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Changes urged in assessing taxes on business
JEFFERSON CITY, Mo. -- County assessors and education groups on Monday urged legislators to clarify the law governing how the value of equipment owned by businesses is determined for tax purposes.
Since 2001, the Missouri State Tax Commission has sided with businesses in all 45 appeals of personal property assessments it has decided. The commission has reduced the assessed value of equipment by as much as 90 percent from what the local assessor had determined to be the item's value.
In the short term, those decisions have deprived affected taxing entities, such as school districts, of anticipated revenue. The long-term result will mean a shift in the overall tax burden from companies that received the favorable rulings to other taxpayers.
Jefferson County Assessor Randy Holman, testifying before the Joint Interim Committee on Tax Policy on behalf of the Missouri Assessor's Association, said the law needs to be changed so all businesses are fairly taxed.
"It would ensure uniformity for all businesses and not just the larger ones that can afford the costly appeals process," Holman said.
Assigning 'true value'
Assessors are required to assign the "true value" of personal property. Holman said that is easy for items like cars, which are bought and sold daily and have accepted market values for particular makes and models.
Assigning value for specialized manufacturing equipment is more difficult because often there isn't a competitive market for a particular item.
Assessors base the worth of equipment on the purchase price minus adjustments for depreciation due to age. However, companies have successfully argued before the tax commission that assessments have to be based on market value. Even though a machine may have cost millions to purchase, the argument goes, if the company couldn't resell the item, its tax value is significantly less.
Gerald Huether, a certified assessor from St. Louis County who specializes in determining the value of business equipment, said the tax commission's recent rulings were based on "faulty logic."
Huether, the editor of a textbook on the subject, said the state should develop depreciation tables that would uniformly determine the worth of various items. If equipment is being put to productive use, value can be accurately assigned regardless of its age, he said.
"I have appraised 300-year-old equipment that is still in use and making money," Huether said.
During the last legislative session, both legislative chambers considered bills, including one sponsored by state Sen. Bill Foster, R-Poplar Bluff, to establish depreciation schedules for business equipment.
Ray McCarty of the Missouri Chamber of Commerce acknowledged there is a problem but said determining market value is fairer than trying to estimate depreciated cost. Though the chamber hasn't yet developed a proposed fix, McCarty said it expects to by the time the legislature convenes in January.
"We know something needs to be done, but we want to work to find a solution acceptable to all businesses, the county assessors and schools," McCarty said.
Maximum property tax rates are set by the voters of a given political subdivision. However, when assessed values rise, those rates are reduced to prevent the taxing entity from profiting from the increase in value.
11 percent of budget
Decisions reducing a company's tax burden usually come during the middle of a fiscal year, which has an immediate impact on the political subdivision's budget. Fenton Fire District chief Larry Boyle said a pending decision in an appeal brought by automaker DaimlerChrysler AG could cost his department $750,000 -- 11 percent of its budget.
If a taxing entity isn't already at its rate ceiling, it can raise its levy in the next fiscal year to make up the lost revenue, which shifts the burden to other taxpayers.
Representatives from several education lobbying groups said action is needed to stop the erosion of school districts' tax bases and provide stability in their revenue streams.