- Also In This Issue:
- Once Again, South Carolina Breaks New Ground on Hotly Debated Nexus Issues
- Hercules and Firstar: Nondomiciliary Taxpayers Successfully Defend Nonbusiness Income Treatment Before the Minnesota Supreme Court
- California's Deduction for Dividends Received from Insurance Companies
- California Business Property Tax: Reported Costs Are Not Necessarily Fair Market Value
California's property tax regime is famous for the limitations placed on assessments by the California Constitutional amendment known as "Proposition 13." However, many people do not know that those limitations apply only to real property. Personal property assessment increases are not limited to only two percent per year. Rather, personal property, or "business property," is assessed annually at its fair market value as of the lien date.
Business property is usually assessed based upon the 571-L Business Property Statements that each taxpayer possessing business property valued in excess of $100,000 is required to file annually. Although, the 571-L asks taxpayers to report the original acquisition costs for business property, the property is required to be assessed at its fair market value. To derive fair market value, almost all assessors depreciate the reported original costs using standardized economic lives and depreciation tables. While this may be the best method for determining fair market value in some cases, it is not the best method when better market-based data is available.
Taxpayers can reduce their business property assessments by appealing their assessments and presenting market data establishing lower fair market values than the depreciated cost figures derived by the assessor. In addition, taxpayers can develop evidence showing that the actual average economic life for a particular type of property is less than the economic life used by the assessor. Last, but certainly not least in importance, taxpayers can usually cut their personal property taxes substantially by a careful self-audit and comparison of their internal property records with the 571-L reports. "Ghost" assets, created by the taxpayer's failure to remove the amounts attributed to retired property from the 571-L, can lurk in the reported cost amounts for years.
In sum, for many taxpayers a careful examination and analysis of personal property assessments can lead to significant tax refunds.
This newsletter addresses recent state and local tax developments. Because of its generality, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.