Kansas offers property tax exemptions relating to “commercial/industrial machinery and equipment” that could be very beneficial to taxpayers owning or leasing personal property. They are as follows: 

Commercial/Industrial Machinery and Equipment Exemption:

Any qualified purchase or lease of machinery and equipment made after June 30, 2006 is exempt from property taxation in Kansas. Of course, there are a few clarifications to keep in mind. The term “Acquired” does not include stock purchases, mergers, reorganizations or other internal transfers. However, it does include transfers of property into Kansas after June 30^th for the purposes of expansion, replacement or creation of a new business. 

Qualified Purchase is defined as: 

a purchase of commercial and industrial machinery and equipment for fair and valuable consideration where such machinery and equipment is physically transferred to the purchaser to be used in the purchaser’s business or trade.

Qualified Lease is defined as: 

a lease of commercial and industrial machinery and equipment for not less than 30 days for fair and valuable consideration where such machinery and equipment is physically transferred to the lessee to be used in the lessee’s business or trade.

$1,500 Exemption for Commercial Equipment:

Commercial/Industrial equipment “items” with a “retail cost when new” (RCWN) of $1,500 or less are exempt from property taxation. Again, there are two things to pay close attention to when determining whether or not the equipment is eligible for the exemption:

Retail cost when new:

Retail cost when new (RCWN): The Kansas Constitution requires the valuation process for machinery and equipment in the “Commercial” subclass begin with the “retail cost when new”. For purposes of personal property taxation, RCWN is the total amount a consumer would pay to acquire new property in order to use it to produce income over a period of years in a commercial or industrial setting. Retail cost when new is not the used sale price, and it is not the wholesale or manufacturer’s cost. It is the dollar amount an item would cost a consumer when the item is purchased new at the retail level of trade. For purposes of personal property taxation, the term “retail cost when new” does not include sales tax or freight and installation charges that are separate and readily discernible from the set retail price.

 What is considered an “Item”:

For purposes of the $1500 exemption an “item” is generally going to be a single line item as it is reported on a rendition. Exceptions to this general rule are: 

1. If the line item represents a group of like goods that can be used independently and they have the same or similar cost, the line item is actually several “items”. The RCWN of each “item” may qualify for the exemption. 

2. In that an “item” is the smallest quantity that may be used independently, one pen, one sheet of paper or one rubber band represents a material and supply “item”. The RCWN of each “item” that can be independently used may qualify for the exemption. Materials and supplies are classified under the “Other” subclass of personal property. Personal property in the “Other” subclass is listed on schedule 6 of the rendition. See the “Other Personal Property Not Elsewhere Classified” section in this guide for information on valuing materials and supplies.

More information on these exemptions can be found in the 2010 Personal Property Valuation Guide,  K.S.A. 201 and K.S.A. 79-223.

This past weekend I came across two interesting articles: 

Programs across county at risk if GM wins tax appeal focuses on the potential impact of Genesee County municipalities if GM wins it’s tax appeals seeking a cumulative reduction of it’s assessments from $140.5 million to $36.1 million. 

Mercer rocked by tax appeals; corporate giants contest their bills provides opinions on tax appeals by Bristol-Myers, Merrill Lynch, J.C. Penny, Macy’s and other “corporate giants”. 

It’s interesting how two articles that were published a day apart, focusing on different areas of the country with very different tax systems and pertaining to different property types are actually quite similar. 

Call it a glimpse into the current property tax appeal environment.

These days Property Taxes are all the rage. With significant declines in property values there is an abundance of reporting on how to reduce property taxes. This has brought with it a lot of incomplete and incorrect information. Today I stumbled upon an article that touched upon what I think is a common misunderstanding of an important aspect of property taxation, the assessment ratio. 

This particular article stated: 

“A property tax assessment is the market value of the property.” 

This is not necessarily true. It is very important to distinguish the difference between market value and assessed value. In fact, in my opinion, it is the first thing that should be done when reviewing the fairness of an assessment. 

An assessment may indicate what the taxing jurisdiction is “valuing” the property at. However, in many instances it does not. 

Enter the assessment ratio. 

An assessment ratio is basically the ratio of assessed value to market value. Many states assess property at 100% of market value. However, there are many other states or jurisdictions that assess property at less than market value. Take GA for example. GA has an assessment ratio of 40%. Therefore, if your assessment is $1,000,000 the county is opining that the market value of the property is $2,500,000. Big difference. 

There are quite a few states that have “statewide” assessment ratios; AZ, CO, NV, OH, KS, MD, CT, just to name a few.  Some states have different ratios depending on the type of property (residential, agricultural, industrial, commercial, etc.). Other states like PA, NY and NJ have ratios that vary by jurisdiction. Therefore, one town may have a drastically different ratio than the next town over. Not to mention, these local ratios typically change annually. 

When we are reviewing property tax assessments we are interested in market value. Therefore, it is critical to know what the assessment ratio is. Otherwise, how can we know what we are reviewing?

Don’t be surprised if the assessor’s office doesn’t welcome you with open arms when you file an appeal this year. Times are tough all around and taxing jurisdictions are no exception. Sales and income tax revenues are down and everyone knows that property taxes are in for a beating. When exactly the beating will take place seems to be a point of contention. If the volume of appeals being filed is any indication, taxpayers are claiming that the decline in values should be recognized now. Whereas, it appears as though assessor’s offices are claiming that value declines have not yet been reflected in the market. In other words, they seem to be taking the position that taxpayers will need to prove a decline in value. I discussed this issue in my earlier post Quantification Is King. 

So, what can we expect for 2009 appeals? 

• Due to assessor’s offices throughout the country receiving appeals near or at record numbers, large backlogs will be the norm. 
• Taxing jurisdictions may be reluctant or unwilling to settle cases due to budgetary concerns or time constraints.
• Assessor’s offices will, most likely, rely on the fact that a taxpayer carries the burden of proof in an appeal and proving values may be difficult due to the lack of recent transactions. 

For these and other reasons diligence and creativity will, no doubt, prove to play a very important role in 2009 property tax appeals.