Business owners must be quite familiar with the term business personal property tax (BPP). But did you know you can reduce your personal property taxes that you are paying now! In this article, you will get to know, in detail, what business personal property tax is, if you are responsible to pay it, and how you can reduce them.
What is business personal property tax?
What is the first thing that pops up in your mind? Is it the building or land you own? Yes, but it’s not just that. Business personal property taxes cover other items your business owns like tangible personal property such as furniture, machinery, supplies, telephone, etc. As these items are used by a business for its operation, the local governments impose a property tax on them similar to taxes imposed on land or buildings.
Differentiating the taxable and non-taxable
When it comes to calculating BPP, how do you differentiate what is taxable and what is not? The (BPP) Business Personal Property tax varies from state to state. A few local authorities may require businesses to pay an annual personal property tax. Apart from the business property tax, the items that are classified may also vary based on the jurisdiction. It is the responsibility of every business owner to know whether the local taxing unit imposes a business personal property tax or not. While most states do not impose taxes on both tangible and intangible assets, a few states do, so it is important to double-check to ensure you are following the rules.
Methods of valuing business personal property
There are three primary methods for valuing business personal property, the cost, income, and the sales comparison approach. The cost approach is typically based on replacement cost less depreciation for physical, functional, and external. The income approach is generally related to a multiple of annual gross or net income to provide an indication of value. The sales comparison approach is best understood because of its ubiquity in understanding the value of your house and other houses in the neighborhood. Read in detail about these three approaches here.
How do CAD’s estimate the value of BPP?
A physical-life depreciation schedule is a tool used by county appraisal districts (CAD). The values resulting from this tool are, however, not reliable as the value of warranty, the variance between a market value, external obsolescence, freight, etc are not addressed. It is in the hands of the owners to correct the CAD’s errors.
BPP rendition form
Based on the locality you live in, you may be required to fill in an annual form that includes details about your business and BPP. These details are used by the local tax offices to determine how much BPP tax you owe.
Do it yourself or get it done for you
If you are a new business owner, learning the ropes might seem difficult. You have to do research, understand the tax laws, contact the authorities, find out if you need to pay taxes on certain items and file an appeal which might be painstaking. You could do it yourself or, you can let a property tax consultant handle all these aspects for you.
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