Don’t Tax Yourself
by Dick Barnes, Principal, The Freeland Group

(This article is significant for organizations in Washington State and other states with personal or business property tax levies)

An unwelcome event for any business person is the annual arrival of their Personal Property Tax Affidavit.  At the beginning of the year each County Assessor sends this form to every business that might have more than $3,000 value in personal property.  That first $3,000 is exempt, but the total value of assets over that amount will be billed at the same rate as real property.

Unfortunately far too many business owners fail to return their properly completed forms on time, if at all.  Some assume that the County will simply figure they are under the $3,000 limit and will not send out a bill.  Sometimes that works, but not often.

What normally happens?  The Assessor estimates the value of the property and might make a high-end estimate in order to get the owner’s attention.  As if that’s not bad enough, the upcoming bill will include a whopping 25% penalty.

Often times the affidavit form gets tossed out because the property owner has not purchased any new equipment so feels it is unnecessary to file.  This is simply not true, and the 25% penalty on the following year’s tax billing will be a rude reminder of this fact.  There is another downside to failing to file; equipment is normally depreciated, by the assessor, each year so the taxable base will go down.  If you fail to return the affidavit your depreciable assets can be frozen at the last value and will not be reduced until such time as you do file.  If you fail to file for a couple of years you will not only be paying the penalty each year, but paying it on equipment that might have been zeroed out.

Even those who file on time, every year, sometimes get burned.  Many fill out the “new property” section with their entire list of equipment.  If you’re one of those folks the Assessor thinks you’re buying that much new equipment each year and your taxes will go up accordingly.  Assessors call this “pyramiding.” 

Some fail to properly fill out the page that allows an owner to delete equipment that has been removed.  They will pay taxes on that eliminated property until the depreciation schedule zeroes it out.  This is common when the affidavit is simply handed off to an accounting firm.  Some organizations include their cars and trucks, taxable through license fees and not as property, so end up paying twice on their vehicle fleet.

A common problem with organizations that own a large number of personal computers is the overvaluation of software.  Most businesses buy one set of software and load up all their computers using that one set.  Because of laws regarding copyright infringement the assessor  may take the total value of all the software owned and multiply that value by the number of computers in the office.  First find out how the assessor is estimating the value of your software, then, if appropriate, reduce this valuation by placing only the software needed on each computer. 

Of course, that action will produce no benefit unless you let the assessor know what you have done.  If you lease your computers and software it is almost a certainty that you are paying too much property tax, but it is hidden in the lease and there is often times little you can do to remedy the situation.

Manufacturers must also be careful.  Production lines may sit idle for years and an owner may leave costly equipment on site simply because the market might come back.  The assessed value of the equipment may have been calculated based on its supposed production value or economic return.  The assessor would not know that the line was closed down and gathering dust, or that a warehouse is sitting empty, or that a piece of equipment cannot be used until an expensive repair is made.  If old equipment is costing a fortune in maintenance the assessor should be made aware of this.  By keeping the assessor tuned in to these problems you might be able to save your company some real dollars.

The best idea, all around, is to file the affidavit before the April 30 deadline and to call on your County Assessor’s office if you have concerns.  I have found it is usually to the business owner’s benefit to make certain that information is correct and up to date.  Don’t tax yourself if you don’t have to.