Business Personal Property

For Business Personal Property, Equitax has achieved considerable success applying market value theories which contradict the standard CAD cost approach to value.

BPP is divided into two basic categories; Fixed Assets and Inventory.  Businesses are required to render BPP in Texas, and there are several methods to achieve that: 

1.      You can render, solely, an opinion of all of your fixed assets and inventory, and the CAD may or may not accept that rendition as a good faith estimate of value.  They can require the property owner to provide documentation to support the opinion, and if the chief appraiser determines that the opinion is excessively low, the taxpayer can be penalized 10-50%. 

2.      You can render your opinion of value along with costs:

a.        Inventory-at-cost numbers

b.      Fixed asset cost, category, and date of acquisition. 

 The CAD may or may not accept your opinion.

3.      You can render your costs and dates and let the CAD assess your property.

In all cases where the CAD does not accept your opinion of value, they will make an estimate of value based on one of two things: 

1.      Your rendered costs and dates:  The CAD will assess inventory at full book cost,  and fixed assets at a depreciated value according to their published value-in-use depreciation schedule.  Some CADs use an indexing method to revalue fixed assets according to an aging table, raising the value based on current replacement cost and then depreciating that new number according to age. 

2.      The size of your business:  The CAD will refer to the State Comptrollers SIC (Standard Industrial Classification) tables for your industry, and apply a value per square foot of space occupied by the business. 

3.      Alternatives:  There are various other methods the CAD may use if they either don’t have a rendition or don’t like the one you gave.  For example, in one case where our client inadvertently failed to render one of 125 locations, the CAD had information on third party inventories in the same leased warehouse, calculated the average per square foot of those (regardless of class), and assigned a value per square foot to our client’s property (at triple the cost). 

The first thing Equitax does is to review the client’s records and renditions.  We enter values into our system and develop what we call a Probable CAD Value, utilizing the CAD depreciation schedule.  If there are significant variances which indicate that either the CAD did not read the rendition or made errors in calculations, we seek to correct the errors (at no cost to the client) before mounting a value case  .

The Texas Property Tax Code makes statements about BPP value on which we rely to make a case for lower value: 

1.      Since property in Texas is to be valued in exchange rather than in use, we point out that a fixed asset depreciation schedule that utilizes GAAP-type rates for useful life contradicts the intent.  By measuring the rates at which Fixed Assets (computers, machinery, fixtures, furniture, etc.)  trade, we have developed a value-in-exchange schedule which better represents value for assessment.  The state of Missouri is a value-in-exchange state, and the tables they have developed are further guide to fair taxable value.

2.      “The market value of an inventory is the price for which it would sell as a unit to a purchaser who would continue the business” (Texas Property Tax Code, 2008 Edition, Section 23.12).   This textbook phrase does not state anything about cost, and the legislature has had many years to amend this phrase if they meant for the market value to be equal to cost.  We have proven that market value is far below cost based on a significant number of inventory unit sales for which we have records. 

We recommend to our clients that whether we render or they do, it is best provide cost information up front along with an opinion of value:  Approximately 60% of cost for inventory, and 60-70% of net depreciated cost for fixed assets (for some categories far less). 

We have had the experience that many CADs will accept an opinion of value at this rate, while others will not.  In any case, it is important to state that level of opinion as that is the value we will be seeking and supporting with evidence. 

Please note that there are some County Appraisal Districts who will try to lure you into their case basis by soliciting information such as data about your inventory shrink.  By responding to their requests you may inadvertently adopt or support their case, and they will use that against you in a hearing; however, you may find it useful to respond to the shrink request by noting that 40% of your value is lost to “shrink” by the difference between what you paid and what you could achieve in a “unit” sale.

Sample Case | Worksheet