Is your business’s property and equipment being fairly assessed and taxed? Without an experienced team, it’s difficult to understand the myriad of property tax rules and assessment details across states or counties. At Valentiam, we provide clients with fair tax assessments on their property from appraisal to negotiated agreement. In this article, we identify three common issues that may be incorrectly increasing the taxable value of your property, along with five services our firm provides to help you through each stage of the process.
Why do companies require expert property valuation services?
Companies typically enlist help for one of two reasons: 1) to determine the value of company property (particularly equipment) when they don’t know it, or 2) when they’re considering appealing a property tax assessment that may be too high. There are a number of different factors that impact the value of an asset, and many potential issues that can skew valuation results. Most companies lack the internal expertise to navigate these challenges on their own, which is why they look to consult property tax valuation experts such as Valentiam.
We help our clients navigate the issues inherent to property tax valuation, such as:
Cost Issues
Not all costs are taxable. And while all tax departments understand this, excess costs are still filed with assessors on occasion. Taxability rules can be confusing and vary within different counties in a given state. Reviewing cost types for exclusions that may exist is a great first step. (Tweet this!) Excess filed cost can be uncovered through a better understanding of the accounting and way costs are filed. Often the software or warranty portions of equipment may not be taxable but the entire cost is filed with assessors. In other cases, certain costs incurred may contribute to asset balances that are not truly owned by the company.
For example, say a utility company has to tear up a particular street to address a service issue, and repave it after the project is complete. The utility company paid for the street to be repaved, but it only owns the pipes and cables that run through the neighborhood. Now, the utility company is being taxed a higher amount for the repaving cost as if the road is an asset they own, when in reality, it's just a cost they've incurred. Clearly, this situation is not ideal.
In some cases, companies also have ghost assets that have been retired or are no longer in use. This is common in manufacturing businesses, where machinery or equipment often sits somewhere unused and is hard to track. These assets continue to show up on the books—and in tax assessments—year after year.
Index Issues
Cost indexes, also known as trend factors, help to convert historic costs to today’s value, similar to inflation. They represent what a company would pay at a particular point in time for things like construction and equipment costs. The flaw is that cost indexes do not reflect technological advances, and are usually too broad because they fail to take industry specifics into consideration. According to most appraisal guidance, caution should also be exercised regarding the use of trending for periods in excess of ten years. By that time, and often before, cost is not as reliable in determining the value of an asset.
Depreciation Issues
Assessors account for depreciation by applying a percent good factor to each year of cost based on a schedule meant to represent the useful life of the asset. For example, a 40% “percent good factor” means there is 60% deprecation on the asset in question. However, this is based on the asset’s lifespan, which is estimated by assessors and can be inaccurate, depending on the data they’re using.
Additionally, some assessors perform valuations by grouping all assets over a certain age into a single amount. However, it’s inappropriate to depreciate based on these groupings—especially true if there is meaningful life remaining. This has a very significant impact when it comes to assets with longer lives, like large machinery, as these retain value for a long time. Including these assets in a grouping can dramatically skew the results.
Think your property may have been overassessed? Schedule a discovery call with one of our valuation specialists to discuss it.
5 Property Valuation Services We Offer At Valentiam
Here are five ways we can help with the valuation of your company’s tangible assets for property tax purposes:
1. We’ll help you understand the costs & accounting of your assets.
Our valuation experts will work with you to help you better understand the filed taxable cost of your tangible assets. We’ll review your costs and tax reports to ensure your company is being taxed appropriately, and help you determine if there are exclusions or non-taxable assets being reported.
2. We’ll help you derive a Replacement Cost New.
We’ll help you move away from the cost approach and derive a replacement cost new (RCN), a form of valuation meant to determine what it would cost today to recreate an asset with the same functionality, but in a new form and less depreciation. With an RCN, companies can avoid many cost issues discussed above, and arrive at a cost that is lower and more reflective of the capabilities and state of their asset. Our valuation advisors work closely with firms like CostQuest, an industry leader in deriving RCNs for larger organizations.
3. We’ll help educate your tax assessor.
Once we figure out the value of an asset, we’ll be your advocate, and communicate our reasoning behind valuations to the assessor on your behalf. Our valuation experts have worked with assessors across most states and jurisdictions to negotiate better outcomes for our clients.
4. We’ll negotiate with tax authorities.
Valentiam has experience working with lawyers, and preparing presentations for assessors and tax authorities. We can provide financial modeling and other findings that will help make your case stronger.
5. We’ll provide expert testimony in the case of litigation.
If litigation becomes necessary, (it sometimes happens despite everyone’s best efforts), we’ll testify during the proceedings. Our valuation specialists have experience testifying in dozens of states, are familiar with the processes, and have played a key role in producing a successful outcome.
If you think you might need expert commercial property valuation services to make sense of your company’s property tax assessments, let’s talk. Our valuation consultants are thought leaders in the industry and can partner with you to provide invaluable expert opinions that will save your company both time and money.
Topics: Property valuation
