09/ 01/ 2004
by Maggie Flynn
In the most recent NFIB and Wells Fargo Small Business Problems and Priorities report, small-business owners participating in the study ranked property taxes -- real, personal and inventory -- as the sixth largest problem presently facing small-business owners. Twenty-three percent of those surveyed considered property taxes a “critical” problem. Let’s take a look at why property taxes are such a hassle, and suggest a few ways to minimize their adverse effect on your business.
Lawmakers often promise their constituents that they will not raise their personal income taxes; however, at a time when states are scrambling to raise revenues, lawmakers often start looking around for other taxes. Many state and local governments have therefore raised taxes on businesses.
Because the real-estate market has been performing with consistent strength of late, the property value of the place in which you run your business might have already gone up, which means the tax on the property has gone up as well. Not only is your actual business facility taxed, your local government also taxes the inventory, equipment and even the furniture you need to run your business. Some communities across the country are also known to assess the value of businesses owned by out-of-district owners too high to save local citizens a few tax dollars.
To small-business owners each dollar makes a difference, and the accumulation of high property taxes could be the factor to send some struggling companies under for good. While property taxes are a grim reality for small-business owners, there are a few ways to help keep these costs down:
Avoid surplus inventory
While you must make sure you have plenty of stock around to fulfill your customers’ needs, don’t get stuck paying taxes on a bunch of inventory that will continue to sit around .
Buy at the first of the year
Since most “tangible” property such as inventory is taxed in most states on the last day of the year, try to hold off on buying until the new year -- and enjoy those first-of-the-year sale prices!
Make sure you aren’t being taxed for personal property you no longer own
If you’ve sold, donated or gotten rid of equipment recently, make sure that it’s no longer being taxed as your personal property.
Differentiate “tangible” and “intangible” costs
When buying equipment or other significant purchases, ask for an itemized bill, separating out the “intangible” costs, such as the patents or copyrights included in the price of the equipment. Many localities only tax the “tangible” cost of your personal property.
Remodel with caution
If you are upgrading your business facilities, get an estimate of how significantly the renovations will up your property value and taxes, and make sure it’s worth it. Also, talk to your accountant or other tax advisors to find out if the renovations will qualify you for any tax breaks that might lessen the pangs of increased property taxes.
Contact your lawmakers
As always, let your lawmakers know that hardworking small-business owners are not the people to turn to when looking to boost their state and local revenues. Call their offices, send them faxes or e-mails, and tell them about the adverse effects increased property taxes have had on your business.
