The Most Complex States for Personal Property Tax Compliance

By Carl Hoemke. 

Great literature is full of head-scratchers. Some questions are tough to answer: the Sphinx’s riddle in Oedipus Rex, the lead casket that contains Portia’s picture in The Merchant of Venice, Gollum’s brainteasers in The Hobbit.

Property tax compliance can be just as puzzling, and getting it right in some states can be more complex than in others. This blog post sheds light on what makes personal property tax compliance in certain states particularly tricky.

The personal property tax forms and procedures conundrum

Filing property tax returns is the first hurdle your company must overcome if you do business in any of the 37 states that tax tangible personal property. The number of states swells to 41 when you include those that require utility companies and certain other large businesses to file returns at the state level.

Unfortunately, if your business operates in multiple locations, you can’t simply file a single return and consider it a one-and-done deal. Instead, you must file returns in each county where you have property like computers, equipment, or furniture. This helps explain why many companies find property tax compliance time-consuming.

Idaho, New Mexico, Maine, and Rhode Island are just a few states where counties don’t use state-created, standardized return and depreciation forms. And in some cases, like Virginia, counties will not accept the state form. Businesses that file in those states need to contact each jurisdiction to ensure they have the correct forms.

Filing procedures and deadlines also vary across jurisdictions. Some states and counties are introducing e-filing (e.g., California, New Mexico, South Carolina, and Maricopa County, Arizona), while others still require taxpayers to file by mailing paper returns. 

You can even encounter complexity when it comes time to remit property tax. States have different fiscal years, which can impact due dates. Michigan bills seasonally in summer and winter. Oregon offers the option to pay in up to three installments, with discounts available. Determining how you pay and when you pay can impact your bottom line.

The enigma of determining personal property taxability

From a filing perspective, consider yourself lucky if you only file in a jurisdiction that taxes all personal property; your return is comparatively simple. Businesses often encounter another level of complexity when filing their returns: determining what property is taxable and what isn’t. 

Take Arizona, for example. Counties there start with the premise that everything is taxable unless exempt. Businesses filing in Arizona will want to do their homework to know if they qualify for exemptions. 

While material personal property is taxable in Missouri, any associated installation costs, freight costs, or sales and use tax isn’t subject to property tax. Businesses that aren’t aware of the rule or don’t have a breakdown of the costs associated with their purchase may inadvertently report the total purchase price. Making that mistake can increase their assessments and result in paying more tax than they owe.

The depreciation and valuation in property tax assessments quandary

After you file your return, the assessor will send you a notice of assessed value. State laws require that assessors appraise personal property at its fair market value. However, jurisdictions use different depreciation methods to determine your assets’ worth.

Texas has 254 counties, each following a different property tax depreciation schedule. If your business has multiple locations in Texas, you must be aware of these varying schedules.

Your notice of assessed value is the assessor’s opinion of what your personal property is worth and may differ from the actual value due to your company’s particular circumstances. In many cases, explaining your situation when you file your return or later filing an appeal can be helpful. But steering assessors away from mass appraisal techniques isn’t always easy. States in New England tend to be more set in their ways, including Massachusetts, New Hampshire, New York, and Rhode Island.

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Carl Hoemke is General Manager – Property Tax at Avalara. As an entrepreneur in the property tax software sector and a finance industry executive with over thirty years of experience, Carl’s mission is to help companies become more efficient by leveraging tax technology into their business.