A bi-monthly insider guide to the confusing world of property taxation from BRUSNIAK TURNER.

Providing insight and saving lawyers research time and their clients money since 1981

I'VE GOT TO DO WHAT? YOU'VE GOT TO BE KIDDING!” REPORTING YOUR BUSINESS PROPERTY TO THE TAX PEOPLE PART II

 © John Brusniak 2024

I'm back to finish my explanation of the annual property tax reporting obligations the law imposes on you and your clients. Let's agree from the beginning, this is an absurd way to fund governmental services. (But it gets a lot worse. In my next newsletter, I am going to explain how tax values are set.) In case you missed Part I, you can find it here.

WHAT DO I HAVE TO DO?

The law requires you to submit a rendition – a written report that lists all of your taxable business personal property on a form promulgated by the State Comptroller. (You can find the form through our website under “Resources” and “Forms” or by going directly to the Comptroller's website.) Appraisal districts create and issue their own forms, but we advise against using them. 

WHAT IS THE LAST DAY TO FILE A RENDITION?

Renditions must be filed byAPRIL 15. If that is not enough time for you to prepare your rendition, a 30-day extension is automatically available upon written request. The deadline for requesting extensions is also April 15. (Timeliness of renditions and requests for extensions is determined by postal cancellation date.) If you miss the deadline to file a rendition or an extension, you'll be hit with a 10% penalty. 

ARE YOU TALKING TO ME?

Yes. At this point, some of you are thinking “I have never done this,” or “I have never paid a tax on my business personal property.” If you fall into the “I have never done this” category and you are receiving a property tax bill, the government thanks you for generously overpaying your property taxes by 10%. If you fall into the “I have never paid a tax on my business personal property,” you are living a charmed life because the appraisal district has not found you or your property. If they do, they will tax your property for the current tax year, and back-assess you for the two prior tax years. As a bonus, they will add 12% in penalties and 1% per month in retroactive interest. The government will be grateful to you for paying 24% to 36% or more in penalties and interest. But perhaps, you might get lucky. The government's ability to back-assess you is limited to only two years. Anything beyond that escapes taxation. 

THE BASICS

The Comptroller's form requires you to state (1) the property owner's name; (2) the property's address (if a property owner has multiple locations, separate reports are required for each location); and (3) a description of the property type by category (e.g., furniture and fixtures, machinery and equipment, computers, vehicles, supplies, raw materials, work in process, finished goods, and other forms of inventory). 

SIGNING AND SWEARING: Renditions are required to be signed and are subject to penalties for perjury. They need to be notarized unless they are signed by the property owner or an employee of the owner. Taxpayers have been prosecuted for lying on renditions, albeit infrequently. Although a lawyer may sign renditions on behalf of clients, I don't recommend it. I suggest clients sign their own renditions.

THE EASY ONES

1 . The Value is Less than $2,500: The property is exempt, but filing a rendition is advisable. Consider adding: “Property is exempt under Section 11.425 of the Texas Tax Code” in large, capitalized letters.

2. The Value is Less than $20,000: If the property is worth less than $20,000, simply check the box on the form stating that, fill in the owner's name, address, and provide a generalized description of assets with estimates of value, sign it, and you're done.

3. The Value Has Not Changed from the Prior Year: Similar to the previous option, fill in the basics, check the box, sign it, and you're done. (Note: This might result in the appraisal district replicating the prior year's value without providing you additional depreciation to which you may be entitled.) 

USING THESE OPTIONS AVOIDS THE 10% PENALTY FOR NON-FILING! THE NEXT BEST GOOD FAITH ESTIMATES

While this won't earn you points with an appraisal district, providing a “good faith estimate” of the value of your taxable personal property can save you considerable effort. In addition to providing your good faith estimate of value, you must provide the basics, the owner's name, property location, and a breakdown of all property types by category. Be prepared to provide supporting information if it is requested by an appraisal district and to do so within 21 days. (Just like your math and chemistry tests in school, you may be asked to show your work.)Failure to comply with this request will result in a 10% penalty. If your value estimate does not exceed $150,000, notarization is not required. 

THE WORKS WHAT APPRAISAL DISTRICTS REALLY WANT

Appraisal districts want a comprehensive list of all items owned by category, including acquisition dates and original costs. This allows them to apply their own depreciation schedules to your property. The best way to do this is to attach a complete listing of everything you own. THE HYBRID If you decide to provide a detailed asset listing, I suggest you also include a good faith estimate of your property's value by category. Before filling out your rendition form, go online and review the appraisal district's depreciation schedules. If the schedules are reasonable and accurately reflect your property's usage, use them. If not, use your own depreciation calculations. 

WHAT DOES THE APPRAISAL DISTRICT DO WITH ALL THIS INFORMATION? THE JOYS OF COMPUTERS

Due to time constraints, appraisal districts rely on computer algorithms to assess reported values. Rendering higher values than the previous year's values usually results in acceptance of renditions. Renditions reporting significantly lower values are likely to be ignored in favor of computer-generated figures. 

IS MY CONFIDENTIAL DATA GOING TO BECOME PUBLIC?

Renditions filed with appraisal districts are confidential and may not be disclosed except in the context of hearings, court proceedings, or audits of appraisal districts by the Comptroller. Criminal sanctions exist for disclosure of information contained in renditions, but I am not aware of any prosecutions resulting from inappropriate disclosures of data. 

WHAT TO DO IF THE APPRAISAL DISTRICT'S VALUE IS TOO HIGH? PROTEST

If your value is excessive, file a protest right away. Delays jeopardize correction opportunities. Taxpayers have found themselves ensnared in prolonged negotiations with an appraisal district over the value of their property, only to realize they have lost their rights to a reduction because they failed to timely protest. (Stay tuned for further details in an upcoming newsletter.) 

NEGOTIATE

Appraisal districts are required to meet with you and provide you with an opportunity to explain why their appraised value doesn't align with your business or law firm's real-world experience. They are only required to do so if you request a meeting in writing. Be ready for the meeting—appraisal districts will ask to see the actual books, records, and relevant portions of your federal income tax returns that back up your value claim. Prepare to justify why the district's depreciation schedules don't accurately reflect your business reality. Property tax appraisal depreciation methodologies are different and better than those used in accounting. They acknowledge forms of depreciation other than physical wear and tear. For example, if newer technology renders your property less valuable, that loss of value is required to be factored into the property's valuation. Be aware that appraisal districts will not allow you to fully depreciate assets. All appraisal districts have a floor beyond which they will not recognize reductions in value due to physical depreciation. Typically, the floor is around 20%. Keep an eye out for errors in the district's work—they happen frequently, albeit unintentionally. From the moment an appraisal district receives your rendition to when the computer spits out your value, a lot can go awry. If your negotiations with the appraisal district hit a dead end, escalate the matter to an appraisal review board hearing. (Stay tuned for more details on that.) 

SELF-DEFENSE

Appraisal districts won't deviate from what your books and records indicate. We often see taxpayers neglecting to update their records to accurately reflect the assets they still possess. If items are no longer in your possession, delete them from your books. If your business is facing significant losses due to theft or other reasons, quantify those amounts. Consider using the "lower of cost or market" inventory method if your inventory's value has fallen below what you paid for it. Ensure that your records, and those of the appraisal district, do not mistakenly list you as the owner of leased items or property belonging to others. Be mindful of rendering property that is not at your physical location on January 1, such as property located in other states and property that is in transit but has not arrived. 

INTANGIBLES

Exclude the value of computer software from your renditions. Computer software is not taxable because it is intangible. Only tangible property is subject to taxation. Give some thought as to whether items included in your books and records are tangible or intangible, or a mixture thereof. 

A BRIEF DIGRESSION INTO REALITY

There is a huge disconnect between the value of the taxable personal property carried on your books and records and what it will sell for in the real world. The next several newsletters will take you down into the rabbit hole and into “Wonderland.” You will “wonder” how anyone thinks that this is a good way of raising tax revenue. For example, in the real world, law firms looking to upgrade their furniture and computers are going to discover that these items, no matter how well cared for, are not going to fetch any money. And that the law firm will be lucky if they can find someone to haul it all away without charging them to do so. 

COMING UP NEXT

 Taxation By “Guess-timation” Previous articles may be viewed on our law firm website under “Updates” and the subheading “Property Tax Tidbits for Lawyers.”