| The Texas Property Tax Code for many years had | | | | intrinsic value. Examples of tangible personal property, |
| required owners of business personal property (BPP) | | | | or business personal property, include equipment, |
| to annually render those assets used in a business. | | | | furniture, computers, and inventory. Business personal |
| Rendering is summarizing to the central appraisal | | | | property would not include accounts receivable, stocks, |
| district the ownership and value of the assets. | | | | bonds, notes, franchise agreements, licenses, permits, |
| Historically, however, over half of all owners of | | | | certificates of deposit, insurance policies, pensions, |
| business personal property have not rendered. | | | | contracts and goodwill. |
| The Texas law was unusual in that while rendition was | | | | Market Value Definition |
| mandatory, there was no penalty for not rendering. | | | | Market value is defined in the Texas Property Tax |
| Therefore, many property owners did not render | | | | Code 1.04 (7) as the price at which a property would |
| because it was not material, was not convenient or | | | | transfer for cash or its equivalent under prevailing |
| would dramatically increase their tax liability. For many | | | | market conditions if: a) exposed for sale in the open |
| small business owners, the value of the personal | | | | market with a reasonable time for the seller to find a |
| property and the associated property taxes are | | | | purchaser; b) both the seller and the purchaser know |
| modest and not a material issue for the business. | | | | all of the uses and purposes to which the property is |
| Chief appraisers at central appraisal districts and tax | | | | adapted and for which it is capable of being used and |
| entities have long been concerned that a material | | | | the enforceable restrictions on its use; and c) both the |
| amount of business personal property is not being | | | | seller and purchaser seek to maximize their gains and |
| taxed. There is a reasonable concern that if business | | | | neither is in a position to take advantage of the |
| personal property owners are not being taxed | | | | exigencies of the other. |
| equitably with real property owners, the burden of | | | | Market Value vs. Book Value |
| taxation is shifted from owners of personal property | | | | Market value may be less than or more than book |
| to owners of real property. | | | | value. For example, the value of a 3-month-old |
| Impetus for Change | | | | computer may be one-half of the initial acquisition price. |
| Several factors combined to make business personal | | | | The book value based on IRS tax per IRS depreciation |
| property rendition a hot topic. In Robinson vs. Budget | | | | schedule would be 95% of cost based on a 60-month |
| Rent-a-Car Systems, a 2001 appeals court decision, | | | | depreciation schedule. Other examples of items |
| the court clarified that the chief appraiser may sue to | | | | whose market value may decline sharply after being |
| force a business personal property owner to render | | | | placed in service include cars, linens and bedding at |
| BPP. In addition to the objective of chief appraisers to | | | | motels, phone systems, copiers, and furniture. |
| equitably spread the burden of property taxation, fiscal | | | | Other Valuation Issues |
| shortfalls at many city, county and school entities as | | | | Inventory shall be valued at the price for which it will |
| well as at the state level have raised the government's | | | | sell as a unit to a purchaser who would continue the |
| need to ensure it is receiving all due revenue based on | | | | business. Due to issues such as pilferage, |
| current tax laws. | | | | obsolescence, and damage, the market value of |
| Although Robinson vs. Budget allowed chief appraisers | | | | inventory may be less than the book value of the |
| to sue property owners who did not render, this was a | | | | inventory. The assessed value of the furniture, |
| largely unsatisfactory remedy due to the financial | | | | computers, and equipment should be the price for |
| costs and political stigma of chief appraisers suing | | | | which it could be sold. |
| large numbers of taxpayers. The other possible | | | | Issues for Appraisal Districts |
| solution was for chief appraisers to "guess high" on | | | | Although appraisal districts lobbied aggressively to |
| assessed values in order to effectively force business | | | | insure this bill passed, it poses many challenges and |
| personal property owners to provide information. | | | | issues for appraisal districts. The first challenge is how |
| Fortunately, few chief appraisers have chosen this | | | | to process a large number of renditions. Then, the |
| option. | | | | appraisal districts will have to decide whether to |
| Summary of the New Law | | | | aggressively request additional information if the owner |
| During the summer of 2003, the Texas legislature put | | | | gives market value instead of providing a fixed asset |
| some teeth into the rendition law by passing Texas | | | | listing (property description, year of acquisition, and |
| Senate Bill 340. Starting in 2004, a company that does | | | | acquisition cost). The appraisal districts will also have to |
| not render will automatically pay a 10% penalty on its | | | | decide how much consideration to give the owner's |
| business personal property tax bill. This penalty will be | | | | estimate of market value, particularly if it is sharply |
| collected by the chief appraiser, although there are | | | | below the appraisal district's assessed value. |
| options to appeal the penalty. There is also a 50% | | | | At least one chief appraiser believes the new rendition |
| penalty for filing a fraudulent rendition. In addition, filing a | | | | requirements may delay certification since appraisal |
| fraudulent rendition is a criminal offense. | | | | districts must wait to receive the renditions before |
| Rendition Requirements | | | | mailing notices of assessed value. The higher level of |
| Owners of business personal property with an | | | | renditions will impose additional challenges for appraisal |
| aggregate value of less than $20,000 can file a | | | | district staff in up-front processing and will likely require |
| simplified rendition statement containing only: 1) the | | | | additional protest hearings. Appraisal districts are |
| property owner's name and address; 2) a general | | | | generally leanly staffed and will have to be creative |
| description of the property by type or category; and 3) | | | | and effective to handle a likely meaningful increase in |
| the location of the property. Owners of business | | | | business personal property renditions and appeals. |
| personal property worth more than $20,000 must file a | | | | Practical Considerations for Property Owners |
| rendition with: 1) the owner's name and address; 2) a | | | | One nettlesome issue for owners of small amounts of |
| description of the property for inventory; 3) a | | | | business personal property is whether the penalty for |
| description of each type of inventory; 4) a general | | | | not rendering is incentive enough to render. Consider |
| estimate of the quantity of each type; 5) the property's | | | | the following example: Bob owns a small business and |
| physical location; and 6) either the owner's good faith | | | | has business personal property reasonably worth |
| estimate of the property's market value or the | | | | $5,000. It is assessed for $5,000. The annual personal |
| property's historical cost new and its year of | | | | property taxes, based on a 3% tax rate, are $150. The |
| acquisition. | | | | penalty for not rendering is $15. Should Bob make |
| If the owner simply provides a good faith estimate of | | | | sending the rendition form to the appraisal district a |
| the property's market value the appraisal district may | | | | priority above working with his customers, seeking |
| request a statement of supporting information | | | | new customers, and working with his staff? |
| indicating how the property owner determined the | | | | Owners of business personal property who either are |
| value rendered. This detailed statement must be | | | | not on the tax rolls or whose property is grossly |
| delivered within 21 days after the date the property | | | | under-assessed will have to decide whether to render. |
| owner receives the request. | | | | It is clear that the law requires owners to render and |
| Rendition Deadlines | | | | there is now a 10% penalty if you do not render; the |
| The rendition addresses business personal property as | | | | amnesty provision provides a modest incentive to |
| of January 1st of the tax year and may be filed | | | | render. Consider the following example: Charlie owns a |
| annually between January 1st and April 15th. There is | | | | wholesale distribution business with $995,000 in |
| an automatic extension of the filing deadline until May | | | | inventory and $5,000 in furniture and equipment. |
| 15th upon written request. The chief appraiser may | | | | However, Charlie's current BPP assessment is |
| extend the filing deadline for an additional 15 days (until | | | | $100,000 and annual taxes are $3,000. If he does not |
| May 30), if the property owner files a written request | | | | render he will likely pay annual taxes of $3,000 and a |
| showing good cause. | | | | 10% penalty for a total of $3,300. If Charlie does |
| Amnesty Provision | | | | render, his business personal property taxes will |
| With the new legislation the Texas Property Tax | | | | increase to $30,000 per year. It is clear that owners of |
| Code also offers property owners a special rendering | | | | business personal property are required to render and |
| provision for the 2003 tax year. If owners render BPP | | | | that there will be a 10% penalty for not rendering |
| before December 1, 2003 the appraisal district may | | | | starting in 2004. Whether owners render will depend |
| revalue the property for tax year 2003. Revaluation is | | | | partly on their records, risk tolerance, and corporate |
| likely to occur if there was no previous account for the | | | | culture. |
| property or if the rendered value greatly exceeds the | | | | Conclusion |
| current assessed value. | | | | The new business personal property rendition |
| However, exercising the special rendering, or amnesty, | | | | requirements will sharply increase compliance with |
| provision in 2003 allows the property owner to avoid | | | | rendition laws over the next three to five years. Many |
| omitted property taxes for the two prior years. When | | | | small business personal property account owners will |
| business personal property not already on the tax rolls | | | | probably not address the issue until receiving a 2004 |
| is discovered, the Texas Property Tax Code requires | | | | tax bill with a 10% penalty for failing to render. It is |
| it be assessed at the market value for the two prior | | | | unclear how many large accounts are either not on |
| years. For example, if business personal property | | | | the tax roll or are substantially undervalued. It is clear |
| were discovered in 2003, the appraisal district would | | | | there are some, but from a practical perspective this |
| also typically assess the property for 2001 and 2002. | | | | writer has not seen or heard of many such cases. |
| By rendering during the established amnesty window, | | | | The benefits of the law are that it will make taxation |
| September 1, 2003 through November 30, 2003, the | | | | more equitable between business personal property |
| property owner avoids the exposure of paying | | | | and real property. It will also make business personal |
| property taxes for prior years. | | | | property taxes more equitable between those who do |
| What is Business Personal Property? | | | | and do not render. Less attractive features of the new |
| The Texas Property Tax Code 1.04 (5) defines | | | | rendition requirements are an increase in tax revenue |
| tangible personal property as property that can be | | | | and an increase in paperwork for businesses. |
| seen, weighed, measured, felt, or otherwise perceived | | | | Reduce your property tax by contacting Oconnor |
| by the senses, but does not include a document or | | | | & associates. Oconnor & associates can |
| other perceptible object that constitutes evidence of a | | | | represent you at the Williamson central appraisal |
| valuable interest, claim, or right and has no negligible or | | | | district. |