business personal property tax compliance: advanced strategies
TRANSCRIPT
Business Personal Property Tax Compliance:
Advanced Strategies to Avoid Costly Errors Overcoming Challenges With Exemptions and Exclusions, Depreciation, Valuation, and Jurisdiction
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TUESDAY, NOVEMBER 12, 2013
Presenting a live 110-minute teleconference with interactive Q&A
Ian Carr, Senior Manager, Deloitte Financial Advisory Services, Atlanta
Megan K. Lusby, Principal, SC&H Group, Sparks, Md.
Selena Longway, Senior Manager, SC&H Group, Sparks, Md.
Bobby Barnes, National Director of Property Tax Compliance Services, Ducharme McMillen & Associates,
Indianapolis
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FOR LIVE EVENT ONLY
Business Personal Property Tax Compliance: Advanced Strategies to Avoid Costly Errors Seminar
Megan K. Lusby, SC&H Group
Selena Longway, SC&H Group
Nov. 12, 2013
Ian Carr, Deloitte
Bobby Barnes, Ducharme McMillen & Associates
Today’s Program
Personal Property Definitions, Exemptions Slide 8 – Slide 29
[Bobby Barnes]
Jurisdictional Considerations Slide 30 – Slide 46
[Megan K. Lusby]
Valuation “Speed Bumps” Slide 47 – Slide 63
[Ian Carr]
Internal Controls and Compliance Slide 64 – Slide 79
[Selena Longway]
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY
THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY
OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction
described in the associated materials we provide to you, including, but not limited to,
any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are
subject to change. Applicability of the information to specific situations should be
determined through consultation with your tax adviser.
PERSONAL PROPERTY DEFINITIONS, EXEMPTIONS
Bobby Barnes, Ducharme McMillen & Associates
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9
STRAFFORD PUBLICATIONS:
DEFINITIONS OF PERSONAL
PROPERTY AND EXEMPTIONS
BOBBY BARNES
NATIONAL DIRECTOR PROPERTY TAX
NOVEMBER 12, 2013
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10
Personal Property
States
Cycle
Terms
Inventory
States
Terms
Freeport
Exemptions & Incentives
PERSONAL PROPERTY OVERVIEW
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11
WHAT IS PERSONAL PROPERTY TAX
An annual local tax on tangible assets owned by a business
Based on value, age, and use of assets
Linked to specific street address, not just zip code
Real Estate: physical land and appurtenances affixed to the land
Real Property: rights to real estate; property is related to the use of the land on which the business is conducted
Personalty: property is related to the business operations
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WHICH STATES HAVE IT?
Delaware
Hawaii
Illinois
Iowa
Minnesota
New York
New Jersey
New Hampshire
North Dakota
South Dakota
Pennsylvania
Ohio
These 12 states do not assess BPP tax:
All 39 remaining states DO assess BPP tax
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13
REAL VS. PERSONAL EXAMPLES
Real Property Fences
Land
Buildings
Building Improvements
Sprinkler Systems
Parking Lots
Roof repairs
Personal Property Machinery & Equipment
Furniture & Fixtures
Computer Equipment
Tools, Molds, Dies & Jigs
Inventory
Supplies
CIP
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Capitalized and Expensed Assets
CIP
Supplies
Leased Assets
Inventory
Vehicles
WHAT IS POTENTIALLY TAXABLE
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15
THE (TYPICAL) PROPERTY TAX CYCLE ASSESSMENT
DATE
RETURN FILED
NOTICE OF VALUE
RECEIVED VALUE PROTEST
DEADLINE
TAX BILL
RECEIVED
TAX BILL
DUE
APR
JULY
OCT
JAN
DATA
GATHERED
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16
Lien/Assessment date: all assets in place on this date must be reported on rendition
Rendition: taxpayer’s report of assets to jurisdiction, categorized according to state class
Situs: geographical location of the asset
Due Date: rendition must be postmarked by this date to be timely filed; penalties accrue if rendition is filed late Must have US Postal Service proof of postmark; i.e., date-
stamped Certified Mail Receipt
Extension: request for additional time to file rendition; not all jurisdictions grant them
PROPERTY TAX TERMS
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17
Notice of Value: official notification to taxpayer of assessed value; not all jurisdictions send these
Appeal: taxpayer’s protest of assessed value
Can be informal (desktop) or formal
Tax Bill: property tax bill based on assessed value, can be issued in arrears
For some jurisdictions, this is the only notification of assessed value the taxpayer receives
PROPERTY TAX TERMS
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18
Three Forms of Obsolescence
Physical (normal wear & tear)
Technical/Functional (outdated product, inefficient use of energy, etc.)
Economic (reduction in demand)
PROPERTY TAX TERMS
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19
Original/Reported Cost: acquisition cost of asset when first purchased/acquired
Acquisition/In Service Date: date asset was first purchased/acquired by owner
Index Factor: Replacement Cost New trends up cost of asset to present day value, accounts
for inflation
Depreciation Factor: jurisdiction defined rate of asset depreciation, not related to Corporate Tax Depreciation
PROPERTY TAX TERMS
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20
Market/Current Value: value of asset after cost trending and depreciation application
Assessment Ratio: jurisdiction defined ratio applied to market value to render taxable value
Assessed/Taxable Value: value of asset used to calculate property taxes owed
Rendered Value: taxpayer’s estimate of assessed value
Used in comparison with assessed value to gauge appropriateness of assessment
PROPERTY TAX TERMS
Note: Answers MUST be submitted on your Official Record of Attendance form used for continuing education
credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference
Materials” box in the left-hand side of your screen.
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22
Real Estate
Intangibles
Vehicles in most states
Inventory in most states
Software in a few states
POTENTIALLY EXCLUDED ASSETS
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23
These 12 states tax Inventory:
Arkansas
Georgia
Kentucky
Louisiana
Maryland
Mississippi
Oklahoma
Tennessee
Texas
Virginia
Vermont
West Virginia
INVENTORY STATES
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24
Inventory: goods intended for sale or lease
Merchandising Inventory: goods held for sale (retail) or resale (wholesale)
Anything bought to be sold
Manufacturer’s Inventory: manufactured goods held for sale or resale
Anything made to be sold
4 types
INVENTORY TERMS
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25
Raw materials: natural resources, ore, oil, lumber, components (circuit boards)
Work in Process (WIP): costs of raw materials that are in process of being acted upon to produce an item
Finished Goods: items that have gone through the manufacturing process and are complete; ready for sale or next phase
Manufacturing Supplies: items that are consumed during the manufacturing process Chemicals, repair parts, lubricants
INVENTORY TERMS
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26
Freeport exemption in some states Inventory exemption for goods shipped out of state
• Some sub jurisdictions do not honor
Inventory manufactured in the state (limited)
• Sometimes only a flat percentage applies
Goods in Transit
Interstate commerce
INVENTORY FREEPORT
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Documentation that can be requested Additional form to file
Monthly balances
Sales reports by state
Cost of good sold
Signed affidavit
True-up filing in subsequent year
INVENTORY
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Often annual compliance required to receive benefit
Pollution Control Assets
Inventory shipped out of state
Enterprise Zone, IFT, TIF
Abated assets or other tax incentives
FILOT
PILOT
Grants
Bond program
“Under” threshold
POSSIBLE EXEMPTIONS & INCENTIVES
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29
Manufacturing and Tooling equipment in some states
Idle equipment and R&D assets favorable treatment in some states
Ownership (military hospitals, non-profits)
Use (Leased to hospitals, non-profits, gov’t entities
POSSIBLE EXEMPTIONS & INCENTIVES
JURISDICTIONAL CONSIDERATIONS
Megan K. Lusby, SC&H Group
MEGAN LUSBY SLIDES
JURISDICTIONAL CONSIDERATIONS
JURISDICTIONAL CONSIDERATIONS
• Jurisdictional boundaries affect tax liabilities
• Accuracy in location assignment of fixed assets
• Tracking and taxation of fixed assets used by others
• Tracking of inventory, just like fixed assets
32
JURISDICTIONAL CONSIDERATIONS
• Jurisdictional boundaries affect tax liabilities
• Where is your property located?
• County
• City
• Township
• School District
• Appraisal District, etc.
33
JURISDICTIONAL CONSIDERATIONS
• Jurisdictional boundaries affect tax liabilities
• Examples to consider where multiple tax rates exist
• Texas – county, school district, appraisal district, hospital district
• Maryland – county, incorporated town, fire/sewer
• California – county, school district, community college, water
• Colorado – county, city
• Michigan – county, city, township, village
34
JURISDICTIONAL CONSIDERATIONS
• Jurisdictional boundaries affect tax liabilities
• Resources available to verify reporting / taxing jurisdiction
• Software programs (for purchase)
• County / Taxing jurisdiction website
• Maps (online/hard copy)
• USPS website (for county only)
35
JURISDICTIONAL CONSIDERATIONS
• Jurisdictional boundaries affect tax liabilities
• Caution!
• Some streets may span multiple jurisdictions – odd vs. even addresses
• Some buildings or shopping centers could reside in multiple jurisdictions
• If you get multiple answers from the previously mentioned searches,
contact the local assessors for help
36
Note: Answers MUST be submitted on your Official Record of Attendance form used for continuing education
credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference
Materials” box in the left-hand side of your screen.
Verification Code #2
• NAUSEA
JURISDICTIONAL CONSIDERATIONS
• Accuracy in location assignment of fixed assets
• Initial Purchase of Asset
• Purchasing in bulk
• Assignment of unique asset numbers/identifiers
• Correct initial location assignment
• Who is making the location decision?
• Does the decision-maker know the tax implications of an incorrect location?
• Was the asset purchased at Corporate, but being shipped to another location?
• Was the asset purchased, without knowing where the asset will ultimately
physically reside?
38
JURISDICTIONAL CONSIDERATIONS
• Accuracy in location assignment of fixed assets
• Assets in place, that may move to another location
• All assets should be tagged / have a unique asset number
• Ensure there is a procedure in place to capture the movement of assets
• Ensure there is a documentation trail for a location manager to inform
corporate when an asset moves to another location; as well as capturing
the transfer in at the new location
• IT department should have a procedure in place for tracking computer
hardware – ensure that information is in sync with the Corporate fixed
asset tracking methods
39
JURISDICTIONAL CONSIDERATIONS
• Accuracy in location assignment of fixed assets
• Building/Location spans multiple taxing jurisdictions
• A corporate office complex or a golf course may span two different taxing
jurisdictions
• Know in which building each asset is located
• Understand the assessment tables, ratios, and tax rates in each
• Assets may move between departments within a building that spans
multiple jurisdictions
• Each asset should be assigned to a specific department code, so you know
where it is physically located at all times, even if that department moves
40
JURISDICTIONAL CONSIDERATIONS
• Accuracy in location assignment of fixed assets
• Physical Inventory
• If records are not in good order, consider a physical inventory of assets to
obtain an accurate starting point of where the assets are located
• Next step, make sure you have unique identifiers for each asset
• Make sure you put a procedure in place to track asset movements, going
forward
41
JURISDICTIONAL CONSIDERATIONS
• Tracking and taxation of fixed assets used by others
• Traditional Lessors of personal property
• Track property they own/use themselves
• Track property they lease/loan to other businesses
• Know the terms of the lease agreement with the Lessee
• If Lessor is responsible for reporting/paying tax, ensure property is being passed
through to Lessee, if that is how the agreement reads
• Ensure Lessee is not also reporting the property, as double taxation would be
an issue
• Ensure Lessee is notifying lessor when they move the property they are leasing
from the Lessor to another physical location
42
JURISDICTIONAL CONSIDERATIONS
• Tracking and taxation of fixed assets used by others
• Traditional Lessors of personal property
• Lessors must be clear in their lease agreements who is responsible for
reporting the fixed assets/equipment on the personal property renditions
• Provide filing ID # - both Lessor and Lessee
• Ensure both parties know the physical location of the property, as of the lien
date
• Don’t want the jurisdiction to assess both parties, as getting a refund could take
time away from your employees being able to handle other matters
• Property loaned/donated to others
• A company may loan or let another company use their fixed assets for a
set period of time – know the rules in your jurisdiction
• Who is responsible for reporting this property on the personal property returns,
and ensure it is being reporting in the location it was physically located at the
lien date
43
JURISDICTIONAL CONSIDERATIONS
• Tracking of inventory, just as important as tracking fixed assets
• Inventory can include:
• Commercial/manufacturing
• Raw materials
• Inventory in process
• Finished goods/Stored goods
• Supplies, etc.
• Inventory can move around, just like fixed assets
• How is inventory being tracked?
• Can you see movements of inventory between locations?
• Transfers in and out of various locations or warehouses
• Location of inventory as of specific dates
44
JURISDICTIONAL CONSIDERATIONS
• Tracking of inventory, just as important as tracking fixed assets
• Examples of why inventory tracking is important
• MD – only a few counties, and some incorporated towns, tax commercial
and/or manufacturing inventory
• TN – only supplies & raw materials are taxable
• TX – all inventory is taxable
• GA – inventory is taxable at local level
• Note> See state/jurisdiction laws for specific taxability and exemptions for all states
45
JURISDICTIONAL CONSIDERATIONS
• Tracking of inventory, just as important as tracking fixed assets
• Exemptions exist for various kinds of inventory, depending on locality,
type of inventory, and movement of inventory
• Tracking movement of inventory into and out of different warehouses
• The starting and ending location of inventory could affect any exemption
• Tracking of the amount of time finished inventory is in a location before it is
shipped to a customer; turnaround time
• Freeport exemptions generally depend on the number of days the inventory is
sitting at a location before it is shipped out
• Inventory movements out of state
• Inventory movements out of the country
• Federal exemptions exist for inventory destined for non-US locations
Note> See state/jurisdiction laws for specific taxability and exemptions for all states
46
VALUATION “SPEED BUMPS” Ian Carr, Deloitte
Valuation “Speed Bumps”
Ian Carr, Deloitte Financial Advisory Services LLP
Copyright © 2013 Deloitte Development LLC. All rights reserved. 49
Overview of valuation “Speed Bumps” The property tax valuation process is riddled with “speed bumps” that can lead to additional time
spent with assessors post-filing, the risk of increased tax liability, and/or increased exposure
during assessor audits. We will go through the following discussion points to provide you with
areas to keep in mind:
• Starting Point
• Aligning Assets with Depreciation Schedules
• Composite table vs. Index and Depreciation Tables
• Identifying Proper Tables
• Appropriate Floor Values
• Fair Market Value Declarations
• Examples
• Valuations: Is one the answer?
• Mobile Property: Where is it located?
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Starting Point
• Disposals/transfers booked topside
• Exemptions (intangibles, software, labor, legal fees, real property, LHI,
etc.)
• Identify costs/assets associated with idle, spare and abandoned
equipment
• Work papers document the reconciliation between sub-ledger and
balance filed on return
• Increasing risk of third party audits
The starting point is the fixed asset listing and compliance process.
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Aligning Assets with Depreciation Tables Many jurisdictions prompt the taxpayer to select the appropriate depreciable life for their assets.
As a result, tax professionals have to be knowledgeable about property taxes, and about the
subject assets of their company.
• The economic life typically is directly related to the depreciation
table used by an assessor.
• Below are examples of economic life recommendations from the
Georgia Department of Revenue
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Identifying Proper Tables Once you have identified the appropriate depreciable life for an asset, you may need to identify the
assessor table that reflects how the fair market value changes as equipment ages.
Example
North Carolina
8 Year Life 10 Year Life
Age Schedule A Schedule I Schedule A Schedule I
1 87 87 90 90
2 77 74 82 79
3 66 62 74 69
4 53 50 64 59
5 40 36 54 49
6 28 25 45 38
7 25 35 29
8 25 25
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Composite Table vs. Index and Depreciation Tables
• Jurisdictions provide varying degrees of granularity and flexibility to
the taxpayer
• Some have composite tables
– A combination of the cost index trend factors and the percent
good factor
– E.g. Georgia
• Others maintain separate tables
– The cost index trend factors and the percent good factors are
separately shown
– E.g. Florida
An appraisal of personal property considers historical cost versus replacement cost new (RCN) for
an asset of like-kind utility and then adjusts RCN to reflect physical depreciation.
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• The floor values may not be representative of the true fair market
value of the subject assets
• The floor values do not take into consideration functional, economic,
or technical obsolescence
• Example:
Floor Values Many jurisdictions maintain depreciation tables with high floor values, for a given depreciation
table.
Florida
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• Certain jurisdiction property tax returns ask the taxpayer for a
declaration on the taxpayer’s estimate of value
– Georgia (in summary)
– Florida (in detail by asset type)
• Other jurisdiction do NOT have this option
– It is incumbent upon the taxpayer to provide this information in
some form of supplemental information or attachment
– e.g. California
• Issues with declaring a value on the return?
Fair Market Value Declarations When filing an annual business personal property tax return, the company has the opportunity to
state their estimate of value and provide the assessor a basis for that value.
Note: Answers MUST be submitted on your Official Record of Attendance form used for continuing education
credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference
Materials” box in the left-hand side of your screen.
Verification Code #3
• OBJECT
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• Benefits
– Valuations are beneficial but the benefits can decrease when the
valuation is used on a stand-alone basis
– Helpful for educating assessors on industry and more importantly
your subject assets
• Considerations
– A mailed in valuation without dialogue typically yields a lower
benefit
– A partial reduction in value vs. litigation
Valuations: Is one the answer? Valuations provide an estimate of the value of subject assets.
Copyright © 2013 Deloitte Development LLC. All rights reserved. 58
• Types of valuations analyses
– Valuation
– Normal useful life analysis
– Obsolescence study
– Quantify functional, economic, and/or technological obsolescence
– Index/trend analysis
– Exempt cost analysis
• Effective use of valuations
– Know the issues in your industry and with your assets
– Select the type of valuation analysis which will focus on your issues
– Open dialogue with assessors including an executive summary of
the valuation analysis
– Property tax is a negotiation
Other Valuation Considerations Valuations provide an estimate of the value of subject assets.
Copyright © 2013 Deloitte Development LLC. All rights reserved. 59
Example 1: LA County
Estimated Tax Savings:
81,730$ 114,659$
San Diego Table Valuation Table
Year Cost Depreciation Fair Market Value Tax Rate Liability
2012 10,000,000$ 85.0% 8,500,000$ 1.10% 93,500$
2011 8,000,000 69.0% 5,520,000 1.10% 60,720
2010 12,000,000 54.0% 6,480,000 1.10% 71,280
2009 5,000,000 40.0% 2,000,000 1.10% 22,000
2008 6,000,000 28.0% 1,680,000 1.10% 18,480
2007 7,000,000 18.0% 1,260,000 1.10% 13,860
2006 15,000,000 11.0% 1,650,000 1.10% 18,150
2005 11,000,000 10.0% 1,100,000 1.10% 12,100
74,000,000$ 28,190,000$ 310,090$
Year Cost Depreciation Fair Market Value Tax Rate Liability
2012 10,000,000$ 76.0% 7,600,000$ 1.10% 83,600$
2011 8,000,000 52.0% 4,160,000 1.10% 45,760
2010 12,000,000 33.0% 3,960,000 1.10% 43,560
2009 5,000,000 15.0% 750,000 1.10% 8,250
2008 6,000,000 11.0% 660,000 1.10% 7,260
2007 7,000,000 11.0% 770,000 1.10% 8,470
2006 15,000,000 11.0% 1,650,000 1.10% 18,150
2005 11,000,000 11.0% 1,210,000 1.10% 13,310
74,000,000$ 20,760,000$ 228,360$
Year Cost Depreciation Fair Market Value Tax Rate Liability
2012 10,000,000$ 78.5% 7,845,996$ 1.10% 86,306$
2011 8,000,000 46.0% 3,682,082 1.10% 40,503
2010 12,000,000 28.3% 3,393,463 1.10% 37,328
2009 5,000,000 12.5% 623,270 1.10% 6,856
2008 6,000,000 6.4% 386,429 1.10% 4,251
2007 7,000,000 6.1% 430,112 1.10% 4,731
2006 15,000,000 5.6% 834,489 1.10% 9,179
2005 11,000,000 5.2% 570,603 1.10% 6,277
74,000,000$ 17,766,445$ 195,431$
Los Angeles County Depreciation Table
San Diego County Depreciation Table
Valuation Depreciation Table
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Example 2: Florida County
Estimated Tax Savings:
42,418$ 53,304$
Communication Index No Indexing
Year Cost Trend Depreciation Fair Market Value Tax Rate Liability
2012 10,000,000$ 1.00 90.0% 9,000,000$ 2.00% 180,000$
2011 8,000,000 1.03 79.0% 6,509,600 2.00% 130,192
2010 12,000,000 1.06 67.0% 8,522,400 2.00% 170,448
2009 5,000,000 1.06 54.0% 2,862,000 2.00% 57,240
2008 6,000,000 1.09 43.0% 2,812,200 2.00% 56,244
2007 7,000,000 1.12 33.0% 2,587,200 2.00% 51,744
2006 15,000,000 1.19 26.0% 4,641,000 2.00% 92,820
2005 11,000,000 1.24 22.0% 3,000,800 2.00% 60,016
74,000,000$ 39,935,200$ 798,704$
Year Cost Trend Depreciation Fair Market Value Tax Rate Liability
2012 10,000,000$ 1.00 90.0% 9,000,000$ 2.00% 180,000$
2011 8,000,000 1.01 79.0% 6,383,200 2.00% 127,664
2010 12,000,000 1.01 67.0% 8,120,400 2.00% 162,408
2009 5,000,000 1.01 54.0% 2,727,000 2.00% 54,540
2008 6,000,000 1.02 43.0% 2,631,600 2.00% 52,632
2007 7,000,000 1.03 33.0% 2,379,300 2.00% 47,586
2006 15,000,000 1.04 26.0% 4,056,000 2.00% 81,120
2005 11,000,000 1.04 22.0% 2,516,800 2.00% 50,336
74,000,000$ 37,814,300$ 756,286$
Year Cost Trend Depreciation Fair Market Value Tax Rate Liability
2012 10,000,000$ 1.00 90.0% 9,000,000$ 2.00% 180,000$
2011 8,000,000 1.00 79.0% 6,320,000 2.00% 126,400
2010 12,000,000 1.00 67.0% 8,040,000 2.00% 160,800
2009 5,000,000 1.00 54.0% 2,700,000 2.00% 54,000
2008 6,000,000 1.00 43.0% 2,580,000 2.00% 51,600
2007 7,000,000 1.00 33.0% 2,310,000 2.00% 46,200
2006 15,000,000 1.00 26.0% 3,900,000 2.00% 78,000
2005 11,000,000 1.00 22.0% 2,420,000 2.00% 48,400
74,000,000$ 37,270,000$ 745,400$
Florida - Average of All Index Factor
Florida - Communication Index Factor
Florida - No Index Factor
Copyright © 2013 Deloitte Development LLC. All rights reserved. 61
• Where is the property booked?
• Is the property easily tracked?
• Is the property constantly moving or is it fairly static for
periods of time?
Mobile Property: Where is it located? If your company has mobile property, there are several questions one should ask.
Copyright © 2013 Deloitte Development LLC. All rights reserved. 62
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INTERNAL CONTROLS AND COMPLIANCE
Selena Longway, SC&H Group
SELENA LONGWAY SLIDES
INTERNAL ISSUES & CONTROLS
INTERNAL ISSUES & CONTROLS
• The personal property tax team
• Structure
• Training
• Turnover/extended absence
• Compliance software
• Selection
• Implementation
• Maintenance
• Tracking
• Big picture, key metrics
• Budgeting & accrual
• Other internal controls
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PROPERTY TAX TEAM STRUCTURE
• By geographic region
• Pros – regional expertise, ability to ID issues and strategize
• Cons – procedures may not be standardized from region to region, tunnel
vision
• By property type – real & personal
• Pros – standardized procedures, easier onboarding
• Cons – risk for double-assessment of improvements, lack of visibility:
triggers for revaluation
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PROPERTY TAX TEAM STRUCTURE
• By function – compliance & audit/controversy
• Pros – focused compliance team = shorter compliance season,
streamlined procedures, easier onboarding
• Cons – limited transfer of knowledge, lack of ownership
• Lean internal staff supplemented by outsourcing/co-sourcing
partners
• Pros – access to expertise, lessens need for internal training
• Cons – potential loss of control of data, lack of portability
68
STAFFING TURNOVER & EXTENDED ABSENCES
• When should you invest time developing and conducting in-house
training?
• When is it beneficial to use outside training resources?
69
STAFFING TURNOVER & EXTENDED ABSENCES
• Where in-house training makes sense:
• Processes and procedures specific to your company should be
documented for training purposes
• Determine where your process falls outside a process driven by compliance
software
• Ensure consistent procedures across your team
• Conduct peer reviews on a regular basis
• Non-standard reporting positions should be documented
• Critical in the event of staff turnover and/or extended absence of a team
member
• Easier to shift responsibilities to respond to increased audit activity or heavy
deadlines
• If you outsource or co-source any compliance, who is documenting this – you or
your provider?
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STAFFING TURNOVER & EXTENDED ABSENCES
• Where outside resources can be helpful:
• Software training
• Up-front training for current team members
• Access to future training for new team members
• Concept training
• Various organizations offer in-depth personal property tax or valuation concept
training
• Virtual training
• State-specific training
• Assessor organizations
• Local chapters of national organizations
71
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credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference
Materials” box in the left-hand side of your screen.
Verification Code #4
• PACKET
PROPERTY TAX SOFTWARE SELECTION
• Selection criteria:
• Is it important to your organization that the same software application be used for both real and personal property tax compliance?
• How much content do you expect your compliance software to provide?
• Form updates, forms central vs. local filing, exemption forms, depreciation tables
• How much control do you want to have over the way assets are mapped for reporting purposes?
• How much fixed asset management do you expect your software application to handle?
• How easy is it to train (or get training for) new team members?
• What kind of customer support does the vendor offer?
• Do you want to give management access to reports/key summary data?
• What considerations are there from an IT perspective?
• Does your team like the software?
73
IMPLEMENTING COMPLIANCE SOFTWARE
• Make sure you:
• Assign a project champion
• Allocate appropriate time/resources – don’t assume the vendor will
do the heavy lifting
• Start the selection process as soon as your compliance season winds
down
• Allow at least three months for implementation, training, and testing
• Take the time to understand standard fields, reports, and accrual
tools offered by the software, and consider what customization you
may want to perform
• Understand how the software’s workflow complements or conflicts
with your existing procedures, and how willing you are to make
changes
74
MAINTAINING COMPLIANCE SOFTWARE
• Things to consider after implementation:
• Assign a team member to collect and communicate recurring issues
and suggestions for improvement back to the software vendor
• Perform periodic reviews of any content supported by the vendor –
don’t assume they are mapping assets correctly or have the most
current forms/tables
• Special considerations if you outsource or co-source:
• Is your provider using your software, or theirs?
• If theirs, is it an internally developed application, or one that is
commercially available?
• Who owns your data?
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TRACKING PERSONAL PROPERTY TAX DATA
• Know your liability
• Understand where your liabilities are concentrated, and what factors
are most important – geographical location, location type
• Know where you have appealed or been audited in the past, and
document the outcome
• Ability to summarize and analyze liability by location type, age,
jurisdiction, and asset type
• Ability to compare your assessed value to rendered value and prior
year value
• If you outsource – do you have visibility into these metrics both
during and after the engagement term?
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TRACKING PERSONAL PROPERTY TAX DATA
• Budgeting and accruals
• Consider frequency of updates to your budget/accrual and method
for accrual
• Based on your needs, should you use your compliance software or
will a spreadsheet suffice?
• Make sure your budget considers:
• New/projected CapEx
• Aging property and corresponding decrease in value
• Rate changes
• Carryforward of audit findings/escape assessments
• Tax rate changes
• Process for monitoring key jurisdictions
• How/when are accruals updated?
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OTHER INTERNAL CONTROLS
• Source data
• Establish contacts in fixed asset and inventory accounting
departments
• Capitalization/financial accounting procedures
• Compatibility with PPT reporting and assessment
• Late-capitalized assets
• Restated costs, asset impairments
• Lump-sum assets, vague descriptions
• Inclusion of intangibles
• Cost segregation studies implemented without regard to property tax
implications
• Unrecorded disposals
• Work-arounds vs. changes in capitalization procedures
• Leased real estate & potential personal property tax implications
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OTHER INTERNAL CONTROLS
• What is your process for monitoring and acting on jurisdictional
changes?
• Changes to tax rates, depreciation rates, forms
• Property tax legislation and rulings that may impact your reporting
posture
• Designate responsible person(s) on your team
• Report at regular intervals, or document during return preparation
• Use caution when relying on compliance software or content
subscription to provide updates
79