Valuation_of_Business_Personal_Property__BPP_ by georgetitan


Valuation of Business Personal Property (BPP)

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The huge range of assessed value for business personal property (BPP)
makes obtaining substantial property tax reductions highly probable. It
is not unusual for the range of assessed value for BPP accounts for
similar properties to vary by 5,000%!

appeal property taxes, commercial owners, poconnor

Article Body:
The huge range of assessed value for business personal property (BPP)
makes obtaining substantial property tax reductions highly probable. It
is not unusual for the range of assessed value for BPP accounts for
similar properties to vary by 5,000%! For example, furniture and
computers for companies within the same office building sometimes vary
from $1 to $50 per square foot. Market value and unequal appraisal are
two options for appealing BPP assessments. Given the inequity in BPP
assessments and the subjectivity of valuing BPP, property owners have a
high probability of success when properly prepared for a BPP assessment
appeal. Protest both market value and unequal appraisal.

Market Value, Book Value & Comptroller Schedule

Three popular options for describing value for BPP are: market value,
book value, and the Comptroller's schedule. Market value is defined in
section 1.04(7) of the Texas Property Tax Code that reads as follows:

"Market value" means the price at which a property would transfer for
cash or its equivalent under prevailing market conditions if: (a) exposed
for sale in the open market with a reasonable time for the seller to find
a purchaser,
(b)    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, and
(c)   Both the seller and the purchaser seek to maximize their gains and
neither is in a position to take advantage of the exigencies of the

Let's compare the differences in value resulting from using market value,
book value and the Comptroller’s schedule. The BPP for a typical motel
room includes items such as bedding, linens, window air-conditioning
unit, towels, and a television. Based on market value, after one year,
these types of items could probably only be sold for 10% to 30% of the
original cost. Book value, based on federal depreciation schedules,
indicates a value of 80% of the purchase price after one year. The Texas
Comptroller's schedule for BPP for motels has an eight-year life with 10%
depreciation for the first seven years. Hence, the Comptroller schedule
indicates one-year old hotel furnishings are worth 90% of their original
purchase price. This is clearly inconsistent with market value for these


There are a number of controversial issues related to how inventory is
assessed. These include shrinkage, damage, functional obsolescence and
economic obsolescence. For example, what is the market value of
merchandise returned during the week after Christmas on January 1st (the
effective date for valuation)? Since returned merchandise has usually
been opened, damaged, missing parts or may be an unpopular item, it is
worth less than cost in many cases. Market value is relevant in
determining the assessed value for inventory for Texas BPP taxes.

Unequal appraisal

Assessed values for BPP accounts often range from ten-times to fifty-
times on a per square foot basis for companies in the same industry. For
example, real estate brokerage offices, which have 10,000 square feet of
office space, may have assessments ranging from $10,000-$500,000. It
seems unlikely that the computers and furniture in one brokerage office
are 50 times as valuable as those in a competitor's firm on a per square
foot basis.

Appraisal districts tend to accept the assessed value rendered by
property owners. Many large companies render using fixed asset listings.
Appraisal districts use the cost basis information and the Comptroller’s
schedule to calculate the "market value" for property. The valuations
for these rendered accounts tend to grossly distort the actual value of
these properties. Property owners who do not render have values on the
lower end of the range of value. While it seems intuitive that appraisal
districts would penalize owners who do not render by sharply increasing
their assessed values, the practice is the opposite. Appraisal districts
tend to reward property owners who do not render by leaving their
assessed values at modest levels. This creates a disincentive to render.
It also unequally taxes property owners who render with a fixed asset
listing. These factors have caused a high degree of dispersion in BPP
assessed values.

How To Appeal On Unequal Appraisal

Contrary to popular belief, it is possible to appeal BPP utilizing
unequal appraisal, a concept that is fairly new. Most property tax
consultants and large property owners have not considered or utilized
unequal appraisal regarding BPP. Appraisal districts are resistant to
the concept of appealing BPP based on unequal appraisal. (It is
inappropriate to tax property owners who render using a fixed asset
listing at the highest level, based on utilizing the Comptroller
schedule, when allowing property owners who do not render very lean
levels of assessment.)
Preparing an appeal based on unequal appraisal for BPP is simple and
straightforward. Start by obtaining information on the assessed value,
and amount of office space/manufacturing or warehouse space for property
owners similar to the subject property owner. This is typically done by
using companies with the same Standard Industrial Code (SIC) as the
subject property owner. You can obtain this information by sending an
open records request to the appraisal district. When appealing, research
the assessed value for your competitors. Compile data regarding the
assessed value and building area for the subject and comparable accounts
into a summary.

When should you appeal?

Appeal annually on market value and unequal appraisal. To effectively
appeal on these two options, research unequal appraisal based on
assessment comparables on the appraisal district’s web site and evaluate
the market value of your BPP. After reviewing both the unequal appraisal
and market value options, determine your primary focus for appealing your
BPP account. If neither market value nor unequal appraisal provides a
basis for appealing your property taxes, you can withdraw the notice of
protest or just skip the hearing.

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