Internal Control of Fixed Assets: A Controller and Auditor's Guide

CHAPTER ELEVEN 11

Property Taxes—Personal Property and Real Estate

WARNING: THE LAWS AND court cases governing assessment of property vary widely by state. In most cases intangible assets are not taxed but in some states property tax assessments do include intangible values. Even worse, there may be different tax rates depending on whether the assessment is at the state, or at the local, level. Local counsel may be needed to resolve specific issues in a particular jurisdiction. A national professional service firm, such as Duff and Phelps or a Big Four accounting firm, has expertise that can be focused on specific tax issues. Here we can cover only general principles.

While there are a number of very good reasons for a company to have a good property record system, only a few can make an actual difference in terms of cash flow. These essentially are:

• Property taxes

• Insurance

• Component depreciation

• Maintenance

In this chapter we cover property taxes. Within this broad topic two key areas will be covered.

First is making sure that the information supplied to the local taxing authority does not overstate the true value of the asset(s). Simply copying over, on the appropriate tax form each year, the dollar amount of all items capitalized in that jurisdiction may overstate the “cost.”

Second, it may be necessary to appeal the fair market values (FMV) determined by the taxing authority on which that year’s taxes will be assessed. The only way to appeal will be from the company’s ...