Hot Topics--The Property Tax on Business
Inventories
In February comes the
groundhog, and then the billboards and airwaves explode with ads for
“inventory tax sales.” Funny thing: there’s
no such thing as an Indiana “inventory tax.”
What there is, is the regular old property tax, applied to the assessed
value of business inventories. March
1 is the day businesses must assess their property, so they try to have as
little as possible on their lots, on their shelves or in their warehouses on that date.
How to get rid of it? Sell
it in February!
Taxable
property comes in two flavors: real
and personal. Real property is land and buildings. Personal property is mostly business equipment and
inventories. The local assessor
uses a state rulebook to measure the value of real property. Personal property is mostly self-assessed by business owners, using
tax forms.
Business taxpayers value inventories at their cost or their sales value, whichever is less. The taxpayer subtracts an inventory adjustment of 35% from cost, to get the “true tax value” of inventories. Assessed value used to be true tax value divided by three, but starting last year we quit dividing by three.
Here's how it
works. Suppose a car
costs a dealer $20,000. Despite the
best efforts of the sales staff, the car is still on the lot on March 1.
The cost is entered on the personal property form.
The dealer subtracts 35% for the inventory adjustment, leaving $13,000 in
assessed value. The
property tax rate is the sum of the rates of all the units of government that
the dealership is in, including the county, school corporation and city or town.
The average tax rate, statewide, is about $3.00 per $100 assessed value. The tax owed on the car
would be $390. The dealer would owe
this tax in the year after the assessment date.
Tax restructuring is going to change all this. The General Assembly voted to phase out the inventory tax by 2007. After that date inventories will be assessed, but there will be a 100% deduction applied, so none of the inventory assessed value will be taxed. It's possible this idea will be challenged in court. Tax restructuring also allowed counties to adopt the inventory deduction early, and fourteen of them did.
So the inventory tax's days are numbered. After 2006, no more inventory tax sales. Another Indiana tradition gone! The question: will anyone miss it?
Want to know more? Click here.