Tips for Preparing Business Personal Property Tax Listings
Any individual or business owning or possessing personal property used or connected with a business (or other income producing purpose) is required to file a business personal property tax listing with the county in North Carolina in which the property is located. Below are some tips on preparing a complete and accurate business personal property tax listing.
Be sure the total cost of assets reported on the property tax listing reconciles to what was or will be reported on your business income tax return. In some cases, there will be differences between the tax cost and actual cost of the asset, resulting from various tax treatments such as a like-kind exchange. Always list the actual historical cost of the asset rather than the special cost computed from the tax treatment.
Businesses not on a calendar year end should make sure to report assets as of January 1, rather than the fiscal year end.
Be careful not to list licensed vehicles since these are reported through the Department of Motor Vehicles.
Listing supplies on hand is a requirement, but it may be impractical to take an inventory count of office supplies, such as paper, pens, ink, etc. To minimize the burden of taking an actual physical count of these items, county tax authorities typically allow the use of a formula (e.g., annual supplies expense divided by 12) to estimate your supplies on hand as of January 1.
Typical supplies that must be listed are office supplies, fuels held for consumption, spare parts and replacements, small wares, cookware, medical/dental supplies, beauty/barber shop supplies, and maintenance/janitorial supplies. If an asset is on business premises, but not actually in service, it is still required to be listed on the property tax listing.
Leased equipment must be included on your property tax listing, even though the tax is not assessed directly to you. The owner of the equipment receives the tax assessment from the county. However, you may be responsible for paying the property tax under the terms of your lease agreement.
Leasehold improvements are alterations made to a leased premises to customize it for the needs of a tenant. If the improvement is structural or permanently affixed to the property, the tenant should not be assessed the related property tax. Instead, the owner of the facility receives the assessment by way of the real estate taxes charged on the facility. Therefore, leasehold improvements that are structural or permanent in nature should not be included on a business personal property tax listing.
Generally, you do not list real property on your business property tax listing. In most counties, real property is separately assessed by the county for property tax purposes.
When a building is purchased along with personal property inside the building, a reasonable allocation of the purchase price must be made among the building and the personal property items in order to properly report the personal property on the property tax listing.
If you have undertaken a cost segregation study for the building used by your business and have classified certain structural components as equipment for income tax depreciation purposes, exercise caution when preparing your personal property tax listing. Certain structural components, which are solely for the support of equipment, can be treated as equipment for income tax depreciation purposes and depreciated over the life of the related equipment instead of the life of the building. Be careful not to list items on your personal property tax listing that are structural components of your building.
Most small businesses can elect to expense personal property purchases costing less than $2,500, however you must still list these on your annual business personal property listing. These should be listed in the expensed items group on the business personal property tax listing.