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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 sold.


Appraisal districts
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.

Property owners
One nettlesome issue for owners of small amounts of business personal property is whether the penalty for not rendering is incentive enough to render.

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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