Texas BPP Taxation

1
Texas BPP Taxation

• April 13, 2017

2
Topics

• What is taxable?
• How is it valued?
• How should it be valued?
• Rendition options
• Valuation options
• Appeals / getting results

3
What is Taxable?

• Real estate
• Tangible business personal property
• Mineral interests

4
What is Not Taxable?

• Intangible personal property
• Contracts
• Leasehold improvements
• Data
• Computer programs
• Business enterprise value

5
What is Not Taxable?

• Goodwill
• Accounts receivable
• Cash
• Bonds
• Stocks
• Trademarks

6
How is it Valued?

• Market value on January 1
• Typical willing buyer and willing seller, neither
  under duress, and both well informed
• Sales of the items as a group

7
How is it Valued?

• Based on depreciation schedule if you render with
  cost and year of acquisition.

8
HCAD Suggestion

•  If your business has 50 employees or less,
  subsection 22.07(c) allows you to base your good
  faith estimate of market value on depreciation
  schedules used for federal income tax purposes.  

9
IRS Depreciation Schedule
10
IRS Depreciation
11
IRS Depreciation Schedule
12
Rendition Options
13
Rendition Options
14
Rendition Options

• Regulatory compliance by providing cost new and
  year purchased (including furniture purchased
  prior to 2002).
• Tax reduction approach by only providing the
  opinion of value, which also provides regulatory
  compliance.

15
Rendition Options

• Render?
• 10penalty if do not render.
• Class A misdemeanor violation of penal code to
  file false rendition.
• 50 penalty for bad faith, false rendition.
• Only 10 penalty if do not render.

16
How Should BPP be Valued?

• Based on market value, and not on IRS
  depreciation schedules.

17
Valuation Questions

• Market value of an airplane without the
  maintenance log?
• The maintenance log is essentially data that
  could be kept in hard copy or electronic copy.
• 50 discount?

18
Valuation of Deep Sea Rig?

• Cost new in 2014 - 800 million
• Market value January 1, 2017?

19
Valuation of 3 Million of FFE

• Assume an office set up in 2016 and the
  equipment, phone system and furniture cost 3
  million.
• Market value on January 1, 2017?
• How much would someone pay for 6 month old FFE?
• 15?

20
Value of Car without Software

• 40,000 car came with software. Software is not
  taxable. Value without software?

21
Value of FFE?

• Companies are leaving behind furniture,
  equipment, phone systems and computers in the
  Energy Corridor.

22
Value of 6 Month Old FFE

• 90
• 50
• 35
• 15
• 1

23
Valuation Options?

• In-house
• Independent fee appraiser

24
In-House Valuation?

• Value of FFE as of cost new? Low
• Cost of more valuable equipment visit with
  industry experts
• Your estimate will be more reasonable than the
  appraisal district depreciation schedule.

25
Appeal Options

• Goal is to resolve value through the rendition
  that typically works.
• If not, need support for value.

26
Getting Results

• Worst case scenario is to obtain a third-party
  appraisal and pursue a judical appeal. Provided
  the value is reasonable, the appraisal district
  will settle.

27
Contact

• Patrick OConnor 713 822 8613
• John Fisher 713 375 4297
• Doug Ford 713 375 4233
• Frank Ledesma 713 375 4250
• www.poconnor.com
• www.cutmytaxes.com