Opinion: Trucking and Property Tax

By Donald Lippert Jr.

Senior Manager of Property Tax and Valuation Services

Grant Thornton LLP

This Opinion piece appears in the Sept. 6 print edition of Transport Topics. Click here to subscribe today.

All 50 states impose at least one form of annual property tax. Also known as an ad valorem tax, Latin for “according to value,” property taxes come in two types, real and personal:

• Real property refers to permanently affixed items such as buildings, land and improvements. All 50 states impose a real property tax.

• Personal property refers to transportable items such as machinery, furniture, computers and motor vehicles. Currently, 40 states impose a personal property tax.

There’s a simple rule for determining if property is real or personal: Would you take it with you if you moved? If the answer is “yes,” it’s personal property.

In the trucking industry, trucking terminals are a good example of real property and usually are valued on a price per door, rather than square footage — much in the way that hospitals are valued according to how many beds they provide.

In today’s real estate market, there is a high probability the value of truck terminals has declined, making the next couple of years a challenge for the assessors who have to deal with the many valuation appeals that are anticipated. From a trucking perspective, real-estate assessments should be reviewed annually to ensure that your tax liability is not overstated.

The best way to determine if you have been assessed fairly is to compare your assessment to recent sales of trucking terminals. If a neighboring terminal sells for an amount lower than your current price-per-door assessment, you likely have a solid case to protest.

If there aren’t enough truck terminals that have sold recently or are listed to provide a comparison in the current market, a warehouse sale may be sufficient to prove your case. After all, a terminal is, in essence, a thin warehouse with additional docks. A price-per-square-foot adjustment will need to be used when analyzing warehouses, and it should be noted that a truck terminal costs about 40% more to build than a warehouse.

Taxable personal property in the trucking industry consists mainly of trucks, trailers, assets in the terminal and storage containers.

Of those 40 states that impose a personal property tax, only 17 assess commercial trucks annually. Most states exempt commercial motor vehicles or indicate that their registration is paid in lieu of property taxes.

The personal property tax is assessed in one of two ways: by the local taxing jurisdiction or as a centrally assessed property by a state agency.

Taxability is determined by the state. If the property is assessed locally, the state usually attempts to value the truck and trailer based on fair market value in exchange. Fair market value is defined as an exchange of property between a willing buyer and a willing seller, neither with compulsion to buy. Most states can provide depreciation guidelines to determine value or, in certain circumstances, industry blue books are reviewed to determine value.

If a state agency regards the property as centrally assessed or unitary, the state attempts to determine the value of the business and allocates based on what percentage of the company’s business is attributable to a certain state. These apportionment calculations are determined by mileage, timing and other factors. The apportionment technique is determined by the taxing authority.

Texas and Virginia are the only states with new developments in motor vehicle property tax this year:

• In Texas, motor vehicles used to produce income as well as for personal use are exempt, but the exemption is limited to one motor vehicle owned by an individual taxpayer and does not apply to motor vehicles used to transport passengers for hire.

• Virginia has modified current law to enact separate tangible personal property classifications for local property tax purposes for motor vehicles that seat at least 30 people, including the driver, and motor vehicles powered solely by electricity.

While reviewing real and personal property assessments, consider the effect of the current economy. Industrial revenues are down, and considering that these companies are the largest users of trucking services, this state of affairs is having a negative effect on trucking’s profitability.

The trucking industry is in a highly volatile market that suffered a large revenue drop in 2009. Economic obsolescence — a reduction in the economic life of an asset caused by regulatory, technological and excess supply factors — often can be quantified and used to reduce property tax assessments. By comparing trends in gross margins, revenue growth and capacity and utilization figures, one can identify the presence of obsolescence, if it exists. Once obsolescence is quantified, it will have a negative effect on your property value and should be discussed with the assessor.

Property tax is meant to be fair and equitable. In today’s tough times, it is important to validate your assessment to ensure your assets are fairly valued and perhaps reduce tax liability throughout the process.

Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd. The author is with the firm’s national transportation practice and is based in Chicago.