the top 10 most under-reported machinery & equipment items
Post on 02-Nov-2014
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Continuing Education (CE) Credit:
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Durham, North Carolina
1. Personal Property Improperly Categorized as Real Estate
• Tanks, Signs, Security Systems, Back-up Power, Generators
• Process Electrical, Piping, Heating Ventilation & Air Conditioning (HVAC)
• Cost Segregation-is the process of identifying PP assets that are grouped with real property assets and separating out personal assets for federal tax reporting
Process related piping, electrical, tanks, & concrete
Gas Pump Upgrade
Process piping from tank to pump
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Concord, North Carolina
2. Leasehold Improvements
• Leasehold improvements are upgrades made to leased property by the lessee (tenant). LHI’s include acoustic ceilings, installing partitions, and flooring.
• Tenant allowance - Monetary allowance given to a prospective retail or office tenant in recognition of the tenant’s individual needs to acquire, build or move walls, partitions, and light fixtures; usually expressed in dollars per square foot.
• Caveats: Shopping Center real property appraisal versus the appraisal of free standing locations
Shopping Center Shell
Shopping Center before build-out
Shopping Center after build-out
Trade Fixtures or Leasehold Improvements?
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Façade assessed or not assessed?
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Durham, North Carolina
3. Taxpayer errors & inadvertent omissions
• Taxpayer omitted $3,949,627 of M&E purchased in 2000 on their 2002 & 2003 tax returns
• The total under-reported amount on the 2003 tax return was $12,459,720=($22,314,636-($9,854, 916))
• IAAO Course 500 states, “The primary tool for discovering personal property…is the personal property return”
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Several jurisdictions
• The best discovery tool since sliced bread—the EDA-database with estimated fair market value – MapQuest-determine jurisdiction, ensure integrity
of findings, eliminate potential double taxation
• Secretary of State-identify contact information, DBA, entity structure – 5.2M Discovery
4. Unreported Businesses
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Asheville, North Carolina
5. Spare parts and supplies inventories
• Manufacturing Plants – Spare parts sanity test: 3%-5% of total M&E
• Golf Courses-irrigation parts and granular inventory – 321K spare parts, granular & small-wares discovery
• Bottling Plant Dunnage Supply inventory – Spare parts for truck and trailer fleet
• Apartment communities-spare parts HVAC & appliances
Golf Course Granular Inventory
Product Bags Pounds Price Per Bag Extended0-0-30 51 2550 $25.37 1,293.87 Hymag 15 750 $35.00 525.00 Pro-Mag 9 450 $59.50 535.50 18-3-16 12 600 $56.00 672.00 13-0-46 10 500 $55.00 550.00 Ammonium Sulfate 40 2000 $15.00 600.00 Verde Cal 6 300 $22.00 132.00 Calrite 20 1000 $22.00 440.00 Humates 35 1750 $24.52 858.20 Gypsum 40 2000 $10.50 420.00 Charcoal 55 2750 $45.50 2,502.50 Snapshot 60 3000 $102.00 6,120.00 Ronstar G 1.5 75 $88.00 132.00 21-7-4 w/Ronstar 2 100 $20.00 40.00 Dylox 60 3000 $29.70 1,782.00 18-4-26 85 3750 $20.30 1,725.50 Woodace 18-5-10 75 3750 $25.00 1,875.00 10-20-20 60 3000 $36.85 2,211.00 Dylox 1.5 75 $29.70 44.55 18-4-26 2 100 $26.50 53.00 Rye Grass Seed 9 450 $57.50 517.50 Bluegrass Seed 6 300 $162.50 975.00 Fine Fescue Seed 10 500 $98.00 980.00 Sand (bagged) 60 $4.95 297.00
Tons Price per TonSand (loose) 72 $29.00 2,088.00
27,369.62
Plastic Bottle Manufacturing Plant
Dunnage
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Seventh Inning Stretch
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Gold Hill, North Carolina
6. Inventories of consumable fuels & gases
• Manufacturer utilized coal to heat aggregate. Other common fuels include diesel and propane. Common gases used in business include Nitrogen, Oxygen, and Hydrogen.
– 880k coal inventory discovered at a Rotary Kiln plant that makes lightweight aggregate—utilized to make lighter, durable, and stronger concrete
Rotary Kiln
Bridge built with lightweight aggregate
Gases:
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Salisbury, North Carolina
• Trailers tagged outside the State of Situs. It is common to see a N.C. based trailer tagged in Oklahoma or Maine. – Tractor trailer leasing companies, Big Box Retailers, and
multi-state carriers commonly register their vehicles outside the State where the property is situated
– $2.5 M Discovery of Value
• Towing businesses utilizing dealer plates on their tow vehicles
• Car Dealers-utilizing dealer plate on personal cars
7. Motor Vehicles & Rolling Stock
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Retail distribution facility Salisbury, N.C.
Semi-trailer situated in South Carolina
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S.C. truck with Oklahoma license plate
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Salisbury, North Carolina
• Over-reported cost of exempt pollution abatement M&E
• Unreported M&E that is not exempt from taxation – 16.6M cost of dry low NOx combustion system – $57M total discovery of value
8. Pollution Abatement Equipment
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525 MW Combined Cycle Power Island
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General Electric 7F Turbine Generator
Low NOx Combustion Equipment
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Cleveland, North Carolina
• Definition-A device used for cutting out, forming, or stamping material
• Often these assets are consigned at a third party manufacturer
• Often have significant value even after cessation of product (i.e. aftermarket parts)
• Manufacturer will make molds and invoice customer – 20M discovery of molds consigned by truck
manufacturer at a supplier’s plastic injection molding plant
9. Molds, Tools, Jigs, or Dies
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Plastic Injection Mold, Press with Bending Die & a Cutting Tool
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Burgaw, North Carolina
• Cable Companies-calculating RCN and disposing of any assets above their RCN
• Cell Tower-unreported foundations, site prep work, acquisition cost in lieu of historical cost, excluding process back-up generators, kiosks, etc.
10. Telecommunications Equipment
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Conclusions
• A tax gap is inevitable – every discernible taxing entity in history, suffers some lost percentage. 1
• We can all agree that over-assessments need to be avoided, however to shrink the tax gap and assure equity we must insure that all property subject to taxation is assessed once.
1 Florida Tax Watch, 2012.
The Finish Line!
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Discussion & Questions
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M&E Resources
• American Society of Appraisers, “Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets” (Second Edition, 2005).
• IAAO, Workshop 551 Valuation of Machinery & Equipment Advanced Concepts.
• RSMeans, “The Practice of Cost Segregation Analysis.”
• Institute for Professionals in Taxation, “Property Taxation” (Third Edition, 2004).
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