property tax law changes include a new penalty
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Inventory should be valued at the price for which it will sell as a
unit to a purchaser who would continue the business. Due to pilferage,
obsolescence, damage or other issues, the market value of inventory
may be less than its book value. The assessed value of the furniture,
computers and equipment should be the price for which it could be
Appraisal districts lobbied aggressively to ensure this bill passed,
but they now face the challenge of processing a large number of
renditions. They will have to decide whether to aggressively request
additional information if the owner gives market value instead of
providing a fixed asset listing (property description, year of
acquisition and acquisition cost) and how much consideration to give
the owner's estimate of market value, particularly if it is sharply
below the appraisal district's assessed value.
At least one chief appraiser suggests the new rendition requirements
may delay certification, since appraisal districts must wait to
receive the renditions before mailing notices of assessed value. The
higher level of renditions will impose additional challenges for
leanly staffed appraisal districts in up-front processing and will
likely require additional protest hearings.
One nettlesome issue for owners of small amounts of business personal
property is whether the penalty for not rendering is incentive enough
For example: Bob owns a small business and has business personal
property reasonably worth $5,000. It is assessed for $5,000. The
annual personal property taxes, based on a 3 percent tax rate, are
$150. The penalty for not rendering is $15. Should Bob make sending
the rendition form to the appraisal district a priority above working
with his customers, seeking new customers, and working with his staff?
Owners of business personal property who either are not on the tax
rolls or whose property is grossly under-assessed will have to decide
whether to render. It is clear that the law requires owners to render,
and there is now a 10 percent penalty for those who do not render; the
amnesty provision provides a modest incentive to render.
For example: Charlie owns a wholesale distribution business with
$995,000 in inventory and $5,000 in furniture and equipment. However,
Charlie's current business personal property assessment is $100,000,
and annual taxes are $3,000. If he does not render, he will likely pay
annual taxes of $3,000 and a 10 percent penalty for a total of $3,300.
If he does render, his business personal property taxes will increase
to $30,000 per year.
It is clear that owners of business personal property are required to
render and that there will be a 10 percent penalty for not rendering
starting in 2004. Whether owners render will depend partly on their
records, risk tolerance and corporate culture.
The new business personal property rendition requirements will sharply
increase compliance with rendition laws over the next three to five
years. Many small business personal property account owners will
probably not address the issue until receiving a 2004 tax bill with a
10 percent penalty for failing to render. It is unclear how many large
accounts are either not on the tax roll or are substantially
undervalued. It is clear there are some, but from a practical
perspective, it may not be many.
The law will make taxation more equitable between business personal
property and real property. It will also make business personal
property taxes more equitable between those who do and do not render.
But the new rendition requirements mean an increase in tax revenue and
an increase in paperwork for businesses.
Article submitted by:Patrick
C. O'Connor, MAI, is president of O'Connor & Associates, a property
tax reduction, real estate appraisal, real estate publishing and
consulting firm, and author of "Cut Your Texas Property Taxes,"
published in 2001.
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