SCH State Local Tax Maryland Personal Property Tax Overview

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SCH State  Local Tax Maryland Personal Property Tax Overview Powered By Docstoc
					   SC&H State & Local Tax
Maryland Personal Property
      Tax Overview
         December 3, 2008
               Lunch & Learn Agenda

What will we cover today?
  What is personal property tax, what is taxable and how is the
  tax calculated?
  Exemptions – Mandatory or Optional
  Manufacturing and R&D property
  Obtaining and maintaining exemptions
  Dates to remember
  Maryland Department of Assessments & Taxation website:

          Personal Property Tax Overview

What is Personal Property Tax?
   A tax on business owned personal property which is imposed and collected
   by local governments – counties, Baltimore City and many municipalities
   and towns.
   Maryland Department of Assessments & Taxation administers this tax.
   It is an ad valorem tax that is assessed based on original cost less an
   annual depreciation allowance.
   SDAT will not generally depreciate personal property below 25% of original
   cost and 10% for certain high tech equipment.

         Personal Property Tax Overview

What is Reportable and What is Taxable?
   What is typically considered personal property?

        Yes                                 No
     Office Furniture                   Real Estate
     Computer Equipment                     Buildings
     Warehouse Equipment &                  Land
     Racking                                Easements
     Medical Equipment                  Permanent Improvements to Real
     Canned Software                    Estate
     Inventory & Supplies               Software – Some is taxable in MD
     Leased Equipment                   Intangibles
     Manufacturing and R&D

          Personal Property Tax Overview

What is the Basis for Assessment & Tax?
   How do you estimate fair market value? Use of a mass appraisal
   technique applying a depreciation rate to original cost to account for
   obsolescence. Below is an example of how the assessment and tax
   might be calculated.
                   Formula                Example
               Historical Cost            1,000,000
                      X                          X
              Depreciation Rate                60%
              = Assessed Value              600,000
                      x                          X
                  Tax Rate                   3.00%
                = Tax Liability             $18,000

        Personal Property Tax Overview

Exemptions – Mandatory or Optional
   Mandatory Exemptions:
      Religious groups
      Non-profit educational institutions and hospitals
      Certain other non-profits for the welfare of the citizens of MD
      Being granted IRS exempt status does not mean SDAT will grant
      Custom software (embedded sw and canned sw sold from inventory in
      a tangible medium ready to use as is remains taxable)
      Sole proprietor with property <$10,000 & located at principal residence
      Certain bank property used in loans and deposits

         Personal Property Tax Overview

Optional Exemptions
   Optional at the discretion of the county or town (see handout)
       Research & Development
       5 counties exempt personal property tax (except property of public
       utilities and non-utility generators): Frederick, Garrett, Kent, Queen
       Anne’s and Talbot
       Towns within counties may still impose the tax

        Personal Property Tax Overview

  What is manufacturing property?

      Primary test: Substantial transformation of tangible personal
      property into a new and different article…
      Secondary factors: Operations, intent of law, what would average
      person think of activity
      Property used in a manufacturing process or in a substantial step in
      a manufacturing process
      Leased property may also qualify for this exemption

        Personal Property Tax Overview

Manufacturing Property Examples

         Yes                                 No

     Printing equipment           Photocopying at copy centers
     Food processing plants       Food preparation at restaurants
     Mining and quarries          Construction
     Film processing              Accounting services
     Gene mapping                 Blending of coal

        Personal Property Tax Overview

Research & Development

   What is R&D property?
      Basic and applied research in the sciences and engineering and
      the design, development, and governmentally required pre-market
      testing of prototypes, products, and processes.
      R&D activities are exempt whether or not the company has a
      product for sale.
      R&D activities include:
         Identification, design or genetic engineering of biological materials for
         research or manufacturer.
         Software design, development and creation for sale, lease or

        Personal Property Tax Overview

Obtaining & Maintaining Exemptions
   Applying for an exemption
      Not-for-profit – letter explaining process and other relevant
      Manufacturing, Research & Development - Application required
      Acquisition of company with an existing exemption requires a new

        Personal Property Tax Overview

Important Dates:
  April 15 – Original due date
  June 15 – Extended due date
  September 1 – Mfg and R&D applications must be filed.
  Only in initial year.
  Acquisition of exempt property – within 6 months of assessment notice
  Amended returns – 3 year statute that runs on April 15
  Valuation appeals – within 45 days of original assessment notice

        Personal Property Tax Overview

Common issues and errors that we see:
   Misclassification of assets
   Exemptions not fully taken
       MFG/R&D exemptions
   Unrecorded disposals (fully depreciated assets are still taxable)
   Valuation/Obsolescence/Life Studies
   Duplicate reporting/assessment
       Real and personal property
       Property assessed to both lessor and lessee

Question & Answer Session
Contact Information

   James L. Francis
  SC&H State & Local Tax
   910 Ridgebrook Road
    Sparks, MD 21152