BVA’s John Ray and Kurt Huie participated as panelists during the 2021 American Bar Association/Institute for Professionals in Taxation (“ABA/IPT”) Virtual Conference titled “Lost in the Shuffle: Business Personal Property Tax and Asset Inventory Tracking." The ABA/IPT joint conference is the leading forum to discuss current issues and trends regarding state and local taxation around the country.
The session shed light on the significance of having correct data when submitting property records to taxing jurisdictions. Highlights of the session included real world examples of errors such as submitting values reflecting purchase accounting adjustments, lump sum entries, duplicate entries, as well as submission of assets that have been retired, scrapped, sold, or could be classified as exempt from taxation.
Mr. Huie emphasized that the onus is on the taxpayer and not the taxing body to submit accurate property records. “Taxing jurisdictions are not liable for any errors, omissions, or inaccuracies in the property record. It is crucial for taxpayers to routinely analyze and update their internal records. Once the property record has been submitted to the taxing authorities it becomes the official document that serves as the basis for taxation and possibly, any appeals to the assessed value.”
During the discussion Messrs. Ray and Huie provided several examples of how incorrect or lax property records can adversely affect a company’s tax liability, including the following extreme example:
A natural gas storage facility was recently built for $150 million. One year after completing construction, the facility suffered a catastrophic failure and was completely destroyed. The facility was subsequently rebuilt the following tax season and the taxpayer submitted a property record with a total cost basis of over $300 million. The assets destroyed during the failure were not removed from the property record and the company was paying property tax on two duplicate plants. It took one appraisal, two years of litigation, and three rounds of testimony to correct the error.
Mr. Ray spoke on the difficulties that can arise when multiple layers of a company’s organization are involved in the entering and upkeep of property records. “Depending on the size of the company there could be several individuals who interact with the property record. Procurement, engineering, maintenance, finance, and tax personnel could all be involved in the process. It is vital that the company fully integrate a cohesive asset tracking system to avoid inaccuracies in the property record.”
Mr. Ray concluded the session affirming “These issues are not hypothetical. We see them routinely with very sophisticated clients. A significant amount of our time in the appraisal process is spent identifying inaccuracies in the property record.”
