COVID impacts on personal property tax

Around the country, warehouses are packed with used chairs and standing desks that once outfitted bustling offices. In what’s become a common occurrence in the wake of the COVID pandemic, businesses are liquidating office furniture and desktop computers no longer needed by employees who now work from home. Sometimes, employers are simply giving the items away. These economic conditions can dramatically reduce the fair market value of a business’s personal property.

As companies downsize or remain in place, it can be beneficial to consider how an assessor may not recognize these lower market values. Unless a company takes action, the result may be overpayment of property taxes. 

Tangible personal property is taxable in 38 states. Unlike fixed real property, which includes buildings and land, tangible personal property is a movable asset. Personal property includes furniture, computers, printers, phones, and supplies — even fax machines if you still have one hanging around. 

Large enterprises can have billions of dollars tied up in tangible personal property, so it’s essential to ensure your personal property tax assessment accurately reflects the value of your assets.

Personal property tax bill assessments can be reduced if a business subsequently sells its assets for a lower price than the assessment or if you convince the county assessor the market value of these assets is lower than the assessment. But this won’t happen automatically. You need to formally or informally appeal the value of these assets with the assessor. The county assessor may or may not be the same entity as the county tax collector, so be sure you appeal to the correct authority.

When completing your personal property tax return, you must list all taxable personal property in the jurisdiction as of a particular date, typically January 1 of the current year. You must also include details about the property, including its acquisition date and how much you paid for it. The county assessor uses this information to value your property and determine your personal property tax assessment for the following year.

State laws require that assessors appraise personal property at its fair market value, according to a concept known as highest and best use. This means the value must be based on the use that would create the highest value for the property, regardless of its current use. It could be that the best use is to liquidate, but the assessor won’t necessarily determine this unless you provide sufficient supporting information.

Assessors also consider if your property has depreciated. There are three forms of depreciation:

• Assessors will usually first consider physical depreciation. Physical deprecation is the loss in value due to wear and tear, age, and other factors affecting the property’s condition.
• Assessors may also consider a type of depreciation known as functional obsolescence. Functional obsolescence is a decrease in value due to outdated design features or inefficiency, such as a computer that can’t run the latest software.
• Economic obsolescence takes into consideration the impact of external factors. The COVID pandemic is a prime example of an external factor that can reduce the value of business assets. When used designer office furniture floods the market, it drives down the value of those items.

Taking advantage of economic obsolescence can help your business get a fair personal property tax assessment and lower the amount of tax you owe.

Again, you can’t guarantee the assessor will account for economic obsolescence unless you explain your situation. Ideally, that conversation happens when you submit your personal property tax return. But if your assessment is too high, you have a second chance to communicate with the assessor when filing an appeal. Local governments have different appeal processes and payment deadlines, so submit your appeal request or remit unpaid taxes by the applicable due date.

Avalara Property Tax can help you provide assessors with the information they need to consider when valuing your personal property. The solution helps you manage bills, assessments, and returns and permits you to adjust values to account for factors like economic obsolescence. Contact our property tax compliance specialists to learn how Avalara can help you manage property tax compliance in the wake of the economic impacts of COVID.

You can read also How COVID has affected commercial property tax for more information.