The most common category of service an accounting firm offers to our clients is tax help. It’s not just completing your annual income tax returns; it’s also helping you structure your finances to take advantage of benefits available to you under state and federal law. Just as important, we advise our clients about pitfalls to avoid, which could cause you to pay more taxes than you should.
A significant area that’s sometimes overlooked is how local taxes affect finances, especially for small businesses. Any business, of any size, needs to be aware of such details as local and state privilege license taxes, and especially the business personal property tax.
It’s January now, and that means it’s time to file your personal property tax listing.
In New Hanover County, like most counties in North Carolina, any individual or business owning or possessing personal property used in business must file a listing.
This is due by Jan. 31, so it’s not something to put off. You should be aware that if you neglect to list your business’s personal property, the county tax office has the power to assign a value to your business property. And that assigned value is almost certainly going to be higher than what your property is really worth.
Let’s talk a minute about what business personal property includes. If you have an office, or a store, restaurant, shop or other commercial property, just about everything that isn’t part of the building – and subject to real estate taxes – is considered personal property. That’s your desk, chair and computer. Filing cabinets, telephones and the pencil sharpener. And, of course, the equipment used to serve your customers.
This would include the utensils and appliances in a restaurant’s kitchen; the tools and machinery in an auto service shop; the fixtures, counters, display cases and cash registers in a retail store.
For some businesses, though, it’s not quite so easy to define. If you run a home-based business, you need to carefully separate what’s used in your profession from your household goods. If you claim a deduction for home office expenses on your federal taxes, you understand the importance of keeping a separate room that’s only for business, and not used for family purposes. If you’re set up that way, it should be easy to take an inventory of what’s in your home office, and submit it to the county every January.
Looking at the state’s definition, you’ll see that property used for any “income producing purpose” is included. So think carefully about anything you use to make money, even if it’s just a sideline or a hobby. We can advise our clients about what they need to list, and what they don’t.
Failing to file your property tax listing is a misdemeanor, though it’s rare to see anyone actually charged with this offense. A much more likely, and serious, possible consequence of neglecting this responsibility is getting caught in a forced “discovery” process. That can be very expensive.
All levels of government are hungry for money. The news is full of stories about budget cutting, in Washington, Raleigh, and here in Wilmington. On the revenue side, tax authorities have stepped up the frequency of audits, including the discovery of unlisted property.
The county doesn’t automatically send you a reminder that you need to file a listing. It’s up to you to know about this requirement, and whether you’re subject to it. The tax office uses public information to find businesses that may be subject to personal property tax, and “discover” what they may owe. If you as the owner haven’t supplied that information, the county will rely on statistical averages to assign a value, based on what type of business it thinks you operate. Those guesses are often wrong, and the assigned values are almost always wrong. But that won’t protect you if the tax office says you owe a large and arbitrary sum.
Unfortunately, North Carolina law offers taxpayers very little recourse once the county has gone through discovery and assigned a value to your property. We know of cases where small businesses that neglected this obligation ended up paying more than 10 times as much as they would have owed if they’d filed an accurate inventory of their actual office equipment. Penalties and interest will also be due, so take this seriously.
If it’s not possible to file your listing by Jan. 31, you can usually get an extension, but this won’t allow you as much time as income-tax extensions do.
The property tax listing form can be downloaded from the county’s website:
My goal is to give my clients and the public useful information, explained in plain English, about their finances and taxes. If you have a question you’d like me to answer in a future article, please let me know.
Randy McIntyre is a Certified Public Accountant and a partner in McIntyre, Paradis, Wood & Company, CPAs. He has worked in public accounting since 1977, in Wilmington since 1992. His firm is built on a history of service, technical expertise, and innovative to provide the expertise of larger firms with a personal, one-on-one approach. To learn more about McIntyre, Paradis, Wood & Company, see www.mpwcpas.com. He can be reached at [email protected] or 910-793-1181.
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