The Texas Property Tax Code for many years had required owners of business personal property (BPP) to annually render those assets used in a business. Rendering is summarizing to the central appraisal district the ownership and value of the assets. Historically, however, over half of all owners of business personal property have not rendered.
The Texas law was unusual in that while rendition was mandatory, there was no penalty for not rendering. Therefore, many property owners did not render because it was not material, was not convenient or would dramatically increase their tax liability. For many small business owners, the value of the personal property and the associated property taxes are modest and not a material issue for the business.
Chief appraisers at central appraisal districts and tax entities have long been concerned that a material amount of business personal property is not being taxed. There is a reasonable concern that if business personal property owners are not being taxed equitably with real property owners, the burden of taxation is shifted from owners of personal property to owners of real property.
Impetus for Change
Several factors combined to make business personal property rendition a hot topic. In Robinson vs. Budget Rent-a-Car Systems, a prior years appeals court decision, the court clarified that the chief appraiser may sue to force a business personal property owner to render BPP. In addition to the objective of chief appraisers to equitably spread the burden of property taxation, fiscal shortfalls at many city, county and school entities as well as at the state level have raised the government’s need to ensure it is receiving all due revenue based on current tax laws.
Although Robinson vs. Budget allowed chief appraisers to sue property owners who did not render, this was a largely unsatisfactory remedy due to the financial costs and political stigma of chief appraisers suing large numbers of taxpayers. The other possible solution was for chief appraisers to “guess high” on assessed values in order to effectively force business personal property owners to provide information. Fortunately, few chief appraisers have chosen this option.
Summary of the New Law
During the summer of 2003, the Texas legislature put some teeth into the rendition law by passing Texas Senate Bill 340. Starting in future years, a company that does not render will automatically pay a 10% penalty on its business personal property tax bill. This penalty will be collected by the chief appraiser, although there are options to appeal the penalty. There is also a 50% penalty for filing a fraudulent rendition. In addition, filing a fraudulent rendition is a criminal offense.
Rendition Requirements
Owners of business personal property with an aggregate value of less than $20,000 can file a simplified rendition statement containing only: 1) the property owner’s name and address; 2) a general description of the property by type or category; and 3) the location of the property. Owners of business personal property worth more than $20,000 must file a rendition with: 1) the owner’s name and address; 2) a description of the property for inventory; 3) a description of each type of inventory; 4) a general estimate of the quantity of each type; 5) the property’s physical location; and 6) either the owner’s good faith estimate of the property’s market value or the property’s historical cost new and its year of acquisition.
If you would like a free evaluation of your estimated business personal property tax savings click here to request your free evaluation now.
If the owner simply provides a good faith estimate of the property’s market value the appraisal district may request a statement of supporting information indicating how the property owner determined the value rendered. This detailed statement must be delivered within 21 days after the date the property owner receives the request.
Read more about rendering business personal property here.
Rendition Deadlines
The rendition addresses business personal property as of January 1st of the tax year and may be filed annually between January 2nd and April 1st. There is an automatic extension of the filing deadline until April 1st upon written request. The chief appraiser may extend the filing deadline for an additional 15 days (until April 15th), if the property owner files a written request showing good cause.
Amnesty Provision
With the new legislation, the Texas Property Tax Code also offers property owners a special rendering provision for the prior tax year. If owners render BPP before December 1st of the prior year, the appraisal district may revalue the property for the previous tax year. Revaluation is likely to occur if there was no previous account for the property or if the rendered value greatly exceeds the current assessed value.
However, exercising the special rendering, or amnesty, the provision in the prior year allows the property owner to avoid omitted property taxes for the two prior years. When business personal property not already on the tax rolls is discovered, the Texas Property Tax Code requires it be assessed at the market value for the two prior years. For example, if business personal property were discovered in 2017, the appraisal district would also typically assess the property for 2015 and 2016.
What is Business Personal Property?
The Texas Property Tax Code 1.04 (5) defines tangible personal property as property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does not include a document or other perceptible object that constitutes evidence of a valuable interest, claim, or right and has no negligible or intrinsic value. Examples of tangible personal property, or business personal property, include equipment, furniture, computers, and inventory. Business personal property would not include accounts receivable, stocks, bonds, notes, franchise agreements, licenses, permits, certificates of deposit, insurance policies, pensions, contracts and goodwill. I recently published a guide on business personal property valuation. You can request your copy here and we will send you a complimentary book.
Market Value Definition
Market value is defined in the Texas Property Tax Code 1.04 (7) as the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:
- Exposed for sale in the open market with a reasonable time for the seller to find a purchaser;
- Both the seller and the purchaser know all of the uses and purposes to which the property is adapted and for which it is capable of being used and the enforceable restrictions on its use; and
- Both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.
Get your free evaluation of your potential BPP Tax Savings here!
Market Value vs. Book Value
Market value may be less than or more than book value. For example, the value of a 3-month-old computer may be one-half of the initial acquisition price. The book value based on IRS tax per IRS depreciation schedule would be 95% of cost based on a 60-month depreciation schedule. Other examples of items whose market value may decline sharply after being placed in service include cars, linens and bedding at motels, phone systems, copiers, and furniture.
Other Valuation Issues
Inventory shall be valued at the price for which it will sell as a unit to a purchaser who would continue the business. Due to issues such as pilferage, obsolescence, and damage, the market value of inventory may be less than the book value of the inventory. The assessed value of the furniture, computers, and equipment should be the price for which it could be sold.
Issues for Appraisal Districts
Although appraisal districts lobbied aggressively to ensure this bill passed, it poses many challenges and issues for appraisal districts. The first challenge is how to process a large number of renditions. Then, the appraisal districts will have to decide whether to aggressively request additional information if the owner gives market value instead of providing a fixed asset listing (property description, year of acquisition, and acquisition cost). The appraisal districts will also have to decide how much consideration to give the owner’s estimate of market value, particularly if it is sharply below the appraisal district’s assessed value.
At least one chief appraiser believes the new rendition requirements may delay certification since appraisal districts must wait to receive the renditions before mailing notices of assessed value. The higher level of renditions will impose additional challenges for appraisal district staff in up-front processing and will likely require additional protest hearings. Appraisal districts are generally leanly staffed and will have to be creative and effective to handle a likely meaningful increase in business personal property renditions and appeals.
Practical Considerations for Property Owners
One nettlesome issue for owners of small amounts of business personal property is whether the penalty for not rendering is incentive enough to render. Consider the following example: Bob owns a small business and has business personal property reasonably worth $5,000. It is assessed for $5,000. The annual personal property taxes, based on a 3% tax rate, are $150. The penalty for not rendering is $15. Should Bob make sending the rendition form to the appraisal district a priority above working with his customers, seeking new customers, and working with his staff?
Owners of business personal property who either are not on the tax rolls or whose property is grossly under-assessed will have to decide whether to render. It is clear that the law requires owners to render and there is now a 10% penalty if you do not render; the amnesty provision provides a modest incentive to render. Consider the following example: Charlie owns a wholesale distribution business with $995,000 in inventory and $5,000 in furniture and equipment. However, Charlie’s current BPP assessment is $100,000 and annual taxes are $3,000. If he does not render he will likely pay annual taxes of $3,000 and a 10% penalty for a total of $3,300. If Charlie does render, his business personal property taxes will increase to $30,000 per year. It is clear that owners of business personal property are required to render and that there is now a 10% penalty for not rendering that began in 2004. Whether owners render will depend partly on their records, risk tolerance, and corporate culture.
Conclusion
The new business personal property rendition requirements will sharply increase compliance with rendition laws over the next three to five years. Many small business personal property account owners will probably not address the issue until receiving a future year tax bill with a 10% penalty for failing to render. It is unclear how many large accounts are either not on the tax roll or are substantially undervalued. It is clear there are some, but from a practical perspective this writer has not seen or heard of many such cases.
The benefits of the law are that it will make taxation more equitable between business personal property and real property. It will also make business personal property taxes more equitable between those who do and do not render. Less attractive features of the new rendition requirements are an increase in tax revenue and an increase in paperwork for businesses.
ENROLL TODAY In the Property Tax Protection Program™
Your property taxes will be aggressively appealed every year by the #1 property tax firm in the country. If your taxes are not reduced you PAY NOTHING, and a portion of the tax savings is the only fee you pay when your taxes are reduced! Many FREE benefits come with enrollment.
I sold my business on 1-4-2018. Do I still need to pay my Business Personal Property tax? Statement is for 2017.
yes, because you were the owner as of jan. 1 of that year. I would probably file a rendition with HCAD so that you can show when the business ceased to exist.
I am a real estate agent working in an office where everything is paid for by the company. I am the only agent to receive a note from you about rendidtion.
I used to have a small jewelry business out of my car, but I no longer have that, not for 4 or 5 years. please ta
ke my name off your rolls.
I started providing a small service for a manufacturer. I am occasionally using some of my equipment that I use for my farming operation and personal hobbies. How would I value this equipment for rendition purposes?
I’m confused. We bought a pickup & registered it for 26000 lbs in Leon County TX. Yes, that’s commercial BUT we are leased to another company that pays us a % for the loads we haul all over the US. The company we work for is in Augusta GA and the office/yard we were assigned to is in Goshen IN. What does this mean bc I can’t find any answers in the Texas Property Laws…
It appears you won’t find an answer here either…………..
Everybody need to get together and say no to taxation without representation. Just the same way that the founders of this nation did. We need a tax revolution.
You are certainly right Hatem!
You HAVE representation. Your elected representatives implemented the law being discussed here. If you don’t like it, tell your rep to change it. “Taxation without representation” doesn’t apply here.
Try thinking instead of just repeating a slogan.
We purchased a commercial real estate property in 2017. We just received Notice on Appraised Value for 2018 and proposed value for this year is more than double as compared to last year. Land’s market value is more than four times compared to last year and building value 1-1/2 times. Estimated proposed tax is almost doubled. I have more than 35% of vacant space in my property.
What is the basis of increase in appraised value and what else we should present to bring appraised valued down? Thanks
Hi Sam! To find out the basis to the hike, you would want to ask for the Hearing Evidence Package from the appraisal district. That will show you exactly what they used in order to assess your property. That will also give you an idea on what you can focus on to bring in order to fight.
We own a small tractor and a couple of lawn mowers plus trailers that we use in a small mowing business. We paid sales tax on this equipment. Now we are getting letters from the tax appraiser that we owe additional taxes on this equipment. We received an estimate on the bill but have no idea what they are taxing exactly. Why are we being taxed again? Where can I find information on this?
Hi Denise! You can ask the appraisal district for their Hearing Evidence Package, which will show you exactly what you are being taxed on and why. That would be the best place to start.
I lease a vehicle for personal use. Since as an individual, I’m not liable for personal property tax, is it legal for the Lessor to pass the tax through to me?
Hi Bruce. Because you are leasing the vehicle, the lessor is allowed to charge whatever they see fit.
I have several warehouses in which resides a small apartment. I received a Tax bill for a valuation of $40,000 for this apartment.
How do I contest this? Is it worth the effort?
Hi David! You should always protest every year. It may be too late for this year since you are just getting the bill. You would of had to protest that amount in May, when you originally received the assessment. The good news is that you can be ready to protest this year, as assessments will start to go out around March. Each year stands alone at the appraisal district.
The thing that makes no sense is that if I buy an office chair for $100 I pay the sales tax on the chair then every year I have to submit a rendition and pay taxes on the same chair. It makes a small business owner like myself want to keep or have the absolute bare minimum in my business to operate. It’s a total scam.
My client purchased a business in 2015. He is being assessed for 2011 through 2014 for the previous owner. The previous owner shut down and died shortly after my client took over the lease. Nothing on the Bill of sale that he would assume liabilities and he knew nothing about these prior taxes. I cannot find any rule or law that says my client owes these back taxes. What am I missing?
To clarify the last comment, the demand for payment from Dallas County is for personal property taxes for 2011-2014. The county is pointing the finger at DCAD and DCAD says take it up with the county.
My client asked me to take care of the 2018 rendition for the Collin Co Tax Assessor Office. They were considering as basis a number they took from a previous 1065 return and were trying to charge them the corresponding property tax. In reality, the company had more than a year that was in the process of liquidation and their total assets had been reduced dramatically ( from $300K to $30K). I prepared the financials with specific detail to the different lines of assets and send the package to the agent, she said it did not arrive on time and we had lost our chances of a hearing with the Board of Reviews and would need to pay in full. Is there a way to obtain a second hearing for a review (we are beyond deadlines for both 2018 and now 2019)?
Hi Chuck! Please reach out to Roger Hibbs at rhibbs@poconnor.com. His number is 713-375-4290. He will be able to assess the situation and help. Thanks!
Why do I have to pay tax on an office item I bought then turn around and pay tax on it AGAIN via Business Personal Property Tax?
Hi Francisca! The State of Texas applies a state sales tax when an item is purchased.
When that item is used in the course of business to produce income the State applies a business personal property tax for the use of that item to produce income in said business.
These taxes are used to generate revenue in order to fund education and infrastructure for State of Texas.
Would business personal property tax apply to RVs individually owned but rented through a separate RV rental company? If so who would be responsible for this, the RV owner or the company that leases it?
Yes RVs owned by a business and rented out would be considered taxable since they’re used for business purposes.
Should artwork/wall hangings be listed on the Bexar Appraisal District Business Personal Property form?
Only if they are owned by the business.
And should items such as the fire alarm system be listed?
Thank you.
No that is part of the building. It does not need to be included.
We have been renting a space where we run a dance studio business for the past 5 years.
Just to clarify, we have been filling out the Business Personal Property Appraisal Tax for the equipment used for this business.
However, my recently new business partners say this makes no sense because we do not own the actual physical space and are just renters.
Can you clarify if indeed we have to pay this type of tax? We are located in Texas?
Hi Cheryl! Ownership of real estate is not relevant regarding business personal property taxes.
Also, how much equipment do you have at the dance studio, and how much could it sell for? If under $500, you can claim an exemption.
This is TOTAL BS….we should not have to pay TAX on the same stuff over and over again….Income tax is paid for the money made in the business. Taxing the same printer and computer (which sales tax was pd at purchse) is a downright SCAM!!!
I sold my business assets in July of 2020 and a Texas property tax statement was issued in Nov. of 2020. Who is liable for payment of the taxes due? The bill of sale states… any liabilities that are due after July of 2020 will be the liability of the new owner. After receiving the tax bill, I did file in Dec of 2020 a name change with HCAD/Tax Assessor. The new owner is saying that HCAD is saying it is my responsibility since the rendition was filed in Jan of 2020 and that the bill is in my name. How I see it, the tax statement was not available until November so that would establish the date of the liability. Please advise. Thank you
Hi Scott, due to the number of variables unfortunately, I am not able to provide a response. I recommend you contact the County Appraisal District to resolve and further assist.
I need help here, I use a virtual office as an office contact location for my business. I received a BPP Rendition for PP Supplies, Furn, Fix & Equipment inside the virtual office. My business is e-commerce which I run from my home using my laptop and home furniture. My inventory is stored in one of the rooms.
Question is, how do I respond to the form 50-144?
Hi Olek, typically a BPP policy includes (but is not limited to) office furniture, office supplies, furnishing, electric hardware, heavy equipment, machinery, and betterments. I would recommend contacting the county appraisal district to further assist with what you should include when filling out the rendition form.
Just curious what I should do. I applied for a business name at the county office so I could deposit a check my Dad’s girlfriend wrote to me. Now I just received a rendition from the county. I provide technical help occasionally for friends. My business asset is me as a consultant. How do I pay tax on myself? I’m confused. Thank you.
HI Josh! Based on the information, it seems as though the county is attempting to tax your business for BPP (Business Personal Property). I would recommend to contact the county appraisal district.
My question is …. I pay quarterly taxes which part goes to the county. I paid taxes on things I bought which they are now saying that I need to pay more taxes on. Sorry when I bought them, those taxes I paid went to the state. So why am I double paying taxes? This is crazy??? Is all of Texas having to do this or only Harris county?
Hi Kristi! Without having specific details of the property, I am unable to provide any direction. Please contact us @ 713-290-9700 to discuss further.
If I am an Uber Driver in Houston, and every year that I’ve been doing so, my IRS return shows a LOSS for that business. Do I STILL have to pay rendition tax? The actual rendition tax even makes for more of a loss actually. I’ll feel pretty stupid if I’ve been paying a Rendition tax on my car for 6 years now and didn’t really have to.