Business owners in Texas must render business personal property (BPP).
There are business owners that do not render business personal property in Texas. Since 1981, the Texas Property Tax Code has required owners of business personal property (BPP) to file an annual rendition.
However, until 2003 when the Texas Legislature revised the law, there were no penalties for not filing a rendition for BPP. Consequently, most owners of business personal property did not file annual renditions.
Since the law was revised, in addition to the annual tax, owners of BPP must pay a 10% penalty if they do not file an annual rendition. In addition, the burden of proof at the ARB hearing also changes from the appraisal district to the property owner if the property owner does not render business personal property.
Are there criminal penalties for not rendering?
There are criminal penalties for knowingly filing a fraudulent rendition. There are no criminal penalties for not filing a rendition.
Who must file a BPP rendition?
Anyone who owns tangible personal property used for the production of income is required to render business personal property annually. Renditions must be filed by April 1 for personal property owned on January 1.
Is it difficult to file a BPP rendition?
Completing the forms for a BPP rendition is not a difficult task. The portion that may be difficult is deciding whether to render business personal property and determining the market value of your property.
Owners of BPP with a market value of less than $20,000 can file a rendition by simply reporting the name and address of the property owner, a general description of the property by type or category, and the physical location of the property. Owners of BPP may also provide an opinion of market value. A copy of the Comptroller’s rendition form for BPP can be obtained here: Texas BPP Rendition Form 50-144.
Owners of BPP with a market value of greater than $20,000 must file a rendition including the name and address of the property owner, a description of the property by type or category, information on inventory, the location of the property and either: the property owners good faith estimate of market value of the property or, at the option of the property owner, the historical cost when new and the year of acquisition of the property (Texas Property Tax Code 22.01). Accountants, tax consultants and appraisal district staff refer to “the historical cost when new and the year of acquisition of the property” as the fixed asset listing.
The market value of Business Personal Property
The Texas Property Tax Code defines market value 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 of all the uses and purposes to which the property is adapted, and for which it is capable of being used and of the enforceable restrictions on its use;
- 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.
Market value can also be described as: “the amount you could sell the property for,” and “value in exchange.”
Appraisal districts typically use depreciation schedules to calculate market value of BPP. This approach generally overstates the value. For example, the schedule used by appraisal districts to value a desk chair that costs $100 would indicate a value of $90 for the chair after one year.
The following are the estimated values for common BPP based on the comptroller’s schedule:
- For a motel owner, one-year-old motel sheets, towels and TVs, are estimated to be valued at 90% of the cost new based on an eight-year schedule.
- A three-year schedule is used for computers, thus indicating a two-year-old computer could be sold for a third of its cost new.
- One-year-old heavy equipment is valued at 90% of its cost new based on a 10-year schedule. O’Connor believes this valuation scheme grossly over-values BPP.
How to develop a good faith opinion of market value for BPP
There are a variety of sources for generating an opinion of value for BPP which include:
- Hiring an appraiser
- Calling used equipment dealers
- Researching on the Internet
- Purchasing manuals that detail used equipment prices
- Calling friendly competitors
- Using common sense.
Should I provide a good faith opinion of market value or a fixed asset listing?
Most property owners will fare better by providing an opinion of market value instead of a fixed asset listing. If you send the appraisal district a fixed asset listing, they will use the Comptroller’s valuation schedule to calculate the market value of the various items. This will frequently indicate a value two to three times higher than the actual market value of the property. In our opinion, it is best not to provide a fixed asset listing.
Valuing inventory
There is some discount from your cost basis that is appropriate when valuing inventory. Factors that should be considered include:
- Intangible personal property
- Functional obsolescence
- Physical damage
- Economic obsolescence
- Shrinkage
- Both common sense and valuation experts are helpful when determining a discount from the cost for inventory
Clothing and computers are two examples of inventory that can be worth less than its cost basis. Let’s assume the recent fad for women’s clothing was electric blue shirts. However, six months have passed, and there is virtually no demand for electric blue shirts.
The rapid pace of technological change means computers that were cutting edge six months ago may be old news today. While it may be difficult to value both the electric blue shirts and the six-month-old computers, reasonable people would agree their market value is less than their cost basis six months ago.
Should you render business personal property?
Assume the following example:
You own a small manufacturing company. Your assessed value for BPP has been approximately $100,000 for the past five years. The lowest possible number you could render business personal property is $1 million. If you don’t render, your annual BPP property taxes are $3,300 ($100,000 times 3%; plus a 10% penalty for not rendering). If you do render, your initial BPP assessed value will likely be $1 million. You can appeal using unequal appraisal, a relatively new approach. Further, if you render business personal property this year for $1 million, it is likely the appraisal district will set your initial assessed value in future years at $1 million or higher. Based upon an assessed value for your BPP of $1 million, your BPP taxes would be $30,000 ($1 million times 3%).
Consider another example:
You operate a one-person consulting firm. Your BPP includes a 10-year-old desk, two five-year-old-file cabinets, a two-year-old computer and a four-year-old printer. The total market value of these assets is perhaps $1,000. Your assessed value last year was $1,000. If you render business personal property, you follow the law and avoid the 10% penalty ($3 based on 10% of $30).
Clients often struggle when trying to decide whether or not to render business personal property. In practice, a number of property owners choose not to render either because rendering would sharply increase their property taxes or because the penalty for not rendering seems insignificant compared to the hassle of rendering.
In Summary:
- The law in Texas states that owners of business personal property (BPP) used for the production of income must render.
- The penalties for not rendering include paying a 10% penalty and the burden of proof shifts from the appraisal district to the owner at the Appraisal Review Board (ARB) hearing.
- The process of completing rendition forms is fairly simple when market value is estimated.
- Decisions about whether to render business personal property and calculating market value can be complicated.
- Most owners will fare better by providing an opinion of market value on their rendition rather than providing a fixed asset listing.
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I own a semi-truck used as a means of working and providing security for my family. I have been assessed a “personal property tax” on the vehicle because I earn “revenue” (Webster’s definition calls it “INCOME”). The State of Texas DOES NOT HAVE AN “INCOME TAX”, thereby making this “PERSONAL PROPERTY TAX” ILLEGAL!
I also have several friends who own trucks who have never been assessed this ILLEGAL INCOME TAX. YOU, AS AN INDIVIDUAL, most likely NOT paying this PERSONAL PROPERTY TAX on YOUR PERSONAL vehicle (i.e., automobile, pickup,
motorcycle) to generate income (i.e., wages, salary, 401-k, benefits, etc) are in violation of the very tax law for which YOU CLAIM we are in violation. Remember, NOT A SINGLE ONE OF YOU WALK TO WORK, therefore your PERSONAL VEHICLE IS USED TO GENERATE REVENUE (INCOME)!
START PAYING THE VERY TAX YOU FORCE UPON EVERYONE ELSE AND HAVE THOSE TAX PAYMENTS DISPLAYED IN PUBLIC DOCUMENTS FOR THE PUBLIC TO VIEW!!!!
STOP BEING THE HIPOCRITES THAT YOU ARE.
In Texas, only income-producing, tangible personal property is subject to personal property tax. In order to meet the property tax code’s definition of “income-producing,” a vehicle must drive more than 50 percent of its miles for activities that involve the production of income within a tax year. The obvious examples are delivery vans, contractor pickup trucks, taxis, buses, etc. Is your vehicle used for both personal and work activities? If so, you can determine the percentage of your “work miles”, and pay only on that portion. But if it’s strictly for personal use, then you don’t have to pay.
I have a really dumb question. In regards to “TAX YEAR” i.e. tax year 2020.
is this meaning to give information for 2019?
Hi Alegre! Yes that is correct.
nice information
Thank you Naveed!
I understand rendition and how the process works for business property, but are Texas residents required to notify their Appraisal District of the construction and occupancy of a new/personal home, a home that was self-funded so there is no record of closing?
Hi JWB. You are not required to disclose the cost of building your personal home. However it is in your best interest to disclose you have built a home. Any improvements made to the land are taxable and if not disclosed, the county can go back 5 years to capture the value of the improved land along with assessing penalties and fees.
Sec. 25.21. Omitted Property.
(a)
If the chief appraiser discovers that real property was omitted from an appraisal roll in any one of the five preceding years or that personal property was omitted from an appraisal roll in one of the two preceding years, he shall appraise the property as of January 1 of each year that it was omitted and enter the property and its appraised value in the appraisal records.
(b)
The entry shall show that the appraisal is for property that was omitted from an appraisal roll in a prior year and shall indicate the year and the appraised value for each year
I do not understand how a county can tax a tractor trailer unit that is not registered in the state of Texas, nor the business address located in the state of Texas.The truck is only leased to the company that has property in the county. Also how can the county tax my truck on Mileage traveled in the state not the county.
Quick question that i cannot seem to find the answer to…if you owner occupy a commercial building and pay the property taxes for the value of the land and building, do you still pay personal property taxes (rendition) on the equipment/property used to produce income?
Hi Kristy! Personal Property Taxes (via Renditions) are separate from Property Taxes. Short answer is “YES”, you have to pay both property tax and personal property tax via a filed rendition. The Property Tax is on the real estate and improvements; the Personal Property Taxes are on furniture & fixtures (equipment) used in the business.
We opened a new office and purchased various testing equipment. The cost was $300k but the same equipment can be purchased used for significantly less. We doing the rendition do I use market value or original purchase value?
In this instance, you would use market value. Its what people would pay you for the equipment at this time.
I obtained a commercial building through foreclosure in August. The taxing authority has just changed the name on the BPP account from the old company to my current company. Am I legally responsible for the prior business’ BPP tax?
Hi Kristen – It would be best to appeal/render on the BPP taxes, as otherwise, it might cause a cloud on your title. While you may not be legally on the hook, this will alleviate future problems. Typically in a foreclosure case, the foreclosed party will attempt to remove most everything of value prior to the foreclosure. Hopefully, you can render a value of less than $500, effectively reducing your obligation to near zero.
I have many questions regarding BPP… I will only ask a few. If your business is in 2 locations how do you do a percentage on the rendition and render in each county? What if the business owns the owner’s personal vehicle; however, it is rarely used for business purposes and is deducted as a shareholder distribution. Do you have to render that vehicle?… if you are already using your exemption for a business vehicle that does not leave the office parking lot.
Hi Jeannie! I would think the BPP breakdown would be dependent on what property existed at each location vs. any kind of percentage breakdown. On the vehicle question, I would think since the business owns the vehicle, the business would still be responsible for paying the tax.
What exactly does BPP include? I have a business where I do firearm training. 99% of my training is done in rented or borrowed classrooms. I use a computer to track paperwork, and a printer to print certificates / maps to range locations / instructions for completing legal processes, etc.
Hi JC, 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.
We are considering moving our manufacturing facility from out of state to TX. We are having a hard time estimating what our raw material inventory would typically be taxed. We normally run a $300K inventory that can be very slow moving (ie 4-5 years) . Is this commonly a 3% annual tax on same inventory?