If you own real property, you pay property taxes. If you own an investment property or business, you probably also pay property taxes on your business personal property. Both real property and tangible business personal property are taxable in Texas and most other states, although not all states tax all tangible business personal property.
In contrast, intangible business personal property is not taxable (at least not yet).
However, owners of complex enterprises need to be aware that excluding intangible property from taxation by statute does not mean that those valuing your property for taxation purposes understand intangible valuation. Here are guidelines you need to consider.
Real Property – land, improvements to and on the land, a mine or quarry, mineral(s) in place, standing timber, or an estate or interest in a property;
Real Property is tangible.
Personal Property – property that is not real property
Personal Property can be tangible or intangible.
Tangible Personal Property – personal property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does NOT include a document or other perceptible object that constitutes evidence of a valuable interest, claim, or right and has negligible or no intrinsic value.
Intangible Personal Property – a claim, interest (other than an interest in tangible property), right, or other thing that has value but cannot be seen, felt, weighted, measured, or otherwise perceived by the senses, although its existence may be evidenced by a document.
Examples of INTANGIBLE Personal Property: stock, bond, note or account receivable, franchise, license or permit, demand or time deposit, certificate of deposit, share account, share certificate account, share deposit account, insurance policy, annuity, pension, cause of action, contract, and goodwill.
The list continues: cash, software, name or branding of the business, customer lists, trusts, contacts, copyrights, permits.
Valuation Challenges Overview
Properties that are designed, developed, and owned for the generation of net rental income (i.e. income properties such as apartments, mobile home parks, office buildings, shopping centers, warehouses, self-storage facilities, etc.) seldom have high degrees of intangible value.
Other properties fall into a more complex category where the ‘enterprise’ includes real property, tangible business personal property, AND intangible business personal property. Many of these complex enterprises are valued and sell based upon net income.
The major difference between ‘investment income’ properties (apartment complexes, office buildings, warehouses, etc.) and these complex enterprises is summarized:
♦ Investment income properties tend to have a very high percent of real property value with nominal personal property value.
♦ Complex enterprises tend to be comprised of three substantial contributors to total value: tangible real property, tangible business personal property, and intangible business personal property (i.e. the business).
The valuation challenge of complex enterprises is much different than appraising a more typical investment income property. Here is a partial list of the property types that often include high levels of intangible business value upon which you might be paying taxes without realizing it:
- Most Sale/Leaseback scenarios PLUS
- Hospitality — Hotels, Motels, Bed & Breakfast
- Medical — Hospitals, Clinics, Nursing Homes, Assisted Living
- Clubs — Country Clubs, Health, Sports, Fitness Centers, Skating Centers
- Manufacturing – Any having real, personal, and business value in one entity
- Specialty — Refineries, Petrochemical and Chemical Plants, Food Processing
- Entertainment — Casinos, Cinemas, Bowling Centers
- Food/Beverage — Restaurants, Bars, Dinner Theaters
- Transportation — Pipelines, Trucking Businesses, Grain Elevators, Salt Domes
- Technology — Computer Hosting Centers; Product & Software Manufacturers
- Vehicle Dealerships – Auto, Truck, Boats, Heavy Equipment
- Miscellaneous — Fee Parking Garages, Grain Elevators, Bulk Cement Facilities
If you own or manage any of the above property types, chances are that your taxable value includes substantial intangible value which should not be taxed. National Realty Consultants specializes in appraising and representing such properties for property tax using Capital Layer Evaluations.
Want to understand more? Here is 2016 article from The Appraisal Institute’s publication ‘The Appraisal Journal’ written by Tom Troll of National Realty Consultants.