By Mark Studer, Personal Property Appraiser

A revised Taxability of Motor Vehicles Property Tax Advisory (PTA 6.2.2011) has recently been issued. This PTA addresses the taxability of motor vehicles in general but specifically addresses several of the common questions regarding fixed loads and equipment attached to vehicles.

However, even with the PTA, there might be some additional questions as to what a fixed load is. Many of these questions result from interpreting the term “fixed load” to mean only that the load (or equipment) is affixed or attached to the vehicle, when in fact “fixed load” means that the load (or total weight) of the vehicle does not change from one trip to the next, hence the word “fixed”. When reading the PTA, it is important to note that sometimes equipment attached to a vehicle may be exempt as becoming part of the vehicle. This is different from a fixed load, and the two have different criteria for exemption. Once you learn the difference between the two and refer to each separately, it will be easier to determine if the equipment is taxable or exempt.

Before we go into the differences between equipment being a fixed load versus equipment becoming part of the vehicle, one must know that for any vehicle to be exempt:

· it must be used or designed primarily to be used upon the public streets or highways

· the vehicle itself, together with any attachment, must be one that can be operated on public streets or highways without the need to obtain a special permit (such as the permit specified in RCW 46.44.090 for vehicles of excessive size, weight or load) or without the need for special signage, pilot cars, or other special authorization to operate on the streets or highways.

· the vehicle may not be used entirely upon private property.

There are also titling and licensing requirements for fixed loads and equipment attached to vehicles (see PTA 6.2.2011), and for the purpose of this article, it is understood that these requirement have been met.

Fixed Load

“Fixed load vehicle” means a commercial vehicle that has a structure or machinery permanently attached such as, but not limited to, an air compressor, a bunk house, a conveyor, a cook house, a donkey engine, a hoist, a rock crusher, a tool house, or a well drilling machine. Fixed load vehicles are not capable of carrying any additional load other than the structure or machinery permanently attached.

The most important requirement for fixed loads is the total weight of the vehicle cannot change substantially from one trip to the next. In other words, the vehicle and whatever the attached equipment (load) is does not change from one trip to the next. For property tax purposes, a fixed load can be motorized or towed. The equipment that is attached can be most anything as long as the purpose of the vehicle is to carry said equipment and the vehicle is not capable of carrying any additional load. For example, you could have the same equipment permanently attached to two different vehicles; in one case it could be a fixed load and the other it may not be. In the photo above, the welder attached to a trailer would be considered a fixed load because the single purpose of this vehicle is to carry this welder and it is not capable of carrying any additional load. In contrast, the photo to the right has a similar welder permanently attached to a truck but in this case the truck and welder are not considered a fixed load because the truck is capable of carrying an additional load. The truck is exempt, but the welder is taxable (if used in commercial activity). In order for the welder to become part of the exempt vehicle (truck) it would have to occupy the entire truck bed so that it could not carry any additional load and both the truck and welder would be considered an exempt fixed load. As you can see, it is less about the type of equipment or even how it is attached that determines if a vehicle and its attachment are exempt as a fixed load. Property tax exemption or taxability is about the purpose of the vehicle and that the load does not change from one trip to the next.

Equipment Becoming a Part of the Vehicle

Different from fixed loads, “equipment becoming a part of the vehicle” has more to do with the equipment that is being attached and less about the use of the vehicle. For equipment to become exempt as part of the vehicle, it must be designed to be used on a vehicle and essentially have no useful purpose without the vehicle. For example, you have a flat bed truck and permanently attach a boom (see photo). The boom sitting on the ground separate from the vehicle would have no useful purpose, the boom is designed to be used with a vehicle, and the boom was permanently attached to the truck. The boom would therefore become a part of the vehicle and be tax exempt. In contrast, in the earlier fixed load example, we showed a truck with a welder attached to it. This truck/welder was not considered a fixed load and the welder would not be tax exempt as becoming part of the vehicle either. The key difference between the boom example and the welder is that the welder can be used separate from the vehicle. Even though the welder may have been bolted (permanently attached) to the truck, the welder is attached merely for the convenience of not having to tie it down, as the welder is not dependent on the truck to function.

I hope the above examples and explanation are helpful in determining the taxability of fixed loads and equipment that has been attached to vehicles. As mentioned earlier, it is important to know the difference between a fixed load and when something is exempt as becoming part of the vehicle. I would recommend that you start referring to them separately. Once you understand the requirement of each, you should be able to apply the logic to any vehicle/equipment that you come across in the future.

Silver Oak Advisors’ founders bring over 40 years of Big 4 and Industry property tax experience. Silver Oak was formed to provide taxpayers in need of State and Local Tax (SALT) assistance, former Big 4 and industry experienced professionals with specific industry and/or property expertise in addition to working knowledge and relationships with the specific taxing jurisdictions.

Contact us for a no-cost/no-obligation review of your real and personal property assessments. Silver Oak Advisors does not utilize staff in these areas. These no-cost/no-obligation reviews are handled by our Directors. We believe you deserve 40 years of Big 4 and industry experience in Complex and Industrial properties and a history of results.

We are working Directors allowing us to provide a higher level of service at a cost effective rate, passing on the savings to you. Contact us for more information.

By Rick Bell, Ratio Section Supervisor

The Department of Revenue has received several questions regarding the taxability of software, and the differences between canned software, custom software, and embedded software. In 1991, the Legislature defined computer software (see WAC 458-12-251) and established valuation methods. Computer software is a set of directions or instructions that exist in the form of machine-readable or human-readable code, is recorded on a physical or electronic medium, and directs the operation of a computer system or other machinery and/or equipment. Computer software can be canned, custom, or a mixture of both.

What is custom software?

Custom software has been specially designed for the specific needs of a user. This includes modifications to canned software. It can be created in-house, by an outside developer, or by both. Custom software is exempt from property taxation, unless it is embedded.

What is canned software?

Canned software is designed for and distributed “as is” for multiple users without modifying its code. It is also referred to as prewritten or standard software. Canned software that is sold with computer hardware retains its identity as canned software, and should be valued as such if possible. Canned software is valued at 100% of its full acquisition cost for the first year, 50% its second year, and is exempt in its third year.

What is embedded software?

Embedded software can be either canned or custom, and resides permanently on some internal memory device in a computer system or other machinery/equipment that is not removable in the ordinary course of operation. This software is necessary for its routine operation – the computer system or machinery equipment will not operate without it. Embedded software typically has no separate acquisition cost, and is not a separate purchase from the computer system or machinery/equipment.

Embedded software is valued as an integral part of the computer system or other machinery/equipment in which it is housed, at the established life of the equipment.

What are some ways to determine if software is embedded?

The first question you need to ask: “Is this software necessary to make the equipment operate?” If the answer is yes, then it is embedded software. If the software is not needed to make the equipment operate, but instead enhances the operation of the equipment, then it is either custom or canned software.

How a company books the acquisition cost of the software may cause some uncertainty. It becomes confusing when a company separately itemizes the software needed to operate the equipment, because it often appears to meet the definition of canned software. Therefore, it is important to ask whether software listed separately is needed to operate the equipment or not. If the equipment will not operate without the separately listed software, then it meets the definition of embedded. Also, sometimes a company may allocate a portion of the cost as software; this is a pretty strong clue that the software is embedded.

Examples

· • ABC Company hires an outside vendor to create a new accounts receivable program for their computer system. The software the outside vendor creates is custom software and is exempt.

· • ABC Company has “off the shelf” software purchases of $1,000 for the last three years. How is it valued? This is canned software, so for the 2011 assessment year:

· 2010 software purchased for $1,000 is valued at 100%

· 2009 software purchased for $1,000 is valued at 50%, so its value is $500

· 2008 (and older) software purchased for $1,000 is exempt

· • ABC Company purchased a CNC (computer numeric controlled) lathe for $10,000. They claim that the lathe itself was $9,000 with a software component of $1,000 to make up the $10,000 total. The first question to ask is if the $1,000 software is needed to make the equipment operate or is it an enhancement. Chances are the software is needed for the lathe to operate; therefore, it is embedded software and should be valued as an integral part of that lathe. So a trend III MM is applied to the lathe as a whole unit.

Silver Oak Advisors’ founders bring over 40 years of Big 4 and Industry property tax experience. Silver Oak was formed to provide taxpayers in need of State and Local Tax (SALT) assistance, former Big 4 and industry experienced professionals with specific industry and/or property expertise in addition to working knowledge and relationships with the specific taxing jurisdictions.

Contact us for a no-cost/no-obligation review of your real and personal property assessments. Silver Oak Advisors does not utilize staff in these areas. These no-cost/no-obligation reviews are handled by our Directors. We believe you deserve 40 years of Big 4 and industry experience in Complex and Industrial properties and a history of results.

We are working Directors allowing us to provide a higher level of service at a cost effective rate, passing on the savings to you. Contact us for more information.

Below is the 2011 vs 2010 basis point change in cap rates:

Contact us for a no-cost/no-obligation review of your real and personal property assessments. Silver Oak Advisors does not utilize staff in these areas. These no-cost/no-obligation reviews are handled by our Directors. We believe you deserve 40 years of Big 4 and industry experience and a history of results.

We are working Directors allowing us to provide a higher level of service at a cost effective rate, passing on the savings to you. Contact us for more information.

The program is open to any company that has never filed before, or has historically underreported unclaimed property to the state of Michigan. The benefit is waiver of interest & penalties, both of which will be imposed on late reports after the amnesty program expires (the state needs money).

This amnesty is not restricted to Michigan-based businesses, any company can get into the programas long as it’s not under audit. Many companies received a letter like the one attached here & might not know what to do with it – we can help.

Call now: (888) 912-8533. Find out more about us and how we might be able to assist: www.jmsadvisors.com

MI Letter.pdf

Click below:

Brian T Scully, CMI

Director

Silver Oak Advisors, LLC

400 Galleria Parkway
Suite 1500
Atlanta, Georgia 30339

Toll-Free (877) 352-8616 x701

Direct (678) 403-2084

Mobile (678) 848-2893

eFax (404) 506-9266

mailto:brian.scully

Bio and References

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Any advice contained in this email is limited to the conclusions specifically set forth herein and is based on the completeness and accuracy of the above-stated facts, assumptions and representations, presumed to be entirely complete and accurate. If any are not entirely complete and accurate, it is imperative that we be informed immediately, as that may have a material impact on our conclusions. We are relying upon the relevant provisions of the state and local statutes, the regulations there under, and the judicial interpretations thereof. These authorities are subject to change or modification.

Personal property tax compliance is often considered a routine task, adding little, if any, value to the company. What is valuable, however, is the time required by a company’s experienced employees to complete this task. It often consumes several months and the time of several employees. If there have been changes in locations, tax laws, tax forms or filing deadlines, even more time is required. Companies are evaluating the real cost of preparing the returns with their internal resources and asking if these same resources should be used for value-added projects.

How We Can Help

Silver Oak Advisors has partnered with PTMS, the leader in property tax compliance software, to prepare personal property tax returns for our clients. The PTMS system ensures accurate preparation and timely filing of returns on behalf of our clients. In addition, utilizing our property tax management system enables us to calculate tax savings on an asset by asset basis and reconcile the corrected values to your fixed asset ledger. By filing your returns in a pro-active manner, we meet with the jurisdictions to explain any changes in reporting and valuation methodology and agree upon a value before the jurisdiction budgetary process is complete ensuring you the lowest possible value.

How You Can Benefit

Silver Oak Advisors personal property tax compliance services can enable you to maximize the value of your company’s time and resources. Benefits also include:

• Reduced tax expense
• Audit management resources
• Increased time for internal resources to work on priority projects
• Accurate and timely filed tax returns
• Reduced risk of incurring late filing fees, interest and penalties
• Option of direct assess to the PTMS software
• Eliminates annual cost for tax software and the time to implement software
• Access to experienced resources and elimination of training costs

Get Started

Whether you’re ready to get started or you still have questions, our staff of dedicated professionals is ready to help you and your business. We’ll explain exactly how our system works and what we can do to help you save money.

Contact us by email at info@silveroakadvisors.com or by phone at (877) 352-8616.

Have your property tax assessments reviewed as this may have a material impact on your valuation and thus your operating tax expenses. For the reviews that have been performed by our firm, this change has affected bottom line NOI by approximately $5,000 per bed annually or about $38,000 per bed in valuation.

Silver Oak Advisors’ founders bring over 40 years of Big 4 and Industry property tax experience. Silver Oak was formed to provide taxpayers in need of State and Local Tax (SALT) assistance, former Big 4 and industry experienced professionals with specific industry and/or property expertise in addition to working knowledge and relationships with the specific taxing jurisdictions.

Contact us for a no-cost/no-obligation review of your real and personal property assessments. Silver Oak Advisors does not utilize staff in these areas. These no-cost/no-obligation reviews are handled by our Directors. We believe you deserve 40 years of Big 4 and industry experience in Complex and Industrial properties and a history of results.

We are working Directors allowing us to provide a higher level of service at a cost effective rate, passing on the savings to you. Contact us for more information.

The premise of our review is simple: obtain the current dataset of items about to be reported from the company, and review to ensure accurate reporting.  We want to make certain that the company does not over-report, and all exemptions, deductions and exclusions are properly applied and maximized by the company prior to reporting.  The value here is obvious:

• It requires very minimal resource allocation from the company
• We typically turn around results in 3-5 business days (complete with full statutory citations)
• We get paid a success fee based on what we identify & the company agrees to take to the bottom line

JMS Client Successes from Fall 2010:

• Fortune 150 financial institution – review yields $600,000 savings
• Fortune 50 manufacturing company – review yields $470,000 savings
• Forbes Private 100 manufacturing company – review yields $140,000 in savings

In addition to the obvious fiscal benefit derived from this service, we also provide a written analysis outlining our thoughts on the company’s overall compliance processes, for purposes of making adjustments for future reporting.  JMS can also fully outsource the reporting function if desired.

Contact Tim Goodyear or James Santivanez for more information.

The filing deadline for tax year 2011 Value Adjustment Board petitions for most Florida counties expires by early to mid-September 2011. Unless a petition is timely filed, an owner will lose the ability to challenge this year assessments.

On July 30th, we posted the preliminary assessments as submitted by the County to the Florida DOR. Although the Florida assessors have reduced values each year, many assessments are still greater than fair market value.

Silver Oak Advisors’ founders bring over 40 years of Big 4 and Industry property tax experience. Silver Oak was formed to provide taxpayers in need of State and Local Tax (SALT) assistance, former Big 4 and industry experienced professionals with specific industry and/or property expertise in addition to working knowledge and relationships with the specific taxing jurisdictions.

Contact us for a no-cost/no-obligation review of your real and personal property assessments. Silver Oak Advisors does not utilize staff in these areas. These no-cost/no-obligation reviews are handled by our Directors. We believe you deserve 40 years of Big 4 and industry experience in Complex and Industrial properties and a history of results.

We are working Directors allowing us to provide a higher level of service at a cost effective rate, passing on the savings to you. Contact us for more information.