| "Collecting more taxes than is necessary is | | | | every asset purchased. However, a fixed asset |
| legalized robbery." These words of wisdom, | | | | listing is not required. This is good news |
| spoken by the 13th president of the United | | | | for small businesses that do not maintain a |
| States, Calvin Coolidge, still ring true in | | | | fixed asset listing. |
| today's society for homeowners and business | | | | |
| owners. Robbery may seem like a harsh word, | | | | Unequal appraisal |
| but what would you say if someone tried to | | | | |
| sell you one-year-old motel sheets for 90% of | | | | Assessed values for BPP accounts often range |
| the original cost? Based on the appraisal | | | | from ten-times to fifty-times on a per square |
| district's depreciation schedule, this is a | | | | foot basis for companies in the same |
| fair deal. | | | | industry. For example, real estate brokerage |
| | | | offices, which have 10,000 square feet of |
| Most people would not consider this a fair | | | | office space, may have assessments ranging |
| deal and either reject the offer or request a | | | | from $10,000-$500,000. It seems unlikely that |
| lower price. This should be the same thought | | | | the computers and furniture in one brokerage |
| process when the appraisal district | | | | office are 50 times as valuable as those in a |
| overassesses your business personal property | | | | competitor's firm on a per square foot basis. |
| (BPP). Texas law requires business owners to | | | | |
| report BPP, personal property used for the | | | | Appraisal districts tend to accept the |
| production of income, to the appraisal | | | | assessed value rendered by property owners. |
| district for assessment and taxation. | | | | Many large companies render using fixed asset |
| Although there are no criminal penalties for | | | | listings. Appraisal districts use the cost |
| not complying with the law, there is a | | | | basis information and the Comptroller's |
| penalty of 10% of the taxes. For example, if | | | | schedule to calculate the "market value" for |
| you have a BPP account assessed for $100,000, | | | | property. The valuations for these rendered |
| your annual BPP taxes are $3,000, based on a | | | | accounts tend to grossly distort the actual |
| 3% tax rate. The 10% penalty for this BPP | | | | value of these properties. Property owners |
| account would be $300 ($3,000 times 10% | | | | who do not render have values on the lower |
| equals $300). | | | | end of the range of value. While it seems |
| | | | intuitive that appraisal districts would |
| The huge range of assessed value for business | | | | penalize owners who do not render by sharply |
| personal property (BPP) makes obtaining | | | | increasing their assessed values, the |
| substantial property tax reductions highly | | | | practice is the opposite. Appraisal districts |
| probable. It is not unusual for the range of | | | | tend to reward property owners who do not |
| assessed value for BPP accounts for similar | | | | render by leaving their assessed values at |
| properties to vary by 5,000%! For example, | | | | modest levels. This creates a disincentive to |
| furniture and computers for companies within | | | | render. It also unequally taxes property |
| the same office building sometimes vary from | | | | owners who render with a fixed asset listing. |
| $1 to $50 per square foot. Market value and | | | | These factors have caused a high degree of |
| unequal appraisal are two options for | | | | dispersion in BPP assessed values. |
| appealing BPP assessments. Given the inequity | | | | |
| in BPP assessments and the subjectivity of | | | | How To Appeal On Unequal Appraisal |
| valuing BPP, property owners have a high | | | | |
| probability of success when properly prepared | | | | Contrary to popular belief, it is possible to |
| for a BPP assessment appeal. Protest both | | | | appeal BPP utilizing unequal appraisal, a |
| market value and unequal appraisal. | | | | concept that is fairly new. Most property tax |
| | | | consultants and large property owners have |
| How to appeal? | | | | not considered or utilized unequal appraisal |
| | | | regarding BPP. Appraisal districts are |
| To appeal your BPP, you can either use the | | | | resistant to the concept of appealing BPP |
| Comptroller's form, or send a letter to the | | | | based on unequal appraisal. (It is |
| appraisal review board (ARB) on or before May | | | | inappropriate to tax property owners who |
| 31st of each year. The protest letter to the | | | | render using a fixed asset listing at the |
| ARB should identify the property and the | | | | highest level, based on utilizing the |
| reason for your protest (section 41.44d of | | | | Comptroller schedule, when allowing property |
| the Texas Property Tax Code). | | | | owners who do not render very lean levels of |
| | | | assessment.) |
| Tips: | | | | |
| | | | Preparing an appeal based on unequal |
| · Since the appraisal district's staff | | | | appraisal for BPP is simple and |
| tends to become more motivated to resolve | | | | straightforward. Start by obtaining |
| appeals later in the season versus earlier in | | | | information on the assessed value, and amount |
| the season, it is better to appeal or protest | | | | of office space/manufacturing or warehouse |
| on May 31st or shortly before the deadline | | | | space for property owners similar to the |
| date. | | | | subject property owner. This is typically |
| | | | done by using companies with the same |
| · Even if you do not receive a notice of | | | | Standard Industrial Code (SIC) as the subject |
| assessed value for your BPP account, it is | | | | property owner. You can obtain this |
| still important to send a written notice of | | | | information by sending an open records |
| appeal or protest. The appraisal district | | | | request to the appraisal district. When |
| does not have to send a notice of your | | | | appealing, research the assessed value for |
| assessed value if the value does not change | | | | your competitors. Compile data regarding the |
| by more than $1,000. If the notice of | | | | assessed value and building area for the |
| assessed value gets lost in the mail, and you | | | | subject and comparable accounts into a |
| do not send a protest notice, you lose your | | | | summary: |
| right to appeal for the current year. | | | | |
| | | | When should you appeal? |
| When sending a notice of appeal to the ARB, | | | | |
| also send the appraisal district a House Bill | | | | Appeal annually on market value and unequal |
| 201 request. House Bill 201 refers to section | | | | appraisal. To effectively appeal on these two |
| 41.461 of the Texas Property Tax Code that | | | | options, research unequal appraisal based on |
| allows property owners to obtain a copy of | | | | assessment comparables on the appraisal |
| any evidence the appraisal district plans to | | | | district's web site and evaluate the market |
| use at the ARB hearing 14 days before the | | | | value of your BPP. After reviewing both the |
| hearing. This request prohibits the appraisal | | | | unequal appraisal and market value options, |
| district from using any information that was | | | | determine your primary focus for appealing |
| not provided to the property owner 14 days | | | | your BPP account. If neither market value nor |
| before the ARB hearing. | | | | unequal appraisal provides a basis for |
| | | | appealing your property taxes, you can |
| Market Value, Book Value & Comptroller | | | | withdraw the notice of protest or just skip |
| Schedule | | | | the hearing. |
| | | | |
| Three popular options for describing value | | | | Tips for your hearing (Informal & ARB) |
| for BPP are: market value, book value, and | | | | |
| the Comptroller's schedule. Market value is | | | | Informal hearing |
| defined in section 1.04(7) of the Texas | | | | |
| Property Tax Code that reads as follows: | | | | · First meet with the appraiser and |
| | | | politely explain the basis for your |
| "Market value" means the price at which a | | | | adjustment. Give the appraiser a copy of your |
| property would transfer for cash or its | | | | evidence and explain it in a methodical way. |
| equivalent under prevailing market conditions | | | | |
| if: | | | | · The appraiser will review your |
| | | | information and the information he/she has |
| (a) exposed for sale in the open market with | | | | available, and will then likely make an offer |
| a reasonable time for the seller to find a | | | | to settle. Consider the appraiser's offer and |
| purchaser, | | | | explain why your evidence is better than his |
| | | | her evidence, and again request your value or |
| (b) Both the seller and the purchaser know of | | | | a value between your value and his/her value. |
| all the uses and purposes to which the | | | | |
| property is adapted and for which it is | | | | · You will quickly learn the lowest value |
| capable of being used and of the enforceable | | | | the appraiser is willing to accept. At this |
| restrictions on its use, and | | | | point, you need to either agree to that value |
| | | | or proceed to the Appraisal Review Board |
| (c) Both the seller and the purchaser seek to | | | | (ARB) hearing. |
| maximize their gains and neither is in a | | | | |
| position to take advantage of the exigencies | | | | · If you settle the appeal at the informal |
| of the other. | | | | level, you will not be able to pursue an ARB |
| | | | hearing or a judicial appeal. However, it |
| Let's compare the differences in value | | | | does resolve the issue in a timely manner. |
| resulting from using market value, book value | | | | |
| and the Comptroller's schedule. The BPP for a | | | | ARB hearing |
| typical motel room includes items such as | | | | |
| bedding, linens, window air-conditioning | | | | · Introduction of the two parties at the |
| unit, towels and a television. Based on | | | | hearing |
| market value, after one year, these types of | | | | |
| items could probably only be sold for 10% to | | | | · Explanation of the hearing process |
| 30% of the original cost. Book value, based | | | | |
| on federal depreciation schedules, indicates | | | | · Property description (address any errors |
| a value of 80% of the purchase price after | | | | in the description of your property after the |
| one year. The Texas Comptroller's schedule | | | | appraiser's description of your property) |
| for BPP for motels has an eight-year life | | | | |
| with 10% depreciation for the first seven | | | | · Property owner presentation |
| years. Hence, the Comptroller schedule | | | | |
| indicates one-year old hotel furnishings are | | | | · Questions from the ARB panel members |
| worth 90% of their original purchase price. | | | | |
| This is clearly inconsistent with market | | | | · Appraisal district presentation |
| value for these items. | | | | |
| | | | · Rebuttal and closing evidence from the |
| Inventory | | | | property owner |
| | | | |
| There are a number of controversial issues | | | | · ARB announces its decision |
| related to how inventory is assessed. These | | | | |
| include shrinkage, damage, functional | | | | Summary Points |
| obsolescence and economic obsolescence. For | | | | |
| example, what is the market value of | | | | · Annual appeals will minimize your BPP |
| merchandise returned during the week after | | | | property taxes. |
| Christmas on January 1st (the effective date | | | | |
| for valuation)? Since returned merchandise | | | | · There are huge differences between the |
| has usually been opened, damaged, missing | | | | market value estimated by the Comptroller's |
| parts or may be an unpopular item, it is | | | | schedule and actual market value. |
| worth less than cost in many cases. Market | | | | |
| value is relevant in determining the assessed | | | | · Based on excessive assessments for BPP |
| value for inventory for Texas BPP taxes. | | | | for companies who render using a fixed asset |
| | | | listing, a low percentage of property owners |
| Preparing A Summary For Your Hearing | | | | who render and the low assessed values for |
| | | | property owners who do not render, there are |
| The appraisal district would prefer to see a | | | | rich opportunities for appealing BPP by using |
| fixed asset listing, which includes the | | | | unequal appraisal. |
| original cost and date of acquisition for | | | | |