Real & Personal Property Tax Strategies

CFOs, controllers, business owners, and others interested in Real and Personal Property Tax Reduction Strategies met to learn how property taxes, which are typically thought of as fixed costs, can be an opportunity to cut costs and improve the bottom line.

Frank Giglio, Managing Director of Diversified Property Solutions, provided a comprehensive look at property tax strategies. Main topics included in his presentation were:

  • Real Property vs. Personal Property
  • Personal Property Classification
  • Leasehold Improvements
  • MBT Credits and Millage Rate Exemptions
  • Effect of Declining Real Estate Values
  • Property Tax Exemptions and Abatements

Several important points should be noted:

  • Personal property assessments should be reviewed to ensure they agree with personal property tax returns that were filed
  • Everyone should review their assessment cards at their local assessor's office to look for errors, and consider reviewing your neighbors as well for comparison. They are all public record
  • Accounting treatment of assets does not impact tax classification for property tax assessments
  • Real property that has had a cost segregation study performed for income tax purposes should not result in changes to personal property tax filings and assessments
  • Real property is typically assessed using the "cost-to-build" method. This is the easiest for the assessor but may result in the highest tax value for the property owner

It is important that real and personal property are properly categorized by the assessor to ensure:

  • Assets are not taxed twice
  • Reduced millage rates under the Michigan Business Tax legislation reduce the tax on personal property
  • Michigan Business Tax credits are available for industrial personal property
  • There are some surprises on the list of assets that should be classified as real property and not included in personal property assessments
  • Cranes have a real property component ("crane ways,") and personal property component ("crane")
  • Lease renewals may allow for tax relief on leasehold improvements considered a part of real property
  • It is important to review your assessed value for accuracy even though reductions may not reduce your current taxable value and related tax
  • If you are planning on expanding and purchasing new assets and hiring new employees, consider the tax incentives that may be available through abatements
  • If your abatements are set to expire, contact the tax authorities to determine if there is an opportunity to extend them

One subject not on the agenda, but equally important, relates to verifying the integrity of your fixed asset listing. Many companies have assets on their fixed asset lists that do not exist at the facility. Because the assets are on the fixed asset list, they are reported on the personal property tax return annually and property tax is paid on them. A review of your fixed asset list on an annual basis, and the removal of "ghost" assets will ensure you are not paying tax on assets that do not physically exist at the facility.

A special thank you to Mr. Giglio for presenting this great information. Please feel free to contact Frank Giglio, Tim Hilligoss, or Mike LaLonde with any questions on this presentation or the CFO/Controller Roundtable program.

Mr. Giglio's presentation can be viewed in its entirety by clicking here.

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