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Strategies to Reduce Manufacturer Personal Property Taxes

We find that many manufacturers and distributors are overpaying on their personal property taxes. In fact, if the general fixed assets ledger is used to file personal property taxes, there’s a 99 percent chance you are overpaying on personal property taxes. Let’s explore ideas and strategies to reduce your personal property tax bill.

Reduce Personal Property Taxes: Nine Strategies

How a manufacturer or distributor reports personal property assets at the local level (i.e. city, county, state) differs as to how personal property is treated for income tax purposes at the federal level.

The guidelines around what is taxable or not taxable are important to understand. Here are nine strategies to consider when helping reduce personal property taxes.

  1. Remove “Ghost” Assets – Often, a business puts assets on the books and then gets rid of them. For example, new cleaning equipment is purchased. The old equipment is discarded, but both the old and new cleaning equipment remain on the books. Make sure the old assets are removed from the books.
  2. Faster Depreciation – Proper classification of personal property assets can speed depreciation and reduce the taxable value of the asset.
  3. Real Estate Assets Improperly Classified as Personal Property – Fixed real estate assets are sometimes carried on the books as personal property; items include flooring, lighting, carpet, etc. This creates a double tax payment of these assets as both real and personal property.
  4. State Exemptions of Software – In some states, certain types of software, particularly customized software, is exempt.
  5. Machinery and Equipment with Computerized Controls – The software and computer controls have a faster depreciation schedule than machinery and equipment. For example, if a $1,000,000 piece of equipment includes $400,000 of software and computer components, it is important to break out the $400,000 as a separate entity and save taxes with the adoption of a faster depreciation schedule.
  6. Idle Equipment Due to Disasters or Reduced Demand – If certain machinery or equipment is idle due to a disaster such as a fire or simply not being used due to lack of demand, an idle equipment rate can reduce the personal property tax up to 50 percent.
  7. Rebuilt Machinery and Equipment Parts – When new parts replace old worn parts on machinery and equipment, make sure the replacement parts are not included in the personal property assessment.
  8. Pollution Control Equipment and Devices – Devices and equipment added to machinery and production equipment to monitor and control air, water and noise emissions are typically 100 percent exempt from personal property tax. A special exemption filing is required: Identify, Quantify Filing for Proper Exemption of Pollution Control Assets.
  9. Original Cost Study – An examination of original machinery and equipment invoices determines the tangible costs subject to personal property taxes. Intangible costs such as transportation, engineering studies, training, and equipment must be identified and removed.

Employing these strategies can potentially save millions of dollars on personal property tax payments. These tax and cost savings can create year-after-year bottom line profit annuity for your business.

Right now is the perfect time to begin. Start to identify ideas and strategies where you can reduce your personal property tax obligations for 2015. For additional information, please contact one of our Manufacturing & Distribution professionals.