The Texas law was unusual in that while rendition was mandatory, there was no penalty for not rendering. Therefore, many property owners did not render because it was not material, was not convenient or would dramatically increase their tax liability. For many small business owners, the value of the personal property and the associated property taxes are modest and not a material issue for the business.

Chief appraisers at central appraisal districts and tax entities have long been concerned that a material amount of business personal property is not being taxed. There is a reasonable concern that if business personal property owners are not being taxed equitably with real property owners, the burden of taxation is shifted from owners of personal property to owners of real property.

Impetus for Change

Several factors combined to make business personal property rendition a hot topic. In Robinson vs. Budget Rent-a-Car Systems, a 2001 appeals court decision, the court clarified that the chief appraiser may sue to force a business personal property owner to render BPP. In addition to the objective of chief appraisers to equitably spread the burden of property taxation, fiscal shortfalls at many city, county and school entities as well as at the state level have raised the government’s need to ensure it is receiving all due revenue based on current tax laws.

Although Robinson vs. Budget allowed chief appraisers to sue property owners who did not render, this was a largely unsatisfactory remedy due to the financial costs and political stigma of chief appraisers suing large numbers of taxpayers. The other possible solution was for chief appraisers to "guess high" on assessed values in order to effectively force business personal property owners to provide information. Fortunately, few chief appraisers have chosen this option.

Summary of the New Law

During the summer of 2003, the Texas legislature put some teeth into the rendition law by passing Texas Senate Bill 340. Starting in 2004, a company that does not render will automatically pay a 10% penalty on its business personal property tax bill. This penalty will be collected by the chief appraiser, although there are options to appeal the penalty. There is also a 50% penalty for filing a fraudulent rendition. In addition, filing a fraudulent rendition is a criminal offense.

Rendition Requirements

Owners of business personal property with an aggregate value of less than $20,000 can file a simplified rendition statement containing only: 1) the property owner's name and address; 2) a general description of the property by type or category; and 3) the location of the property. Owners of business personal property worth more than $20,000 must file a rendition with: 1) the owner's name and address; 2) a description of the property for inventory; 3) a description of each type of inventory; 4) a general estimate of the quantity of each type; 5) the property's physical location; and 6) either the owner’s good faith estimate of the property's market value or the property's historical cost new and its year of acquisition.

If the owner simply provides a good faith estimate of the property's market value the appraisal district may request a statement of supporting information indicating how the property owner determined the value rendered. This detailed statement must be delivered within 21 days after the date the property owner receives the request.

Rendition Deadlines

The rendition addresses business personal property as of January 1st of the tax year and may be filed annually between January 1st and April 15th. There is an automatic extension of the filing deadline until May 15th upon written request. The chief appraiser may extend the filing deadline for an additional 15 days (until May 30), if the property owner files a written request showing good cause.

Amnesty Provision

With the new legislation the Texas Property Tax Code also offers property owners a special rendering provision for the 2003 tax year. If owners render BPP before December 1, 2003 the appraisal district may revalue the property for tax year 2003. Revaluation is likely to occur if there was no previous account for the property or if the rendered value greatly exceeds the current assessed value.

However, exercising the special rendering, or amnesty, provision in 2003 allows the property owner to avoid omitted property taxes for the two prior years. When business personal property not already on the tax rolls is discovered, the Texas Property Tax Code requires it be assessed at the market value for the two prior years. For example, if business personal property were discovered in 2003, the appraisal district would also typically assess the property for 2001 and 2002. By rendering during the established amnesty window, September 1, 2003 through November 30, 2003, the property owner avoids the exposure of paying property taxes for prior years.

What is Business Personal Property?

The Texas Property Tax Code 1.04 (5) defines tangible personal property as property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does not include a document or other perceptible object that constitutes evidence of a valuable interest, claim, or right and has no negligible or intrinsic value. Examples of tangible personal property, or business personal property, include equipment, furniture, computers, and inventory. Business personal property would not include accounts receivable, stocks, bonds, notes, franchise agreements, licenses, permits, certificates of deposit, insurance policies, pensions, contracts and goodwill.

Market Value Definition

Market value is defined in the Texas Property Tax Code 1.04 (7) as the price at which a property would transfer for cash or its equivalent under prevailing market conditions if: a) exposed for sale in the open market with a reasonable time for the seller to find a purchaser; b) both the seller and the purchaser know all of the uses and purposes to which the property is adapted and for which it is capable of being used and the enforceable restrictions on its use; and c) both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.

Market Value vs. Book Value

Market value may be less than or more than book value. For example, the value of a 3-month-old computer may be one-half of the initial acquisition price. The book value based on IRS tax per IRS depreciation schedule would be 95% of cost based on a 60-month depreciation schedule. Other examples of items whose market value may decline sharply after being placed in service include cars, linens and bedding at motels, phone systems, copiers, and furniture.

Other Valuation Issues

Inventory shall be valued at the price for which it will sell as a unit to a purchaser who would continue the business. Due to issues such as pilferage, obsolescence, and damage, the market value of inventory may be less than the book value of the inventory. The assessed value of the furniture, computers, and equipment should be the price for which it could be sold.

Issues for Appraisal Districts

Although appraisal districts lobbied aggressively to insure this bill passed, it poses many challenges and issues for appraisal districts. The first challenge is how to process a large number of renditions. Then, the appraisal districts 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). The appraisal districts will also have to decide 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 believes 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 appraisal district staff in up-front processing and will likely require additional protest hearings. Appraisal districts are generally leanly staffed and will have to be creative and effective to handle a likely meaningful increase in business personal property renditions and appeals.

Practical Considerations for 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. Consider the following 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% 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% penalty if you do not render; the amnesty provision provides a modest incentive to render. Consider the following example: Charlie owns a wholesale distribution business with $995,000 in inventory and $5,000 in furniture and equipment. However, Charlie's current BPP 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% penalty for a total of $3,300. If Charlie 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% penalty for not rendering starting in 2004. Whether owners render will depend partly on their records, risk tolerance, and corporate culture.

Conclusion

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% 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 this writer has not seen or heard of many such cases.

The benefits of the law are that it 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. Less attractive features of the new rendition requirements are an increase in tax revenue and an increase in paperwork for businesses.

Reduce your Austin property tax by contacting Oconnor & associates. Oconnor & associates can represent you at the Williamson central appraisal district.

To receive a disabled veteran tax exemption, you must be either a veteran who was disabled while serving with the U.S. armed forces or the surviving spouse or child (under 18 years of age and unmarried) of either a disabled veteran or of a member of the armed forces who was killed while on active duty.

In order to qualify for a disabled person tax exemption, you cannot engage in gainful work because of physical or mental disability or you are 55-years-old and blind and cannot engage in your previous work because of your blindness. If you receive disability benefits under the federal Old Age, Survivors and Disability Insurance Program administered by the Social Security Administration, you will qualify for the disabled person tax exemption.

The tax exemption amount that a qualified disabled veteran receives depends on the veteran's disability rating from the branch of the armed service:

Disability Rating     Exemption Amount
10% to 30%             $5,000 from the property's value
31% to 50%             $7,500 from the property's value
51% to 70%             $10,000 from the property's value
71% to 100%           $12,000 from the property's value

The disabled veteran must be a Texas resident and must choose one property to receive the tax exemption for all property tax purposes.

To file for a disabled veteran's tax exemption, you must complete the Application for Disabled Veteran's or Survivor's Exemption form. The deadline for filing for a disabled veteran's exemption is between January 1 and April 30 of the tax year. However, you may file for a disabled veteran's exemption up to one year from the delinquency date.

Questions?
E-mail O'Connor & Associates, or call 1-800-856-REAL.

Don’t pay more than your fair share of property taxes. Let O’Connor & Associates reduce your property tax. Oconnor & associates can represent you at the office Space Rent.

Harris County Appraisal District's i-Settle program is worth considering. However, for most property owners it is a poor choice.

O'Connor & Associates' experience with i-Settle yielded three conclusions:

The settlement rate was very low (about seven percent)

When settlement offers were extended, the tax reduction was low

It was not worth the effort

Benefits of an Informal Hearing

Most property owners appealing on market value at Harris County Appraisal District, will achieve their best result during the informal hearing in a settlement negotiation.

Taxpayers forfeit their right to an informal hearing when they elect to participate in i-Settle. For most taxpayers, i-Settle will generate a lower level of property tax savings than attending an informal hearing. (The i-Settle program is only available at Harris County Appraisal District.)

Property Owners Can Protest and Win!

O'Connor & Associates have long taken the position that taxpayers can effectively represent themselves at a property tax appeal hearing: 1) if they understand the process and 2) if they prepare for the hearing. Articles on www.cutmytaxes.com explain the property tax appeal process and how to prepare for a hearing.

The point of this article is that i-Settle is a poor choice for most Harris County taxpayers. The article is not intended to discourage property owners from handling their own property tax protest.

When i-Settle Makes Sense

Property owners should consider i-Settle in two circumstances: 1) if you are only appealing unequal appraisal at Harris County Appraisal District and 2) if you were not planning to protest and will not pay a tax consultant.

Harris County Appraisal District appraisers do not consider appeals on unequal appraisal at the informal hearing. If you just purchased your house, and it is assessed for less than the purchase price but more than similar houses, i-Settle might be worth considering. Since the HCAD appraiser would not have considered your unequal appraisal evidence, you are not losing anything by allowing Harris County Appraisal District to make an offer via i-Settle. However, the chance of receiving an acceptable offer is small. You will probably need to attend the Harris County Appraisal Review Board hearing.

Some Harris County Appraisal District property owners do not want to spend time appealing their property taxes and are unwilling to pay a property tax consultant. (I confess, this decision perplexes me. It seems that a portion of the savings is better than none of the savings.)

However, if you do not want to spend time appealing your Harris County property tax assessment and are not willing to hire a consultant, i-Settle is a good option. If you file a protest and make an offer with i-Settle, you may receive a token reduction.

Recommendation

The best avenue for appealing property taxes is to: 1) file a protest, 2) prepare an analysis for market value and unequal appraisal, and 3) attend the informal hearing. If you do not receive an acceptable offer at the informal hearing, you can still attend the appraisal review board hearing.

Conclusion

i-Settle is a poor choice for most property owners. The offers made via i-Settle have been stingy, and the settlement rate is low. The most significant drawback with i-Settle is taxpayers forfeit their right to an informal hearing. Most Harris County taxpayers will get the best result at the informal hearing. Taxpayers can file and handle their own property tax protest. Taxpayers should appeal the assessed value of every property every year.

Questions?

E-mail O'Connor & Associates, or call 1-800-856-REAL.

Reduce your property tax by contacting Oconnor & associates. We also provide you real estate success tips.

Tax deductions are the basis for tax reduction. Tax deductions reduce taxable income but do not directly reduce federal income taxes. For example, $100,000 of tax deductions reduces federal income taxes by $35,000 ($100,000 X 35%), assuming a 35% tax rate. Most tax deductions require a cash expenditure (labor, material, supplies, utilities, etc). A current period cash expenditure is not required for some real estate tax deductions and may not be required for a casualty loss.

Most real estate owners and investors do not consider casualty losses as a source of tax deductions. Few investors claim the casualty loss tax deduction the federal income tax code allows them. Let’s review the criteria for a casualty loss tax deduction and the thought process regarding acquisition of a property that has suffered a casualty.

Real estate owners suffer a casualty loss when the market value immediately after the casualty plus insurance proceeds is less than the market value immediately before the casualty. The complex issue is how to value the property immediately after the casualty. Let’s consider a 1-story suburban office park in Mississippi which suffered 3-feet of flooding due to Hurricane Katrina. Let’s further assume: 1) 8 feet of sheet rock must be replaced in the entire property to rebuild, 2) although the property was 90% occupied before the flood, occupancy is expected to only be 5% while rebuilding occurs, 3) stabilized occupancy after renovation is not clear since some businesses may not return, 4) construction will take 12-18 months due to the labor constraints and 5) the owner has casualty insurance to rebuild but did not have rent loss/business interruption insurance.

It is clear the market value after the casualty is less than the market value before the casualty less construction costs. Other factors to consider are: rent loss, market risk that not enough tenants will be available after construction is completed, cost of construction management, a illiquid market with few buyers just after the casualty, construction risk, interest rate risk (rates could rise during the construction period negatively affecting value), risk that operating expenses could increase during the construction period (perhaps insurance) and compensation for entrepreneurial effort to induce a buyer to coordinate labor capital, management and compensation for capital during the reconstruction and releasing process.

A careful analysis by an appraiser might show the improvements have no value after the flood. In appraisal assignments performed by the writer, a casualty loss of 10-30% of the market value before the casualty has occurred (in a straight-forward, defensible analysis) is typical. This can generate a meaningful casualty loss (and tax deduction).

For example, a property with a market value of $5,000,000 suffers a 30% casualty loss. While the casualty is a serious hardship for the owners, the $1,500,000 ($5,000,000 X 30%) tax deduction will mitigate the financial loss.

Congress provided a casualty loss tax deduction to encourage investment in real estate. If you have the misfortune to suffer a casualty loss, take the helping hand offered by congress and take the tax deduction.

Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of cities where cost segregation generates meaningful tax deductions.

City:
Memphis, TN
San Francisco, CA
New Orleans, LA
New York, NY
Hartford, CT
Las Vegas, NV
Los Angeles, CA
Atlanta, GA
Orlando, FL
Miami, FL
Louisville, KY
Salt Lake City, UT
Boise, ID
Lakeland, FL
Wichita, KS
McAllen, TX
Columbus, OH
Ft. Lauderdale, FL
San Antonio, TX
Durham, NC
Allentown, PA
Youngstown, OH
Little Rock, AR
Greensboro, NC
Greenville, SC
Kansas City, MO
Raleigh, NC
San Jose, CA
Palm Bay, FL
Honolulu, HI

Cost segregation produces tax deductions for virtually all property types, including the following:

Property Type:
Regional mall
Service station
Drugstore
Night club
Supermarket
Racket club
Auto service garage
Airplane hangar
Nursing home
Subsidized housing

Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.

Industry:
Nondurable good wholesalers
Durable good wholesalers
Day care facilities
Computer and electronic manufacturing
Health care facilities
Chemical manufacturing
Printing activities
Warehousing and storage
Electronic and appliance stores
Apparel manufacturing

The appraisal division of O’Connor & Associates is a national provider of commercial real estate appraisal services including cost segregation studies, due diligence, insurance valuations, commercial real estate appraisal, feasibility studies, financial modeling, gift tax valuations, condemnation appraisals, highest and best use analyses, casualty loss valuations and HUD map market studies.

The process seems overwhelming and they do not know how to appeal.

They do not think an appeal is likely to be successful.

They think their home's assessed value is below market value and there is no basis for appealing.

They do not understand they can appeal on unequal appraisal, (being assessed for more than similar properties).

They are busy and do not want to set aside time, given the presumption that "you can't fight city hall."

Consider an appeal for a $150,000 house where the value is reduced by 5%. This would reduce the assessed value by $7,500 and the property taxes by $225, based on a 3% tax rate. Since the typical appeal hearing takes less than an hour, these are meaningful savings for the time involved. Regularly appealing your property taxes will minimize the value, so you are assessed at the low end of the range. Most property tax appeals are resolved at the informal hearing, which is the first step in the process.

Questions?

E-mail O'Connor & Associates, or call 1-877-4-TAXCUT.

Reduce your property tax by contacting Oconnor & associates. Oconnor & associates can represent you at the Williamson central appraisal district.

Obtaining a House Bill 201 package when appealing your property taxes can greatly increase your chances for a successful appeal. House Bill 201 is the term used by property tax consultants to describe provision 41.461 of the Texas Property Tax Code. This section reads as follows:

"at least 14 days before hearing on a protest, the chief appraiser shall: … inform the property owner that the owner or the agent of the owner may inspect and may obtain a copy of the data, schedules, formulas, and all other information the chief appraiser plans to introduce at the hearing to establish any matter at issue."

At the same time you send your notice of appeal to the ARB, send a House Bill 201 request to the chief appraiser at the appraisal district. (Just send a short letter asking for the information they will be using at the hearing.)

Reasons to utilize House Bill 201 to obtain information the appraisal district will use at the hearing include:

It is an effective way to obtain information regarding both market value and unequal appraisal for your property tax appeal,

You will receive the appraisal district's information regarding the size, condition and other qualitative and quantitative data for your house,

The information can be obtained for a nominal cost,

It is helpful to know what information your adversary will be able to use at the hearing,

Making the request limits what information the appraisal district can present at the hearing. If you do not request their information prior to the hearing, they can use any information available to them at the hearing. However, if you request the appraisal district information using a House Bill 201 request, they may only use information previously provided to you,

If they do not provide you information on market value or unequal appraisal in the House Bill 201 request, you win by default at the ARB hearing, and

In many cases, the appraisal district House Bill 201 information supports a lower value.

Questions?

E-mail O'Connor & Associates, or call 1-877-4-TAXCUT.

Reduce your Dallas property tax by contacting O’Connor & Associates. Oconnor & associates can represent you at the Tarrant central appraisal district.

Business taxes can be summarized simply as calculating your total revenue, reducing this amount by as many tax deductions as you can and then paying tax on the remaining amount.

Owners of investment real estate can take advantage of a depreciation technique called cost segregation that could save them hundreds of thousands of dollars in federal income tax this year. It does so by increasing their depreciation and reducing their income tax rate from 35 percent to as little as 15 percent. It can also help defer payment of much of the tax until a building is sold.

Typically, the increased depreciation in early years of ownership can offset much of the income derived from the property. When depreciation advantages expire, the property can be sold, and taxes are paid at the capital gains rate of 15 percent. In such cases, this defers income taxes by five, 10 or even 15-plus years.

In addition to asking the questions above, business owners should also ask their accountant about taking advantage of cost segregation, a tax mechanism that could generate substantial savings in federal income taxes. Although it is vastly under-utilized, cost segregation is not a wildly speculative accounting tool. In fact, the American Institute of Certified Public Accountants’ National Journal of Accountancy has published numerous articles in support of cost segregation.

Cost segregation identifies applicable components and establishes the value and correct time line for depreciation. Under typical circumstances, depreciation is spread out over as long as 39 years. However, cost segregation applies depreciation to parts of the property in 5-,7- and 15-year increments. This acceleration in depreciation time reduces the income subject to federal taxes. This method does not dictate alternative minimum tax issues.

Historically, most depreciation schedules are split between land and long-life property. Long-life property depreciates over 27.5 years for apartments and 39 years for most commercial properties. A cost segregation study can typically allocate 20% to 40% of the improvement basis to short-life categories, and sometimes more.

High-income owners typically pay a 35% federal tax rate on ordinary income and a 15% rate on capital gains. The mechanics of reporting the gain on a sale usually allocate most of the gain to capital gains, which is taxed at 15%.

A cost segregation study actually reduces the amount of long-life property, which is recaptured at 25% by allocating more of the basis to the 5-,7- and 15-year property. If cost segregation is utilized from inception until a gain on the property is recognized, it can reduce the federal tax rate from 35% to 15% for most investors. The exceptions are C corporations, which pay the same tax rate for either ordinary income or capital gains.

Don’t pay more than your fair share of taxes. Take all legal deductions.

O’Connor & Associates is a national provider of commercial real estate consulting services including cost segregation, due diligence, federal tax reduction, renovation upgrading cost analyses, income taxes, tax return review and apartment inspections.