Fixed Asset Inventory – Business Personal Property Tax

From our experience analyzing business personal property tax operations for clients across all industries, we’ve found that it is very common for a business to be paying property taxes on assets they no longer own. While the end goal is to only pay property taxes on assets which are still in use and located on-site, priority is often focused on day-to-day activities and operational demands. This results in business personal property tax payments made on what is assumed to be correct and up-to-date information.

During the onboarding process, we have found that over 90% of clients are paying property taxes on “idle” or “scrap” assets that have been replaced or disposed of as of the lien date, qualifying them as “ghost assets,” and therefore exempt from property taxes.

This is one of the many reasons having an accurate and up-to-date fixed asset inventory, performed by an experienced team of business personal property tax consultants, can result in significant property tax savings. Invoke Tax Partners’ approach to fixed asset inventory is holistic, involving key members of your operations and a complete site inspection to identify ghost assets. During this process, we uncover valuation issues that often result in additional business personal property tax savings, including but not limited to: intangibles, functional/economic obsolescence, reclassification issues, pollution control exemptions, abatements, and fair market value opportunities. If you are unaware of the date of your last fixed asset inventory or have concerns with the accuracy of your fixed asset records, contact us today by filling out this form.

Reconciling Data After Site Inspections

After a site inspection is performed, we are able to reconcile the newly recorded fixed asset inventory data with the updated listings to be used for accounting purposes. In the vast majority of cases, there are assets on the fixed asset listing that were not located during the fixed asset inventory process, likely because they were replaced or disposed of. These assets ultimately need to be eliminated from the books. Since these books are the basis of the preparation of business personal property taxes, overreporting assets that are no longer on-site or functional results in overpayment on property taxes until the fixed asset inventory is updated.

The removal of non-existent ghost assets from the books will lower future business personal property tax bills and can result in significant property tax savings in perpetuity, impacting not only the current year, but also reducing the tax liability for future tax years.

The Benefits of a Fixed Asset Inventory

Completion of a fixed asset inventory meets Sarbanes-Oxley (SOX) audit requirements. Since the inventory process ensures that balance sheets are an accurate reflection of what actually exists at each facility at one time, and is completed by a third-party with a proven, fully documented process, the results are credible for the purposes of a potential audit. With the potential for businesses to be audited at any point in the calendar year for states that audit business personal property, we recommend maintaining a regular fixed asset inventory schedule.

Completion of the inventory also allows us to easily identify gaps in communication between employees and the accounting department. When businesses reconcile their assets, it enhances interdepartmental relationships and communication within the organization. Despite the accounting staff’s extensive knowledge of business operations, they may not always be informed about significant equipment replacements, disposals, or upgrades. Identifying these changes allows for potential adjustments to the original purchase price during returns, preventing duplicate taxation. The knowledge gap typically arises when individuals actively involved with assets on a daily basis don’t understand the importance of communicating significant changes in assets to the accounting department. Closing this knowledge gap will result in significant tax savings and an increase in overall profitability.

Maintaining a fixed asset inventory proves cost-effective as it can lead to potential reductions in income taxes, property taxes, and insurance premiums for taxpayers. Clients commonly experience substantial decreases in tax obligations within the initial year, positioning themselves for ongoing savings throughout the lifespan of their assets. Fixed asset inventory is valuable to many industries with heavy business personal property tax liabilities, including but not limited to manufacturing, office, automotive, data centers, healthcare facilities, and distribution warehouses. Additionally, we often find substantial asset inaccuracies on the books of companies acquired through bankruptcy. If you believe you may be overreporting assets or are unaware of the date of your last fixed asset inventory, contact our team today by filling out the above form to speak with our experienced personal property tax consulting team.