Do You Know What and Where Your Fixed Assets Are? [Part 2 of 3]

where assets 2This is the 2nd installment of a 3 part series in which our good friend Bob Kinsler is discussing the importance and implications of knowing the location and usage of your Fixed Assets.  If you missed the first installment, be sure to go back and soak it in as well.

Proper Categorizing of Fixed Assets

There is another way of reducing personal property taxes, which involves the proper categorizing of fixed assets. As an example, those copy machines you own. Are they really copying machines, or have you networked them into your computer system? If you networked them into the system, they are not copy machines anymore. You can categorize them as printers, which reduces the depreciation rate.

There are those outfits out there that will do this categorizing for part of the personal property tax reduction. But please realize that these firms can categorize the equipment incorrectly leaving you with the bill. The assessors might perform an assets audit, re-categorize the assets to their former category, and charge penalties for incorrect filings. So review their categories to ensure you agree and can document them. It is less costly to employ your own experts within your shop, give them the categories, and let them put the assets in the right slot.  

For the most part, personal property taxes for tagged motor vehicles are charged each year (or for those with multi-year tags upon the expiration date) upon registration. Those motor vehicles that are not tagged will be reported on the personal property tax returns and billed this way. Look and see which method provides the lower tax bill, and if the vehicle should be tagged do so.

Managing Leased Assets

Leased assets are a headache, mostly for the real owners of the property than your shop. Where you might be paying a local vendor for the use of the assets, the real owners might be a financial service company many miles away. If you send in your payments to a drop box, then please check your leasing contract to see who is the actual owner. Also check to see if you are responsible for the payment of the personal property tax versus the vendor or financial service firm. 

Whether or not you are responsible for the payment of that leased asset, you will be billed. Most leased asset contracts note within them that they will bill you for any taxes deemed necessary and it is your responsibility to pay it. Some financial service companies have recently established that the total cost of the asset you lease includes the sales, use tax and the total personal property taxes paid over the years of the lease. Termination of the lease to purchase the asset will allow you to receive a refund of the moneys not spent on the taxes noted before, but you will have to notify the local assessor of your purchase. Trying to get the financial service firm to pick up the taxes after the purchase will only lead to a negative comment on your credit picture (and who needs that?). They will also use numerous other methods to collect the tax payment, which adds additional administrative and handling charges. Financial leases with which you obtain title to the asset or that allow you to purchase the asset for a reduced amount at the end of the lease also require you to pay the personal property taxes for that asset (not the financial service company). 

Remember that the financial service firm’s revenues are the interest that they charge you to lease the asset; therefore, any and all related expenses to that asset will be paid by your firm. Of course, income tax deductions are possible for those expenses too.

Outsourcing the Tax Work

It is possible to outsource some of this headache to property tax firms that handled both property and personal property taxes that will charge for the proper filings. They can inform you of the personal property and property bills, act as your representative to fight before the personal property and property tax reduction boards and advise you of the proper categories for your assets.

One warning, these are your fixed assets and it is your responsibility to ensure those assets are covered. If you do not satisfy the bill, the local government can and will remove those assets from your possession. Noting that this is possible there are many folks out there just waiting to gather your assets for pennies on the dollar if you fail to pay. You might not like it, but it is there. And there are a few ways of getting around that tax. The best way is to employ a fixed asset manager who knows all seven books and can keep your shop out of trouble.

Mr. Kinsler is a United States Army veteran after 20 years of service where he first discovered his passion for Fixed Assets. Since then he has worked in a few different capacities but most notably his own endeavor, Kinsler Kapital Kost Kontrol where he consults with firms on Capital Cost Control procedures and policies.

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