The Texas Property Tax Code for lots of years had required owners of small business personal property (BPP) to annually render those assets employed in a home business. Rendering is summarizing to the central appraisal district the ownership and value of the assets. Historically, on the other hand, over half of all owners of home business personal property have not rendered.
The Texas law was unusual in that though rendition was mandatory, there was no penalty for not rendering. Consequently, lots of property owners did not render since it was not material, was not convenient or would dramatically enhance their tax liability. For a great number of smaller home business owners, the value of the personal property and the associated property taxes are modest and not a material problem for the enterprise.
Chief appraisers at central appraisal districts and tax entities have lengthy been concerned that a material quantity of business individual property is not becoming taxed. There is a reasonable concern that if company personal property owners are not becoming taxed equitably with actual property owners, the burden of taxation is shifted from owners of individual property to owners of actual property.
Impetus for Alter
A variety of factors combined to make enterprise individual property rendition a hot subject. In Robinson vs. Budget Rent-a-Auto Systems, a 2001 appeals court choice, the court clarified that the chief appraiser may possibly sue to force a business personal property owner to render BPP. In addition to the objective of chief appraisers to equitably spread the burden of property taxation, fiscal shortfalls at many city, county and school entities as properly as at the state level have raised the government's require to make sure it is receiving all due revenue based on present tax laws.
While Robinson vs. Spending budget allowed chief appraisers to sue property owners who did not render, this was a largely unsatisfactory remedy due to the monetary expenses and political stigma of chief appraisers suing large numbers of taxpayers. The other achievable remedy was for chief appraisers to "guess high" on assessed values in order to successfully force organization individual property owners to provide facts. Fortunately, few chief appraisers have chosen this choice.
Summary of the New Law
Throughout the summer of 2003, the Texas legislature put some teeth into the rendition law by passing Texas Senate Bill 340. Starting in 2004, a enterprise that does not render will automatically pay a 10% penalty on its organization personal property tax bill. This penalty will be collected by the chief appraiser, despite the fact that there are solutions to appeal the penalty. There is also a 50% penalty for filing a fraudulent rendition. In addition, filing a fraudulent rendition is a criminal offense.
Rendition Requirements
Owners of business individual property with an aggregate value of much less than $20,000 can file a simplified rendition statement containing only: 1) the property owner's name and address 2) a general description of the property by type or category and 3) the location of the property. Owners of small business personal property worth more than $20,000 ought to file a rendition with: 1) the owner's name and address 2) a description of the property for inventory 3) a description of each and every sort of inventory 4) a general estimate of the quantity of every type five) the property's physical location and 6) either the owner's good faith estimate of the property's marketplace value or the property's historical cost new and its year of acquisition.
If the owner merely delivers a very good faith estimate of the property's marketplace value the appraisal district might request a statement of supporting info indicating how the property owner determined the value rendered. This detailed statement need to be delivered inside 21 days right after the date the property owner receives the request.
Rendition Deadlines
The rendition addresses home business individual property as of January 1st of the tax year and could possibly be filed annually between January 1st and April 15th. There is an automatic extension of the filing deadline until May perhaps 15th upon written request. The chief appraiser could extend the filing deadline for an further 15 days (until Might possibly 30), if the property owner files a written request showing superior cause.
Amnesty Provision
With the new legislation the Texas Property Tax Code also provides property owners a unique rendering provision for the 2003 tax year. If owners render BPP just before December 1, 2003 the appraisal district might revalue the property for tax year 2003. Revaluation is likely to occur if there was no prior account for the property or if the rendered value greatly exceeds the existing assessed value.
In spite of this, exercising the special rendering, or amnesty, provision in 2003 makes it possible for the property owner to steer clear of omitted property taxes for the two prior years. When business enterprise personal property not already on the tax rolls is discovered, the Texas Property Tax Code demands it be assessed at the market value for the two prior years. For example, if small business individual property had been discovered in 2003, the appraisal district would also typically assess the property for 2001 and 2002. By rendering during the established amnesty window, September 1, 2003 via November 30, 2003, the property owner avoids the exposure of paying property taxes for prior years.
What is Small business Personal Property?
The Texas Property Tax Code 1.04 (5) defines tangible personal property as property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does not incorporate a document or other perceptible object that constitutes evidence of a valuable interest, claim, or suitable and has no negligible or intrinsic value. Examples of tangible personal property, or business individual property, contain equipment, furniture, computers, and inventory. Company individual property would not contain accounts receivable, stocks, bonds, notes, franchise agreements, licenses, permits, certificates of deposit, insurance policies, pensions, contracts and goodwill.
Marketplace Value Definition
Market value is defined in the Texas Property Tax Code 1.04 (7) as the cost at which a property would transfer for money or its equivalent under prevailing marketplace conditions if: a) exposed for sale in the open market with a reasonable time for the seller to discover a purchaser b) both the seller and the purchaser know all of the uses and purposes to which the property is adapted and for which it is capable of being utilised and the enforceable restrictions on its use and c) both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.
Market Value vs. Book Value
Marketplace value could be less than or even more than book value. For example, the value of a 3-month-old pc may possibly be one-half of the initial acquisition cost. The book value based on IRS tax per IRS depreciation schedule would be 95% of cost based on a 60-month depreciation schedule. Other examples of items whose market value may decline sharply soon after being placed in service consist of cars, linens and bedding at motels, phone systems, copiers, and furniture.
Other Valuation Problems
Inventory shall be valued at the price for which it will sell as a unit to a purchaser who would continue the company. Due to problems such as pilferage, obsolescence, and damage, the marketplace value of inventory may well be much less than the book value of the inventory. The assessed value of the furniture, computers, and equipment will need to be the price for which it could be sold.
Issues for Appraisal Districts
Despite the fact that appraisal districts lobbied aggressively to insure this bill passed, it poses a lot of challenges and problems for appraisal districts. The first challenge is how to procedure a big number of renditions. Then, the appraisal districts will have to choose whether or not to aggressively request extra details if the owner gives market value instead of supplying a fixed asset listing (property description, year of acquisition, and acquisition price). The appraisal districts will also have to decide how a lot consideration to give the owner's estimate of market value, especially if it is sharply below the appraisal district's assessed value.
At least one chief appraiser believes the new rendition requirements may delay certification since appraisal districts must wait to receive the renditions prior to mailing notices of assessed value. The higher level of renditions will impose extra challenges for appraisal district staff in up-front processing and will likely call for further protest hearings. Appraisal districts are normally leanly staffed and will have to be creative and successful to handle a likely meaningful boost in small business individual property renditions and appeals.
Practical Considerations for Property Owners
One nettlesome problem for owners of smaller amounts of enterprise individual property is no matter whether the penalty for not rendering is incentive enough to render. Contemplate the following example: Bob owns a little business enterprise and has home business individual property reasonably worth $5,000. It is assessed for $5,000. The annual individual property taxes, based on a 3% tax rate, are $150. The penalty for not rendering is $15. Must Bob make sending the rendition form to the appraisal district a priority above working with his buyers, seeking new buyers, and working with his staff?
Owners of company individual property who either are not on the tax rolls or whose property is grossly under-assessed will have to decide no matter if to render. It is clear that the law demands owners to render and there is now a 10% penalty if you do not render the amnesty provision supplies a modest incentive to render. Give some thought to the following example: Charlie owns a wholesale distribution organization with $995,000 in inventory and $5,000 in furniture and equipment. But, Charlie's present BPP assessment is $100,000 and annual taxes are $three,000. If he does not render he will likely pay annual taxes of $three,000 and a 10% penalty for a total of $three,300. If Charlie does render, his home business individual property taxes will improve to $30,000 per year. It is clear that owners of small business personal property are needed to render and that there will be a 10% penalty for not rendering beginning in 2004. No matter whether owners render will depend partly on their records, risk tolerance, and corporate culture.
Conclusion
The new business enterprise individual property rendition requirements will sharply boost compliance with rendition laws over the next 3 to five years. Numerous little business enterprise personal property account owners will likely not address the issue until receiving a 2004 tax bill with a 10% penalty for failing to render. It is unclear how several sizeable accounts are either not on the tax roll or are substantially undervalued. It is clear there are some, but from a practical perspective this writer has not seen or heard of numerous such instances.
The benefits of the law are that it will make taxation more equitable between home business personal property and actual property. It will also make company personal property taxes a lot more equitable between those who do and do not render. Less appealing functions of the new rendition requirements are an improve in tax revenue and an improve in paperwork for businesses.
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