Personal Property Tax Issues

Annette Nellen4

There is an interesting article in the San Jose Mercury News – “Silicon Valley’s stealthy, selfish war on taxes,” by Michelle Quinn (9/11/15).  She looks at some of the assessed values high tech firms have noted for their equipment, including $1.  She reports that some companies argue that the machine has no value to anyone else.  That seems odd.  But, it is a problem with a valuation tax, such as the property tax.

What is business personal property, such as equipment, worth each year?  Arguably, when purchased, it is worth what you paid for it, but it isn’t worth that much after that.  The valuation approach used does allow for adjustments down for subsequent years. The system also allows for lower values and appeals when necessary.

The article notes that the Santa Clara Valley Assessor are successful 96% of the time in their appeals efforts.

The public face of all of this, as noted in the article, is that it looks like these companies are taking money from public schools when they argue that their personal property is worth less than what the Assessor believes.  This is unfortunate I think.  I’m quoted in the article regarding this issue.  I noted that a company is not obligated to pay more tax than it owes. This ties to the famous quote from Judge Learned Hand – “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

That quote might work better for income taxes.  Unfortunately, there is less exactitude in valuation taxes, such as the property tax. But, a company is wrong to purposefully overstate the value of an asset. The goal of tax compliance is to determine the proper amount of tax (not to overstate it or understate it). If a company wants to give more money to the government, it should donate it.

Personal property taxes have inherent weaknesses, including:

• Subjectiveness of valuations leading to additional compliance and administration time and costs.

• Disincentive to expand in the jurisdiction (unless the tax is lower than in all other jurisdictions).

A 2012 article from the Tax Foundation notes that some jurisdictions are moving away from the personal property tax.  Of course, a challenge in doing that is how should the lost revenue be made up? California has some obvious answers to that question because our sales tax base is so narrow (it only taxes tangible personal property despite the fact that today, a good portion of personal consumption is of services and digital goods).

What do you think? Connect with Annette Nellen

Original Post By:  Annette Nellen

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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One comment

  1. Michael S Cash, EA says:

    The valuation is not intended to represent a market value but should represent the utility remaining in the property. The property may not be worth anything to another person but how much is it worth to the owner? In Stanislaus County where I am the assessor limits depreciation for property tax purposes to 50% of the cost.

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