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Manufacturing Economics: Successful Property Tax Appeals

Reduced taxes enhance a manufacturer’s profitability. Since current tax assessments build upon previous assessments, a successful property tax review and appeal can extend benefits well into the future.

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Reduced taxes enhance a manufacturer’s profitability. Greater efficiencies and lower process costs improve a company’s return on investment. Since current tax assessments build upon previous assessments, a successful property tax review and appeal today can extend benefits well into the future.

Challenging a property tax assessment successfully begins with investigating common contributing causes for a higher-than-expected property tax bill. Those causes often encompass valuations for company assets, as well as tax exemptions or abatements that were not considered in calculating the property tax bill. Such investigation also requires an analysis of relevant tax jurisdiction codes and practices.

Determining whether or not a company’s assets are over- or undervalued begins with identifying the taxpayer’s current actual assets owned and used in the trade or business operations, and comparing that to the list of assets appearing on renditions on file with the tax assessor.

High tech equipment such as software and computer equipment requires a careful analysis to determine useful life in terms of the number of years of service to use to accurately value and render it “used” in the manufacturing process. Ghost assets are defined as assets on the fixed asset list, but no longer being used in the manufacturing facility. Such assets may no longer be in use, but tax assessor records may indicate those assets are still in service. This, therefore, results in an overvaluation of the total assets and increases the taxable value for the assessor.

A manufacturer may have more than one facility within a particular tax jurisdiction. It is important to review the specific equipment listed for each location to ensure there are no multiple assessments on the tax rolls. Such erroneous listings could inflate the asset value for the company and lead to high tax assessments.

Segregating assets

When rendering to the appraisal district, different assets merit different classifications and depreciation schedules. Manufacturing equipment is often made up of several different classifications. Conducting a cost segregation study identifies the proper classifications and depreciation schedules for those various assets. Segregating such assets by classification and assigning the correct depreciation schedules to those items can substantiate an appeal for a lower property tax assessment.

Tax jurisdictions may offer property tax exemptions for inventory shipped out of the state, pollution reduction equipment or other assets. Most exemptions have an annual compliance requirement, which varies by State and Jurisdiction.

Various jurisdictions also offer tax abatements, in which a taxpayer receives property tax reductions for a defined period in exchange for meeting specified criteria. Such abatements may be granted in exchange for constructing a new facility within a particular geographic area, expanding the workforce at a designated property, or attaining other objectives. The property tax assessment, though, may not reflect an agreed-upon abatement.

Potential exemptions and abatements illustrate the importance of performing a detailed analysis to understand applicable tax jurisdiction provisions and processes. They illustrate, too, why hiring a property tax consultant may be a cost-effective option if the property tax assessment seems unduly high.

Tax codes vary from state to state and from one municipality to another, as do depreciation tables and other methodologies used to assess property and determine valuations. Investigating potential causes of a higher than expected tax assessment and amassing supporting documentation needed for a successful appeal may require greater time and expertise than what a manufacturer can muster in-house. A property tax consultant can help with those tasks and provide direction for choosing the most appropriate tactics and strategies for appealing a tax assessment.  

Sara D. Leonard,, is a manager in Tax and Strategic Business Services working with the State and Local Tax Consulting Group at independent public certified accounting firm Weaver, with offices in Austin, Dallas, Fort Worth, Houston, Midland, Odessa and San Antonio.

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