Understanding Your Property Tax

Property Tax Consulting Course

Learn everything you need to know about Property Tax Consulting in this detailed and carefully-written ebook. You will learn how to set up your business legally and quickly, and what states you need special permissions and licenses in. You will also learn how much you should be billing and what kind of contingency fees you can charge to your clients. Not only will you learn what you should charge clients; you will also learn how to attract your first clients when you start your business. And you DON'T have to be an expert in the Property Tax Consultant business when you start out; you can quickly learn what you need to know as you go along. You can become an expert very quickly It usually only takes one client to become proficient! You will always have business; the property tax field is FULL of people who are interested but know very little. You can take advantage of this market gap! Continue reading...

Property Tax Consulting Course Summary


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Author: George Evers
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Property taxes

If the capital expansion involves realty, there will be an increase in property taxes. If the expansion (or new site) is significant enough, the firm can negotiate with local officials for tax relief. If the expansion involves a combined purchase of personalty and realty, the firm can try to allocate the purchase price so that all taxes are minimized. This is illustrated in Tax Management In Action 11.1.

State and Local Taxes

A survey by PricewaterhouseCoopers LLP found that corporate tax managers spent 44 of their time on state and local taxes. State and local taxes also fall into the categories of transaction, wealth, and income taxes. Sales and use taxes are paid by retail consumers of goods. They are remitted to businesses, which in turn remit these transaction taxes to local governments. The primary wealth tax is a property tax, assessed to owners of both realty and personalty. Forty-four of the states impose a corporate income tax. To partly alleviate double taxation, state corporate income taxes are deducted (expensed) on the federal corporate return (i.e., they reduce the U.S. tax bill). State and local taxes are discussed in more detail in Chapter 7.

Is This Too Good to Be True

You, as the owner, are still responsible for the maintenance and repair of the home as well as being responsible for the payment of property taxes and insurance. Unlike a conventional mortgage, you will not have to pay any current mortgage payments for the use of the reverse mortgage funds. These loans are typically paid back when you sell your home, refinance, or pass on. The lender takes only what they are owed and the difference flows to you or your estate. Some companies request the loan amount back at the end of a certain time period. Make sure you shop around for a lender that meets your needs.

Tax Rates and Structures

Taxes are computed by multiplying the tax rate by the tax base, that is, tax rate x tax base tax. The tax base is the amount that is subject to tax. For income taxes, the tax base is taxable income, defined roughly as income less allowable expenses. For property taxes, the tax base is some measure of the value of the property. Consumption taxes, such as VAT and sales tax, are most often based on the sales price of the merchandise sold. For payroll taxes, a common tax base is compensation.

Accumulation Of Product Costsactual Cost System

During the month, Midwestern's purchasing agent bought 280,000 of direct materials on account (entry 1), and the warehouse manager transferred 284,000 of materials into the production area (entry 2). Production wages for the month totaled 530,000, of which 436,000 was for direct labor (entry 3). April salaries for the production supervisor was 20,000 (entry 4). April utility cost of 28,000 was accrued analyzing this cost indicated that 16,000 was variable and 12,000 was fixed (entry 5). Supplies costing 5,200 were removed from inventory and placed into the production process (entry 6). Also, Midwestern paid 7,000 for April's property taxes on the factory (entry 7), depreciated the factory assets 56,880 (entry 8), and recorded the expiration of 3,000 of prepaid insurance on the factory assets (entry 9). Entry 10 shows the application of actual overhead to Work in Process Inventory for, respectively, variable and fixed overhead for Midwestern during April. During April, 1,058,200 of...

Some Imperfect Market Examples

Unfortunately, not every good is traded in a perfect market. For example, think about selling your house. What is its value What if the house is in a very remote part of the country, if potential buyers are sporadic, if alternative houses with the same characteristics are rare, and if the government imposes much higher property taxes on new owners (as it commonly does in California) Now the value of the house depends on the luck of the draw (how many potential buyers are in the vicinity and see the ad, whether a potential buyer wants to live in exactly this kind of house, and so on), your urgency to sell (depending perhaps on whether you have the luxury to turn down a lowball first offer), and whether you need to sell at all (as current owner, you may be better off enjoying low property taxes, so your house may be worth a lot more to you than to a potential buyer). The value of such a house can be difficult to determine because the market can be far from perfect, and it may not even...

Calculating seasonal and uneven expenses

Some bills are due once a year, such as car registration fees and excise taxes some are due quarterly or semiannually, such as property taxes and some, such as insurance and heating bills, may be high in some months and low or not due at all in others. Other spending on clothing, car repairs, and gifts, for example occurs unevenly, with big expenses in some months and little or none in others. For all of these expenses, you will need to find copies of past bills or other spending records and estimate what you would pay each month if the payments were spread evenly throughout the year.

Case in Point Without Resources

What a lousy deal He would have to sell off most of his assets, leaving virtually nothing, just to get into a nursing home facility. Once he went in, he felt there was no real way to get back out. What would he have to come home to He simply couldn't afford the long-term care expenses as well as his normal home bills and expenses such as property taxes, utilities, and normal repair costs. He felt helpless.

Remembering auto registration fees and state insurance

If you don't currently itemize, you may be surprised to discover that your state income taxes can be itemized. When you pay a fee to the state to register and license your car, you can itemize a portion of the expenditure as a deduction (on Schedule A, line 7, Personal Property Taxes ). The IRS allows you to deduct the part of the fee that relates to the value of your car. The state organization that collects the fee should be able to tell you what portion of the fee is deductible. (Some states detail on the invoice what portion of the fee is tax-deductible.)

Relationship between Economic and Fiscal Impacts

Tax revenue is normally generated by economic activity Income, sales, and value added taxes are directly related to economic activity, whereas property taxes and other taxes are indirectly related. Certain excise taxes based on usage (notably gasoline taxes in most states) are also directly related to economic activity.

On the Political Economy of Taxes

145 For example, if you analyzed property taxes and their effect on business location decisions or economic development, you should ensure your report describes the effect of such taxes on business and economic development. Even if the tax is used to pay for public schools, do not use the analysis of tax policy to form a pretense for a discussion of education policy unless that policy is directly connected to tax policy.

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General obligation bonds are debt instruments issued by states, counties, special districts, cities, towns, and school districts. Usually, a general obligation bond is secured by the issuer's unlimited taxing power. Some general obligations bonds are backed by taxes that are limited as to revenue sources and maximum property-tax millage amounts.2 Such bonds are known s limited-tax general obligation bonds. For smaller governmental entities such as school districts and towns, the only available unlimited taxing power is on property. For larger general obligation bond issuers such as states and big cities, tax revenue sources are more diverse and may include corporate and individual income taxes, sales taxes, and property taxes. The security pledges for these Multifamily Revenue Bonds These revenue bonds are usually issued for multifamily housing projects for senior citizens and low-income families. Some housing revenue bonds are secured by mortgages that are federally insured others...

Notes on Model Structure

There are generally four sources of revenue generated by this kind of development permit fees (usually a one-time fee), property tax revenue (which normally grows and arises from both direct investment and any indirect or induced development), revenue sharing (provided on a per capita basis by the state to the township), and fee-based revenue for specific services. We have modeled each effect.

Administrative Expense Budget 710

The expected administrative costs for an organization are presented in the administrative expense budget. This budget may contain many fixed costs, some of which may be avoidable if subsequent operations indicate some cost cuts are necessary. These avoidable costs, sometimes called discretionary fixed costs, include such items as research and development, employee education and training programs, and portions of the personnel budget. Fixed costs that cannot be avoided during the period are called committed fixed costs. Mortgage payments, bond interest payments, and property taxes are classified as committed costs. Variable administrative costs may include some personnel costs, a portion of the utility costs, computer service bureau costs, and supplies costs. Fixed and variable costs and the application of these concepts to the budget process is discussed in detail in Chapters 3 and 7.

Further Look At Costs By Behavior

Fixed costs are costs that do not change in total regardless of the volume or level of activity. Examples include rent, property taxes, insurance, and, in the case of automobiles, license fees and annual insurance premiums. The following factory overhead items fall into the fixed-costs category Salaries of production supervisors Depreciation (by straight-line) Property taxes Patent amortization

How to Prepare Your Records for Your Tax Accountant

Canceled checks and receipts Canceled checks and receipts for real estate taxes, personal property taxes, and state and local taxes 1098 issued by mortgage company, canceled checks, and receipts for deductible interest Canceled checks and receipts from donees Canceled checks and receipts Canceled checks, receipts, and Real estate taxes Real Estate Tax

Forecasting Cash Flows

Consider the same project as Project NPV - Basics. Let's examine the details of how you forecast the project cash flows. Suppose that Direct Labor, Materials, Selling Expenses, and Other Variable Costs are forecast to be 3.50, 2.00, 1.20, and 0.70, respectively, in year 1 and then grow with inflation. Lease Payment, Property Taxes, Administration, Advertising, and Other cash fixed costs are forecast to be 2,800, 580, 450, 930, and 520, respectively, in year 1 and then grow with inflation. What is the Total Variable Cost Unit, the Total Cash Fixed Costs, and the project NPV

Sourcing Versus Production Platforms

These location choices also have potential property tax considerations. If the firm buys or builds sourcing or production facilities, it will be subject to local property taxes unless a tax abatement can be negotiated. If facilities are rented, part of the lessor's property tax will be passed on to the firm in the form of higher lease payments. Often a net lease is used in which the firm actually pays the lessor's property taxes. As mentioned previously, annual property taxes are typically 1 to 2 of assessed value the latter of which is either estimated current market value or original cost. If cost is used it is reassessed (stepped up to fair market value) upon purchase or completion of new construction. Property taxes are assessed on almost all realty, most personalty, and, in some states, intangibles. For personal property, tax savings may be obtained by (1) making sure any retired assets are removed from taxing list, and (2) where flexibility exists, classifying assets in the...

The Basic Building Blocks

Recall the example of the house from Chapter 5. If you finance a house with a mortgage, you own only the residual as levered equity. This means that you really do not fully own the house. Although you can make a lot of decisions about the house, there are others you cannot make. For example, your mortgage covenants prevent you from demolishing the house, or from selling it and keeping all the money. To do either, you must first repay the mortgage. And, of course, as a house owner, you also must satisfy other claims that do not arise financially but instead arise in the context of real ownership. For example, you must pay your county property tax obligation, or the county can repossess your house. And through legal ownership, you also had to accept other obligations for example, you cannot simply convert your house into a liquor store without obtaining zoning permissions. In reality, any home owner is only part owner the house is really owned by the (so-miscalled) homeowner, plus the...

Materials and Inventory

Use taxes, the same result would apply regardless of whether the supplier was in state or out of state.) Similarly there should be no property tax impact to the decision in question (i.e., deciding whether to buy from vendors located in the same state as where the items will be used.) This is because most jurisdictions exempt materials and inventory from property taxes.

Tax savings in home ownership

Generally speaking, mortgage interest and property tax payments for your home are tax-deductible on Schedule A of IRS Form 1040 (see Chapter 7). lii ll Here's a shortcut that works quite well in determining your tax savings in y f home ownership Multiply your federal tax rate (see Table 7-1 in Chapter 7) by the total amount of your property taxes and mortgage payment. (Technically speaking, not all of your mortgage payment is tax-deductible only the portion of the mortgage payment that goes toward interest. In the early years of your mortgage, nearly all of your payment goes toward interest. On the other hand, you may earn state tax benefits from your deductible mortgage interest and property taxes.

How Are Taxes Important In Decision Making

Tax planning can affect decision making in even the most commonplace of settings. Consider the case of a typical U.S. homeowner whose annual property tax payment must be paid before January of the following year, and it is now December. Almost all people who pay U.S. federal income tax calculate the tax based on their net income that is, their taxable revenues less their tax-deductible expenses in each calendar year. Assume that the property tax is a deductible expense, and that the homeowner is in the 28 tax bracket. This means that every dollar of additional income results in .28 in additional tax. Similarly, every dollar of tax-deductible expense saves .28 in taxes. If homeowners pay the property tax in December, they will get a tax deduction on their tax returns for the current year. The tax benefit is delayed a year, however, if they wait until January to pay. That is, simply paying this deductible expense a few days earlier generates tax savings a year earlier. This simple bit...

Direct and indirect costs

Cost accounting involves calculating the costs oi different products or services, so that company managers can know what price to charge lor particular products and services and which are the most profitable. Direct costs - those that can be directly related to the production of particular units of a product - ate quhe easy to calculate, txamples include manufacturing materials and manufacturing wages. But there are also indirect costs or overheads - costs and expenses that cannot be identified with particular manufacturing processes or units of production. Examples include rent or property taxes for the company's offices and factories, electricity for lighting and heating, the maintenance department, the factory canteen or restaurant, managers' salaries, and so on. Costs such as these arc often grouped together on the profit and loss account or income statement as Selling, General and Administrative Expenses.

Committed Fixed Costs

The costs associated with basic plant assets or with the personnel structure that an organization must have to operate are known as committed costs. The amount of committed costs is normally dictated by long-run management decisions involving the desired level of operations. Committed costs include depreciation, lease rentals, and property taxes. Such costs cannot be reduced easily even during temporarily diminished activity.

Show how to account for transactions in gov ernmental funds

Nonexchange transactions are those in which people and companies pay amounts to governments but governments give nothing directly to the payors in return. Exchange transactions are those in which the government provides goods or services for fees. Under modified accrual, some revenues are recognized on the accrual basis and some revenues are recognized on the cash basis. Revenue from property taxes, intergovernmental grants, entitlements, and shared revenues interest on investments and delinquent taxes and billed charges for services are normally recognized under the modified accrual basis if funds will be collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. 9 Property taxes, fines, and other imposed tax revenues are recorded as revenue at the time taxes are levied on property owners and others provided the taxes will be collected during the current period or soon enough after year-end to pay the liabilities of the...

Fundamental Equivalence of Methods

233 For example, Article IX of the Michigan Constitution requires the assessment and equalization of real and personal property in the state. Section 27 of the General Property Tax Act, PA 206 of 1893, codifies for Michigan the procedure for assessing the true cash value of property when put to highest and best use. The state uses three methods of valuing property, all of which theoretically produce the same result. They are (1) the comparable sales, (2) reproduction costs less depreciation, and (3) capitalization of income.

Tax Advantaged Residency

In recent years, approximately 3,600 foreigners have discovered Switzerland and found it to be inviting, not just for tax reasons but also for the country 's desirable living conditions and high standards. Sixteen of the cantons cut tax rates in the last year, and others are considering a similar move. The canton of Obwalden has cut the tax rate by 1 percent to 2.35 percent for individuals earning in excess of 300,000 Swiss francs (CHF300,000) annually, and it has also reduced property taxes. Obwalden also dropped corporate taxes to 6.6 percent. Currently, foreigners pay less than local residents. Personal taxes for locals who are high-income earners run about 30 percent, when federal taxes are combined with cantonal and communal taxes. As the Swiss tax system is complex, no simple or exact figure can be quoted. Foreigners pay a property tax based on the value of their rental or owned property within Switzerland, less any mortgages or debt encumbrances. The rate is between 0.05...

Things To Do Prior To Closing

The purchase agreement often will require that certain items, such as real estate taxes, personal property taxes, and utility charges, be prorated as of the date of the closing. If this is the case, you should determine what the charges are or will be so that the proper amounts can be charged to the buyer and seller at the closing. These items are usually small, and often the buyer will be permitted to bring a personal check to the closing to cover these amounts.

Skill Building Problems

Consider the same project as problem 1, but modify it as follows. Suppose that Direct Labor, Materials, Selling Expenses, and Other Variable Costs are forecast to be 5.20, 3.70, 2.30, and 0.80, respectively, in year 1 and then grow with inflation. Lease Payment, Property Taxes, Administration, Advertising, and Other cash fixed costs are forecast to be 4,100, 730, 680, 1,120, and 730, respectively, in year 1 and then grow with inflation. What is the Total Variable Cost Unit, the Total Cash Fixed Costs, and the project NPV

Direct Cash Flow from Leasing

First, if the lease is a gross lease instead of a net lease, the lease payments must be reduced by the cost of maintenance, insurance, and property taxes. These costs are assumed to be the same regardless of whether the asset is leased or purchased with borrowed funds. Where have these costs been incorporated into the analysis The cash flow from owning an asset is constructed by subtracting the additional operating expenses from the additional revenue. Maintenance, insurance, and property taxes are included in the additional operating expenses. There may be instances when the cost of maintenance differs depending on the financing alternative selected. In such cases, an adjustment to the value of the lease must be made.

Problem 156 LO 4 7 9 Journal entries Budgetary Comparison Schedule A summary of the general fund transactions for the

Property taxes for 650,000 were levied. In past years, 1 of the property taxes levied proved uncollectible. e. Collections from property taxes totaled 644,000, of which 20,000 represented collections on delinquent taxes. Delinquent taxes of 8,000 remain uncollected, on which a 3,000 allowance is carried. Remaining taxes receivable current and taxes receivable delinquent were converted into taxes receivable delinquent and tax liens receivable, respectively.

Problem 152 LO 1 2 3 Measurement focus and basis of accounting Select the best answer for each of the following

Lacking sufficient cash for operations, a city borrows money from a bank, using as collateral the expected receipts from levied property taxes. Upon receipt of cash from the bank, the general fund would credit 8. Power City's year-end is June 30. Power levies property taxes in January of each year for the calendar year. One-half of the levy is due in May, and one-half is due in October. Property tax revenue is budgeted for the period in which payment is due. The following information pertains to Power's property taxes for the period from July 1, 20X0, to June 30, 20X1

Demonstration Problem

Utility costs were accrued at 3,500 of these costs, 800 were fixed. Property taxes on the factory were accrued in the amount of 1,000. Prepaid insurance of 800 on factory equipment expired in August. Straight-line depreciation on factory equipment was 20,000. Predetermined overhead of 62,500 ( 28,000 variable and 34,500 fixed) was applied to Work in Process Inventory. (5) Fixed Overhead Control Property Taxes Payable

Of Tax Planning

Taxes impact success because operational decisions are generally based on the risk-adjusted net present value of expected after-tax cash flows. In addition, federal and local income taxes, payroll (e.g., Social Security), sales (e.g., value-added, goods and services, or gross receipts), and property taxes often add up to one of the largest expense items of an organization. Furthermore, tax payments typically have a high legal priority claim on an organization's cash flow. That is, not only can taxes be a big expense, but they also must be paid, and paid quickly.

Other Country Taxes

Wealth taxes are imposed by most jurisdictions, typically in the form of property taxes. They are primarily levied on real estate and are usually based on the property's market value. Income taxes are usually the most significant foreign taxes paid by U.S. companies. These taxes are usually levied on in-country income only, with definitions of taxable incomes varying widely. Tax rates vary widely as well. Independent of taxable income definitions and tax rates, tax treaties between a number of countries and the United States reduce the real tax burden to a much lower rate. Additionally, to make sure that both the United States and the foreign country do not tax the same income, the United States allows a U.S. company to reduce its taxes by its foreign income taxes paid. Chapter 8 contains a more detailed discussion of taxation throughout the world, and the features of U.S. tax law that mitigate the specter of multiple taxation of income generated by cross-border activities.

Time and Costs

Some fixed costs, that is, costs that will not change because of fixed commitments. In real business activity, examples of fixed costs are bond interest, overhead, and property taxes. Costs that are not fixed are variable. Variable costs change as the output of the firm changes some examples are raw materials and wages for laborers on the production line.


There's room for negotiation within reason, particularly if it involves installment payments and a regular schedule of debt clearance. You still will have to pay penalties but the implied or explicit threat isn't quite as prevalent. The same is true of sales taxes and property taxes, in principle although local governments may also be rigorous in expecting their money.

Empirical Tests

The earlier empirical studies focussed upon property taxes, public good provision and house prices. The reason for this was made clear by Oates who initiated this line of research in 1969 local governments fund their activities primarily through property taxes and the manner in which these taxes are reflected in house prices provides evidence on the Tiebout hypothesis. Assume that all local governments provide the same level of public goods. Then the jurisdictions with higher property tax rates will be less attractive and have lower house prices. Now let the provision of public goods vary. Holding tax rates constant, house prices should be higher in areas with more public good provision. These effects offset each other, and if the public good effect is sufficiently strong jurisdictions with higher tax rates will actually have higher property prices. Oates considered evidence on house prices, property tax rates and educational provision for 53 primarily residential municipalities in...


Note Instead of being based on homeowners' actual expenses, such as mortgage payments, insurance, property taxes, and the like, the CPI includes an estimate called owners' equivalent rent. Here, just as with food and energy, the measurement shunned because of volatility yes, housing costs are volatile is the one that meaningfully reflects trends. Consider, for example, the 2003-6 difference between the 5 percent yearly increase in owners' equivalent rent and the 10 to 20 percent annual increase in the S&P Case-Shiller Home Price Index. Obviously, the OER and the home price index are not parallel. An index of mortgage payments, insurance costs, and property taxes would serve better. Still, the comparison shown in figure 3.4 is worth noting. Using the housing price data yields a CPI increase 2.5 to 4 percentage points above the official one released by the Bureau of Labor Statistics.


Households (individuals) cannot spend all their earnings on consumer goods and services. Part of the income each household receives must be used to pay different kinds of taxes, such as income taxes to federal, state, and local governments. Most state and local governments also impose sales taxes. In addition to paying income and sales taxes, households may also have to pay property taxes to local governments. After paying taxes and spending income on consumables, some households put aside money as savings to be used for consumption at a later time.

Which Costs Count

Let us suppose that annual rental revenue on the building offsets the landlord's out-of-pocket expenses, such as maintenance, repairs, property taxes, and interest on the property's mortgage. The owner, in other words, is breaking even, before taking into account the noncash expense of depreciation. Including depreciation, the property shows an annual loss, which reduces the owner's income tax bill. Let us also assume that after a few years, the owner sells the land and building. After paying off the mortgage balance, she walks away with more cash than she originally invested, thanks to the tendency of real estate values to rise over time.


A retail store, which operates solely in state A, is thinking of opening some stores in nearby state B. This will be done by acquiring the existing stores of a similar business. Both states A and B are unitary, with income tax rates of 10 and 6 , respectively. Annual property taxes in state B average 2 of the value of realty. The company's effective tax rate actually may fall, by apportionment of income from state A to state B. The firm should also negotiate with county officials to (at least temporarily) reduce state B property taxes.

Example 710

If the firm is unsure about its long-term strategic intent in the new market, leasing may make sense. It avoids property taxes by local governments and keeps any related liabilities (e.g., mortgages) off the balance sheet. Also, in the early stage of operation, it may result in tax losses that would be increased by rapid depreciation. (See Example 7.11.)

Example 711

A variety store is considering opening a new store in a new city. It is unsure whether it will be successful. Buying a store building would cost 10 million a year-to-year lease is 2 million annually. Although the second option is more expensive in pretax dollars, it is (1) less risky, (2) keeps the store and its financing off balance sheet, (3) avoids direct property taxes, and (4) has more rapid tax deductions (the building, if owned, would be depreciated over 39 years).

Example 715

A company asks a county for a five-year forgiveness of property taxes as a condition of opening a new plant there. The lost property taxes would be 1 million per year. However, after calculating that the ripple-through effect of the plant on increased local sales and income taxes to be 1.5 million per year, the county government officials grant the property tax concession.

Usage Taxes

Just like you pay property taxes on your home (either directly or through a landlord), your company must pay property tax on any real estate it owns. The company may also find itself paying taxes on leased property, depending on how the lease has been written Out-of-state businesses that aren't careful may find their property being assessed at an exorbitant rate. That's one way municipalities have of keeping property tax at a more comfortable rate for local businesses. Your company should review its assessment carefully and talk to its legal counsel about what to do if it suspects the assessment is unfair.

Researching the area

Is crime a problem Call the local police department. Will future development be allowed If so, what type Talk to the planning department. What are your property taxes going to be Is the property located in an area susceptible to major risks, such as floods, mudslides, fires, or earthquakes Consider these issues even if they're not important to you, because they can affect the resale value of your property. Make sure that you know what you're getting yourself into before you buy.

General Business

Inventory carrying costs are the variable costs of carrying one inventory unit in carrying cost stock for one year. Carrying costs are incurred for storage, handling, insurance, property taxes based on inventory cost or value, and possible losses from obsolescence or damage. In addition, carrying costs should include an amount for opportunity cost. When a firm's capital is invested in inventory, that capital is unable to earn interest or dividends from alternative investments. Inventory is one of the many investments made by an organization and should be expected to earn a satisfactory rate of return.

Example 1111

Property tax rate Income tax rate What are the important tax effects under the alternative For simplicity, assume a 10-year planning horizon and that machinery and equipment are exempt from property taxes. Operating profits before depreciation Property taxes Annual property tax 1 of land & building Property taxes 1.5 of ( 1,000,000 + 6,000,000) Property taxes 1 of ( 1,000,000 + 6,000,000) 70,000 Mexican property taxes

Example 121

Gross margin Other expenses S,G&A Property taxes Income taxes Federal State Net income This initial analysis leads to scrutiny of the Las Vegas store. The profitability on sales, 130,000 3,000,000 4 , is well below the firm's target threshold of 15 . Suppose that a closer look at the other expenses reveals the following Sales, general, and administration expense (S,G,&A) and property taxes were costs incurred by each office or store taxes, however, were firmwide and simply allocated evenly across these two stores. Nevada has no corporate income tax, so the entire state tax burden is due to New York operations. Reallocating federal and state income taxes, based on how they are controllably incurred, yields Gross margin S,G&A Property taxes State income taxes Segment profit before

Why Regulate

Meanwhile, the winners are taxed more aggressively than the rest, usually in ways that likewise promote social concepts of fairness. There are progressive income taxes, which take proportionately more from those who are better off than those less fortunate, but there are also sales taxes, real estate taxes, excise taxes, estate taxes at time of death, sin taxes on tobacco and alcohol, and more, each reflecting prevailing concepts of fairness as much as the need for revenues. In federal countries like the United States, tax fairness is fine-tuned at the state and local level as well. You are taxed progressively on your income from work both at the federal, state, and sometimes even municipal level. You are taxed on your income from interest and dividends (which have already been taxed at the corporate level), assets accumulated from income already taxed once, and when those assets appreciate and are sold they are taxed yet again as capital gains, if even those gains may only be due to...


Tax mimicking A substantial body of empirical studies has emerged testing for interdependence among jurisdictions in tax and expenditure choices. One of the first and very influential work is by Case et al. (1993) who test a model in which state's expenditure may generate spillovers to nearby states. The great novelty of this work is to allow for spatially correlated shocks as well as spillovers. Using data from a group of states, strong evidence of fiscal interdependence emerges and the effects arising from interdependence are large. A dollar increase in spending in one state induces neighboring states to increase their own spending by seventy cents. Brueckner and Saavedra (2001) test for the presence of strategic competition among local governments using data of 70 cities in the Boston metropolitan area. Taking capital as the mobile factor and population as fixed, local jurisdictions choose property tax rates taking into account the mobility of capital in response to tax...

Agency Funds

An agency fund is required when money collected or withheld, such as deductions from government employees' salaries for social security or for hospitalization premiums, must be forwarded to the proper destination. Agency funds frequently have no end-of-period balances because money is transferred prior to the end of the period. When the money has not been forwarded, a liability to the ultimate recipient is shown. There is no fund equity, and the only financial statement would be a balance sheet listing the assets held and the related liabilities. If the agency fund is to receive a fee for its services, the amount usually is recorded as a liability to the general fund of the governmental unit. The general fund records a receivable and revenue if the amount is to be collected within the current period. For example, state law may give a county the responsibility for collecting property taxes levied within its boundaries, with the county receiving a fee to cover its administration of the...

How Leasing Works

When all costs associated with the use of the equipment are to be paid by the lessee and not included in the lease payments, the lease is called a net lease or triple net lease. Examples of such costs are property taxes, insurance, and maintenance. These costs are paid directly by the lessee and may not be deducted from the lease payments.

Example 152

The asset transfer usually is free of sales-type taxes, but in some jurisdictions there could be a revaluation for property tax purposes (which can result in lower property taxes). If employees are transferred during the payroll tax year (e.g., in the United States at anytime other than January 1), there can be additional payroll taxes (such as the 6.2 employer's portion of the U.S. Social Security tax).

Operating Leverage

Figure 13-2 illustrates the concept of operating leverage by comparing the results that Strasburg could expect if it used different degrees of operating leverage. Plan A calls for a relatively small amount of fixed costs, 20,000. Here the firm would not have much automated equipment, so its depreciation, maintenance, property taxes, and so on would be low. However, the total operating costs line has a relatively steep slope, indicating that variable costs per unit are higher than they would be if the firm used more operating leverage. Plan B calls for a higher level of fixed costs, 60,000. Here the firm uses automated equipment (with which one operator can turn out a few or many units at the same labor cost) to a much larger extent. The breakeven point is higher under Plan B breakeven occurs at 60,000 units under Plan B versus only 40,000 units under Plan A.

Inventory Management

Taxes have two effects on multinational inventory management. First, countries often impose property taxes on assets, including inventories, and when this is done, the tax is based on holdings as of a specific date, say, January 1 or March 1. Such rules make it advantageous for a multinational firm (1) to schedule production so that inventories are low on the assessment date, and (2) if assessment dates vary among countries in a region, to hold safety stocks in different countries at different times during the year. Finally, multinational firms may consider the possibility of at-sea storage. Oil, chemical, grain, and other companies that deal in a bulk commodity that must be stored in some type of tank can often buy tankers at a cost not much greater or perhaps even less, considering land cost than land-based facilities. Loaded tankers can then be kept at sea or at anchor in some strategic location. This eliminates the danger of expropriation, minimizes the property tax problem, and...

Types of taxes

MNCs face a variety of direct and indirect taxes. Direct taxes include corporate income taxes and capital gains taxes. Indirect taxes include value-added taxes, tariffs, and withholding taxes. In addition to these direct and indirect taxes, MNCs may have to pay property taxes, payroll taxes, stamp and registration taxes, taxes on registrations of agreements of various types, sales and excise taxes (excluding value-added taxes), and taxes on undistributed earnings.

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