Travis H. Long, CPA, Inc. Blog

Originally published in the Cedar Street Times

March 7, 2014

Many people starting up a small business for the first time are surprised to learn that there are business personal property taxes due each year on the value of everything from the chair they sit in, to their computer, to the pads of paper in the supply closet.  Most people are familiar with property taxes assessed on their home each year, but a business is also taxed on all of its personal property.  When I say personal property, I mean anything that is tangible, but is not real property (real estate).  Intangible assets like copyrights, patents, goodwill, or even software are generally not subject to tax.

This business property tax is established in the California Constitution and the Revenue and Taxation Code.  It falls under the jurisdiction of the California Board of Equalization (the same group that handles sales tax), but it is administered by and filed with the assessor’s office of each county.  For most businesses, the form to file is BOE-571-L (BOE-571-A for agricultural businesses), and it is due on April 1st of each year.  Even though the form is due on April 1st, there is a grace period, and you technically have until May 7th to postmark the form so it will not be delinquent.  (This is much appreciated by CPAs that are working to get income tax returns completed by April 15!)  It is also important to note that the reporting covers your property that existed as of January 1st, and not as of the date you fill out the form.

Maybe you have been in a business for a few years, or maybe 20 years in unusual cases and have never seen a request for this form.  Are you in trouble?  There is an interesting rule that states if the total cost of your business personal property is under $100,000, you do not have to voluntarily start filing the form.  That would cover a lot of small businesses.  However, if you receive a request from the assessor’s office to file the form, you must file every year going forward.  As information sharing has become more mainstream among various government agencies, it is fairly common to get a request in the first year or two you operate, even as a tiny sole proprietor.

The BOE-571-L asks you to break down your property into various categories and by year of purchase.   As the property gets older, it is assessed less each year.  (Tip: retain a copy of your submitted form for reference when filing for the next year.)  Each form is processed by hand.  The assessors appreciate having attached lists that identify more specifically the property you list in the various categories and years.  As you will see on the form, it is not always clear which category to put things in.  For instance, the word equipment is used in four different categories, and you might not be sure where it should be included.  Categories are assessed and depreciated at different rates, so the assessor has a better chance of assessing you the correct tax if you provide more information.  If you have questions, you can call the Monterey County Assessor’s office at 831-755-5035 and ask for the business property tax department.  They are generally available to answer any questions you may have.

It is probably fairly obvious that computers, printers, copiers, furniture, equipment, machinery, and tools are assessed.  In addition, the supplies you have on hand for your business are assessed.  If you do not have a good idea of this value, one approach, or instance, may be to take your office supplies account in your accounting records and divide by 12 if you think you keep about a month of supplies on hand.

Leased property such as a copy machine, is an area that people sometimes overlook.  Your lease agreement will indicate whether you, or the company you lease from is responsible for the property taxes.  If you are responsible, you need to report it on your BOE-571-L.  Licensed vehicles through the Department of Motor Vehicles (DMV) do not need to be reported here whether owned or leased, as they are being taxed through the DMV.

Structural improvements, fixtures, land improvements, construction in progress, and land development are required on the form as well.  Generally, however, structural improvements, land improvements, and land development information is not assessed by the business property tax division and is passed along to the real property division for them to decide whether or not to assess it, or wait for the next time the property as a whole is assessed. Construction in progress would be assessed by the business property tax department: i.e. – you have spent $200,000 in construction on a building that is not complete at the end of the year.  Once the building was completed, the business property tax department would stop assessing it, and the real property department would start assessing it.

Fixtures such as counters, sinks, lights, bolted down equipment, etc. would generally be assessed by the business property tax department.  If you are a tenant and pay for any leasehold improvements, you should report and will be assessed on those as well.  Most leases are written that the property becomes the landlord’s after the tenant moves out of the space.

One final issue that often comes up in an audit is whether or not the business has property that was purchased and immediately expensed on its books and tax returns, and therefore do not show up on depreciation schedules, which is often the main source for reportable property.  In the code, there is no immateriality exclusion for something as small as a stapler, but in practice the auditor is not going to assess you on those items.  You should look for more significant items, however, such as the $400 in books you bought for your business library.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.