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Property Tax Protection Program™
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Options For Providing The Appraisal District Information On Personal Property
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The personal property information you provide the tax assessor is not only important; it’s critical. Tax assessors would like to have a summary of the purchase price / acquisition cost of “property” acquired by year for perhaps eight categories of property. In addition, there are requests for information on inventory and work in progress. The assessor wants to know the amount spent on any tangible items such as furniture, equipment, computers, inventory, manufacturing work in progress, and other types of property depending upon location. However, in some states, including Texas, the property owner may provide an opinion of value for the eight categories of items. This step is critical in determining how the taxation process evolves. Assessors also want you to include freight, setup cost and special-purpose buildings to house equipment. None of these should be rendered as personal property.
Personal Property Reporting Providing a value allows the taxpayer to address several issues up front without having to battle the appraisal district: 1) the depreciation schedule to use to estimate value and 2) the allocation of tangible personal property and intangible personal property. Intangible personal property appears to be exempt from property taxes with the exception of a few states that apply a tax to bonds. However, for our purpose of valuing personal property for property taxes, we need to separate tangible and intangible personal property. In theory, it is simple to separate tangible and intangible personal property. However, when property is purchased the price is not allocated by tangible and intangible. Can a reasonable person dispute that a portion of the acquisition cost of an Apple watch, iPhone, Cisco phone system, copier or computerized machining equipment does not include intangible personal property? What are the actual costs to manufacture an Apple watch versus the retail price? Let’s review a $2 million Cisco phone system which included a five-year service contract. After five years, the system is essentially worthless unless the owner agrees to another long-term service contract, at perhaps $200,000 per year. The cost of the maintenance contract was about half the cost of the original equipment. What is the tangible property versus the intangible property in a $2 million phone system? Most appraisal districts would put a residual value of twenty percent or $400,000. In reality, it would be unreasonable to expect more than $10 to $50,000. Using the valuation model from McLennan County Appraisal District in Waco, Texas, let’s review the appraisal district’s value of a $2 million phone system: Assessed Value
Property Taxes
Year 1
$1.8 million
$48,600
Year 2
$1.6 million
$43,200
Year 3
$1.4 million
$37,800
Year 4
$1.2 million
$32,400
Year 5
$1 million
$27,000
Year 6
$800,000
$21,600
Year 7
$600,000
$16,200
Year 8
$400,000
$10,800
Year 9
$400,000
$10,800
Year 10
$400,000
$10,800
Year 11
$400,000
$10,800
Year 12
$400,000
$10,800
Year 13
$400,000
$10,800