees’ computers will likely depreciate more rapidly than manufacturing or farming equipment. The value of certain assets, like artwork or collectibles, may increase in value. Inflation can affect different types of property differently.

The assessor will assign a value for real property assets based on what they can see and measure. Typically, the assessor doesn’t have knowledge of your business’s personal property and therefore requires you to complete a form to categorize each asset, report its cost, and determine its age and useful life. Property categorization is crucial as it determines whether it’s taxable or nontaxable. Essentially, you’re giving the assessor enough information to assign a value to the asset; thus, you must prepare your return adequately to avoid over- or underpaying taxes.

Paying too much is a disadvantage for your bottom line. However, underpaying your tax obligations can open you up to even more financial risk in the event of an audit. You’d be responsible for unpaid taxes and may be subject to late fees and penalties.

Speaking of audits, assessors periodically audit business personal property taxes. Audits can happen for various reasons. However, if the assessor chooses your business for an audit, you must produce documentation to justify the asset classification and valuations you used to calculate your tax bill.

The more organized and structured your business personal property tax process is, the easier it will be to access the records an auditor requests. The quicker your business can complete an audit, the less disruptive and expensive it can be.

Having an efficient, reliable process also makes it easier for your tax team to monitor assets and accurately assign values, reducing the risk of errors an auditor will find.

As complicated and risky as personal property tax can be, automating much of your compliance process may make the most sense for your business. Solutions like Avalara Property Tax can save time and improve accuracy through automation and machine learning. 

You can scan your tax bills, and our software extracts the relevant data. Avalara also helps you maintain asset records, calculate appreciation or depreciation, and manage form preparation and deadlines for the jurisdictions you’re required to file in. Avalara Property Tax also centralizes all tax information between departments and locations.

Avalara experts constantly monitor rule changes and update our software to reflect new regulations. You can also create on-demand reports to help with personal property tax appeals or audits.

If you think Avalara can help you manage your property tax obligations, schedule a call with us today.