Do You Know What and Where Your Fixed Assets Are? [Part 1 of 3]

Untitled design (1)We asked our good friend Bob Kinsler, another passionate advocate for properly managing Fixed Assets, to offer some insight on the importance of knowing where your assets are at all times. This is part one of a three part series – look for the remaining two over the next couple weeks.

There is a little challenge in fixed asset management called personal property tax responsibility. Many counties within the U.S. have this little requirement each year where your firm has to send into your total assets categorized by type, price at acquisition of the assets (add to that all the related cost to get the asset to working condition, and could include sales tax on the items used), date of acquisition and if the asset was new or used upon acquisition. Then the county, township, corporation, school districts, hospitals and the like depreciate that asset using either a state depreciation schedule or other methods, attach an assessed rate to the fair market value they come up with and bill you to support their individual needs.

We all know if we own a house or property this yearly bill comes in. These rates and the amount billed are on the fair market value of the home and/or property appraisals performed using what other homes and/or property sold for during the previous years. The challenge here is the home and property is not depreciated as many have noted in the past few years, those values are continuing upwards.

Not so with the fixed assets of your firm, they tend to wear out after a few years, but during this normal wear and tear cycle you get to pay an additional tax to own them.

If those fixed assets are a combination of a project where you have many items tied up into the completed asset. Take for example the building of a motor vehicle where you require tires, a motor, a transmission, seats, a cabin to put the seats in, glass for the windows, electronics to insure the motor vehicle is controlled, pedals to convey your desire to the vehicle to move ahead or reverse and at what speed. It is wise to look into what makes that asset.

As noted in parts one through three, there are those creative types that might slip in something that does not reflect the final asset (e.g., an internal software project in which was found a motor vehicle purchase being added into the final cost. Those spare parts, extra bits, cleaning items, and other items that really do not continue the useful life from the machines past the normal cycle or add value to the machine should be subtracted. Along with all items that really do not belong to the fixed asset(s), by using a little common sense you can find them.

The reason is that personal property tax will take that whole asset and bill you for something that is not related without providing your firm a deduction or an exemption of those items not relative to the final outcome. If the item is an expense, than expense it, since in most areas expenses are tax deductible. If an item should have been a separate fixed asset then make it a separate fixed asset.

If after one totally depreciates the asset(s) and it is still being used, keep it on your fixed asset management system. You will need this information (along with the source documents) for a possible personal property tax audit as many local assessors are doing these now to increase the money into the local, county and state coffers. If the fixed asset is no longer being used, sell it as soon as possible and inform the local assessor(s) of its sale (also keep copies of the bill of sales for those audits). Saving it for its parts only adds to that personal property tax bill, since there is a floor depreciation level, in many states that they will not go below. You know all those computer monitors you might have in some storage area, warehouse or the like? Those too are not fully depreciated by the local assessors, and disposing of them has to be done through the proper method.

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.