Equipment Appraisal Blog | Understanding Machinery Appraisals

When it comes to life, there are two things that are certain: death and taxes. However, just because you need to pay taxes doesn't mean you should just pay a bad tax appraisal that reflects too high a value for your machinery without a fight. But when it comes time to appeal your bad tax assessment, how will you verify the value of your machinery? With a certified equipment appraisal. Here's why it's important to use one to build your case.

Fight a bad tax appraisal with a certified equipment valuation

You know it's coming, at the same time as it does every year - property taxes. If you own significant machinery, it can seem almost inevitable that you'll be paying a high amount for your taxes again this year. But when you look at the appraised value of your equipment, is that value in line with what the equipment is actually worth?

Tax appraisers and assessors spend a lot of time trying to figure out the value of a wide range of items, from real estate to industrial machinery to the car you drive every day. Unfortunately, this means that they're not always very accurate when assessing something that's different from what they see on a daily basis. It's probably pretty common for a property tax assessor to determine the value of a compact sedan or a three bedroom, two bath house. But the equipment that is your company's livelihood is usually much more rare. This can cause serious problems when it's time for the tax assessment.

The appraiser may make a mistake by assuming that your equipment is in better or worse shape than the reality of the situation. You may have a beaten backhoe that was appraised on book value even though it's been through two floods and had significant damage from a tumble down a steep embankment last year. You could also run into issues when an assessor thinks that you have a 48 HP tractor instead of the much lighter-weight 18 HP tractor that is only worth half as much. Issues like these should not be allowed to stand and should be challenged through an appeal.

But how do you provide verification of what your equipment is actually worth? One of the best methods is to have a certified equipment appraiser prepare an appraisal report on that machinery. An equipment appraiser deals with machinery all day long, providing them with a strong level of knowledge and experience on the equipment in question. This also means they can easily tell the amount of wear your equipment has received over the years, allowing them to best appraise how that wear has impacted its value. Because a certified appraiser goes through a certain amount of education and experience, they use standardized methodologies that have been tested in tax agency circles for years.

By taking the time to get a certified equipment valuation, you can fight a bad tax appraisal and win. But beyond a simple property tax appeal, you can gain additional benefits from your valuation, including verifying value for insurance claims, providing proof of value for a sale, documenting machinery condition and similar areas of concern. Make sure you work with a certified equipment appraiser to ensure you'll get an accurate appraisal that will provide you with significant benefits.

In both our business and personal lives, we expect to have to deal with unpleasant things on occasion. Paying taxes is a task nobody wants to undertake. But when you receive personal property taxes based on an assessment that is much too high, you may wonder if there's any point in fighting the system. Fortunately, many business owners find that having a machinery valuation helps when appealing your personal property tax assessment. Here are a few reasons why you may have received a high assessment and how getting equipment appraisals can help.

Personal Property Taxes: How an Equipment Appraisal Helps You Fight an Inaccurate Assessment

How your property taxes are determined

Your local tax assessor knows a lot about property values in your area, but typically on a very broad basis. The same assessor that's responsible for assessing your personal property tax on your equipment also estimates value on your neighbor's classic '65 Mustang, the local farmer's replacement cows for their operation and your uncle's latest RV purchase. Though they use some tools, such as value estimating software, there's no replacement for experience in a specific area when it comes to determining the value of your equipment, and an assessor who is overseeing a wide range of property can make mistakes.

Where mistakes can be made on your assessment

So where exactly can these mistakes be made on your assessment? One common mistake is basing the value only on the machine's original purchase price depreciated over a set number of years. We all have equipment in our operations that is still being actively used, even when it's been fully depreciated. We've also had equipment that wears out much more quickly than the standard depreciation table, so your relatively new cabinet saw is assessed at a much higher value than what it would actually bring on the free market. Another area where mistakes are made happens when the assessor uses the wrong model or year to determine the value. If you have a base model that was from an overseas market when the manufacturer was trying to broaden their market share, the assessor could be valuing it based on the domestically-produced version with all the bells and whistles.

How having an equipment appraisal can help

If you've had an inaccurate assessment made on your equipment, having a machinery appraisal is a great way to set the record straight. When you work with a certified equipment appraiser, their appraisal report bears weight. A certified appraiser has had training in the appraisal process and methodology, using standardized approaches and techniques to determine the proper value for the machine in question. If you end up having to fight the assessment in court, a certified machine appraiser's report provides a legal basis for the revised value. Many local assessors, when faced with a professionally prepared appraisal report from a certified machinery appraiser, will consider revising their assessment to match the report.

Receiving a high assessment on your personal property taxes can be a pain, but having a certified machinery valuation helps you fight an inaccurate assessment in an appeal. If you don't know what your equipment values are and need help determining an accurate value, please feel free to contact us today to be put in contact with an experienced certified equipment appraiser.

When you're considering selling your business or undergoing a merger, how do you protect your business interests? Do you want a low valuation so you pay less in taxes over the transaction or a high valuation to get the most out of the sale or merger? Let's take a good look at the process through the eyes of the seller and the buyer using the example of a forklift appraisal.

The Seller's Standpoint

When you're selling your business, you want to get as much as possible out of it without having to pay more in taxes. This means you want a lower machinery valuation. If an equipment appraiser "offers" to give you a lower machinery appraisal, then they're probably not using the proper standards to meet legal requirements for a variety of applications. Even worse, if you suffer a loss during this time, you may have a hard time justifying a replacement cost that is significantly higher than your forklift appraisal has shown. Getting quality equipment appraisals will protect you from these types of losses by providing an unbiased equipment appraisal based on the Uniform Standards of Professional Appraisal Practice (USPAP).

The Buyer's Standpoint

By comparison, the buyer wants to have high equipment values because it gives them a significant amount of cash to depreciate from fair market value on their tax returns. A machinery and equipment appraisal that is unusually high also has drawbacks, however. If a machine appraisal is performed that gives too high a value and is not backed up with USPAP appraisal methodology, it may not stand up in legal circles. If you had a similar loss as mentioned above and the forklift appraisal reflects too high a price without the backup of the proper USPAP methodology, your insurance company could refuse to cover the loss. Also, because depreciation is being used on tax returns, you could face charges of being guilty of tax fraud because you've chosen to use inaccurate methods.

How a Proper Forklift Appraisal Meets the Need

A machine appraiser who is ASA certified provides proper documentation of the machinery's actual value in a method that will stand up legally for a variety of uses, whether it's business financing, tax assessment appeals or lawsuit requirements. It also provides a valid point for negotiations during a business sale or merger. Having a proper forklift appraisal provides an accurate point to base financing on, to back up a personal property tax assessment appeal or show accurate bookkeeping and accounting to have a solid picture of your business' financial health.

Though we have discussed the needs from a "forklift" standpoint, all the reasons above apply to an type of machinery and equipment.

When you get that envelope from the county or city for your business property taxes, you already know it's going to be higher than what you'd like to pay. But what about when you open that envelope and the figures quoted are much higher than expected, to the point of being far above the actual value of your equipment values? Property tax appeals is one part of the process to get your taxes lowered, but how do you start the process? By getting a quality machine appraisal from an accredited equipment appraiser certified by the American Society of Appraisers (ASA). Here's why:

The tax assessor isn't perfect.

Your local county assessor handles a wide range of assessments, from livestock to residential property to construction equipment and back again. That is the main reason why the property tax appeals process is in place for virtually every government assessment process in existence. What's even worse, most property tax assessors will overestimate an assessment than underestimate it. The National Taxpayers Union estimates between 30-60% of property is assessed too highly, but only 2% of assessments are appealed. The tax man may cometh, but that doesn't mean he knows what he's doing when he gets there.

A machine appraiser knows equipment appraisals in your industry.

Because such a diverse array of property is covered by just a few people in the tax assessor's office, it's pretty easy to determine the wrong equipment value for your property taxes. Whether he marked your construction truck as a diesel with 500,000 miles instead of a gas engine with virtually no life left in it, getting a professional equipment appraisal helps ensure you're only being taxed on what that truck is actually worth. This is especially important if you've made significant modifications to your equipment that drastically changes its value.

Professional equipment appraisers can often provide expert witness testimony.

In addition, appraisers are able to provide not only documentation of their valuation process, they can also provide expert testimony for machinery and equipment if it's needed during the appeals process. Expert testimony can include how the assessed value was determined, provide evidence of why that value was chosen and may even be able to provide details about what was done incorrectly by the local tax assessor's process and methodology that created the inaccurately high value in the first place.

How do I start the property tax appeal process?

To start the process, you're going to need to do some investigation into the taxes. Things to keep in mind are cutoff dates for appeals, what the process involves on your part and when you can expect particular documents from the assessor's office. Once you have a basic understanding of how the system works, start gathering your paperwork and make an appointment to have your overvalued property assessed by an ASA-credentialed machinery appraiser using the Uniform Standards of Professional Appraisal Practice (USPAP). When the appraisal has been completed, compare it against your property tax documentation to determine whether the assessment is too high. Appealing your property tax assessment may be as simple as calling or walking into the tax assessor's office with your documented assessment and having a conversation about the problems with the assessment. If it's more involved, you have options available through the appeals process.

Now that you know what to expect from the process, is it time to appeal? Get a quality appraisal completed and start the process.