A couple years ago, I had the opportunity to spend time in Park City, Utah. Great place! Highly recommend it. While there, we went hiking on a few trails. Crazy thing about mountain trails is sometimes with all the twists and turns I get a little confused as to where I am. Even with a map it can be difficult to figure out exactly where I am.
Funny how similar personal property tax reporting can be to hiking mountain trails... Thirty-nine states tax personal property and each one (sometimes even each jurisdiction within a state) does it a little different. Combined, they have around 8,000 different depreciation tables, along with specific guidelines for how to apply them. I’m sure they do their best but it can be a bit confusing.
In Utah, for example, in order to use an accelerated depreciation table (and thereby save taxes) for computer integrated machinery (class 2 for those interested), that machinery has to meet a whole list of conditions. One of those conditions states that the invoice for the machinery must be one line item; it can’t break out the computer components separately. So what happens if your equipment distributor uses a system that breaks those into two line items? Is there a tax strategy to working with them on how they invoice? What if you can’t find the invoice?
To complicate matters, the Utah Tax Commission (R884-24 in case you’re interested) came up with the following wording to help define taxable tangible personal property:
“... An item of taxable tangible personal property is not an individual component part of a piece of machinery or equipment, but the piece of machinery or equipment. For example, a fully functioning computer is an item of taxable tangible personal property, but the motherboard, hard drive, tower, or sound card are not.”
What exactly does that mean? The machine is taxable but if it were broken down into components it would not be taxable? Would a valid property tax savings strategy be to take all your machinery apart before the next assessment date? What if you have computer integrated machinery broken into two line items on an invoice but not completely put together on the assessment date?
I think I need to take a hike and sort this out.