Assessing Personal Property
(from Maine Townsman, February 1989)
by Geoff Herman, MMA Paralegal
An often overlooked aspect of the property tax issue which could have a significant impact on the overall distribution of the tax burden concerns the quality of personal property assessment. The statutory definition of personal property subject to taxation contains broad exemptions for the types of personal property found in and around the home and is entirely less forgiving in regard to personal property associated with commercial enterprises of any kind. Although small commercial enterprises or businesses facing hard times often complain with a certain legitimacy about some practical disparities in the personal property assessment process, there is nonetheless a rough structural progressivity in the personal property side of property tax assessment which is not necessarily a part of the real property assessment process.
Personal property tax revenues neither effortlessly nor enthusiastically make their own way into municipal coffers. If quality personal property assessment can be considered a product, then that product must be taken seriously and backed with enough capital and effort to give reasonable hope for successful product development. To under-manage or under-capitalize the personal property assessment process guarantees the inefficient utilization of this municipal resource, and perpetuates a property tax system which is even more regressive than it has to be.
The full-time assessors employed by many of Maine's larger municipalities typically utilize a personal property assessment process that results in thorough and uniform assessments. This is not always the case, however, in the smaller communities where the time demands on part-time assessing boards or selectmen-assessors are so great that personal property inventories are passed on from year to year without being updated or are otherwise halfheartedly compiled. It is especially for those communities which can admit to deficiencies in their personal property assessment process that the following guidelines are being offered.
Personal property subject to taxation is initially defined by Maine law with the somewhat archaic and deceptively broad claim that: "Personal property for the purposes of taxation includes all tangible goods and chattels wheresoever they are and all vessels, at home or abroad." (36 M.R.S.A. § 601)
In light of the types of personal property exempt from taxation (36 M.R.S.A. § 655) and the establishment in 1984 of a watercraft excise tax which was specifically enacted to exclude watercraft from property tax rolls, the field from which assessors may find personal property to tax is substantially smaller than the initial definition might indicate. A short list of the types of personal property exempted from taxation includes:
o Industrial inventories of materials used in processing; retail or wholesale inventories intended for distribution (stock in trade);
o Agricultural produce and forest products, including logs, pulp, woodchips and lumber; livestock;
o Up to $10,000 worth of farm machinery (excluding self-propelled vehicles) used exclusively in the production of hay and field crops;
o Registered snowmobiles, watercraft, and airplanes, farm vehicles, vehicular machinery or other vehicles already covered by an excise tax paid prior to April 1; vehicles exempt from excise tax such as state or municipal vehicles, vehicles used for driver education or volunteer fire departments, etc.;
o Household furniture, wearing apparel, musical instruments and utensils or hand tools necessary for a person's business conducted, without employer, from the person's household;
o All individual homeowner items under $1000 in value except non-exempt items used for commercial or industrial purposes, or non-exempt vehicles or camp trailers.
In summary, taxable personal property fall into one of three broad categories:
1) The physical equipment, furniture, appliances and machinery, within or separate from any building and not permanently affixed to the ground, and which is necessary to effect commercial, industrial, service and, to a limited extent, agricultural production, rather than the materials used in or the products created by the production process;
2) Recreational vehicles (other than snowmobiles), vehicular machinery, or self-propelled farm vehicles not covered by excise tax paid prior to commitment or specifically exempt from excise tax under 36 M.R.S.A. § 1483; and all cargo trailers;
3) Personally owned tangible items not permanently affixed to the ground and which each have a value greater than $1000 except for household furniture, wearing apparel, utensils or hand tools necessary for a person's business.
In light of the all-encompassing definition of personal property as set against the numerous, specific exemptions, it is understandable why municipalities are not always consistent in regard to personal property assessment. Although few municipalities fail to assess the most conspicuous personal property, such as might be found in stores or offices, manufacturing facilities, or apartment complexes, or in and around large farms or construction companies, it is not unusual particularly in the smaller towns for the assessment effort to stop there. In some cases the assessors rely on those individuals taxed for personal property to rout out others, in the interest of fairness, who have successfully avoided the assessor's scrutiny.
It seems there are two major obstacles standing in the way of equitable, uniform personal property assessment. The first obstacle is the lack of a clear municipal policy regarding what constitutes personal property. The second obstacle is the lack of identification, verification and an assessment process which is as widely understood and recognized throughout the community as is the real estate assessment process.
The development of a working definition of personal property as well as the development of an established process by which personal property is assessed are interrelated projects which should be undertaken by every assessing unit.
At least two important goals should be kept in mind when attempting to organize the administration of personal property assessment: (1) the process should result in uniform and equitable assessments; and (2) within the flexibility implicitly provided in the statutory framework, the procedure should be guided by a certain cost consciousness. Personal property does not need to cost a municipality more than such an assessment is worth.
A Working Definition
It is not the case that assessors can arbitrarily decide which types of personal property they will assess and which they will avoid or forgive. Assessors are obligated by law to "ascertain as nearly as may be the nature, amount and value as of the first day of each April of the real estate and personal property subject to be taxed..." (36 M.R.S.A. § 708). And the personal property to be ascertained must be as designated by statute, within reason. Given this obligation, however, it is in practice left up to the assessors how aggressively they will search for personal property to assess.
One of the first steps assessors can take toward organizing the personal property assessment process is to brainstorm an exhaustive list of personal property potentially assessable in the community. In order to develop as complete a list as possible, the assessors might invite other municipal officials to participate, especially those familiar with local properties such as the tax collector, building inspector or CEO, or the fire or police chief.
A list developed by this technique may look something like that provided at the end of this article.
After a potential personal property list has been developed, it can be used in a number of important ways during the organization of the personal property assessment process.
Establishing A Process
First, when taxpayers are asked to present the assessors with a taxable property list it is too often taken for granted that they are somehow aware of the range and types of personal property legally subject to taxation. A list such as this can guide the assessors in the development of the declaration form to be used in request of the taxpayer's list so that such a list, if returned, will be more likely to contain quality information. Second, when brainstorming a potential personal property list such as the example provided, certain types of personal property can be identified which could be more thoroughly and efficiently discovered and assessed if communication channels between a variety of municipal officials and the assessors are opened and regularly utilized. Finally, by annually reviewing and updating the potential list, along with the actual personal property inventories on file, major assessing "blind spots," which have a way of being perpetuated year after year, can be discovered, and those inadvertently forgiven properties can be properly assessed.
The Taxpayer's List
36 M.R.S.A. § 706 authorizes assessors to give "reasonable notice in writing to all persons liable to taxation in that municipality ... to furnish to the assessor ... true and perfect lists of all their estates, not by law exempt from taxation, of which they were possessed on the first day of April of the same year...
"If any person after such notice does not furnish such list, he is thereby barred of his right to make application to the assessor...or any appeal therefore for any abatement of his taxes..."
Although the trade-off between responsibilities and rights which lies at the heart of this section of the law was undoubtedly intended to encourage cooperation between assessors and taxpayers, the taxpayer's list is an often underutilized assessment tool for a variety of reasons. Even though such notice may be by mail or "by any other method that provides reasonable notice to the taxpayer," in practice, the procedure often requires mailed notice to be effective, and the associated costs are often seen as money poorly spent. The taxpayer's lists, when they are "brought in," often contain such low quality information that the assessors have gained nothing and have to verify by inspection anyway. Finally, enough taxpayers who failed to supply a true and perfect list have nonetheless found an appeal route to give assessors some cause for skepticism.
Despite these acknowledged problems with the process, the taxpayer's list can be an extremely effective method for discovering personal property, but the effectiveness of the taxpayer's list depends on a number of factors.
Targeted mailings. The formal provision of notice to taxpayers to provide assessors with a list of their taxable property is in many respects more important for the purpose of personal property assessment than for real estate. Because of the broad statutory exemptions for personal property found in and around the house, it is not uncommon for municipal assessors to send notice requesting a taxpayer's list only to local businesses, rather than on a town-wide basis.
It is a poor policy, however, to try to mitigate the costs of sending notice or the administrative costs of assessing low-value properties by targeting certain taxpayer groups within the business community because of their size, type of business or taxpaying history. Targeted mailings have the practical effort of discriminatory assessments, with the likely result of an inordinate number of abatement requests, appeal hearings, successful appeals, and a general loss of respect for the process.
Notice format. Sufficient thought should be given to the format of the notice so good information is returned as a result. The notice should include a reference to the statute (36 M.R.S.A. § 706) and expressly indicate the potential limitations to appeal which are a consequence of failing to "bring in" such a list. Beyond that, the notice should be designed as a declaration form which requests detailed information without being complex, confusing, overly long, or requiring information which is probably not readily known or may be difficult to obtain. The declaration form should not assume that property owners are automatically aware of what constitutes personal property. A supplementary list of potential personal properties, by category, should be provided if such a list is not an integral part of the declaration form. Finally, the form should include column space so that year of manufacture, make and model number, year and cost of initial purchase, method used in depreciating value (i.e., straight line, declining balance, book value, etc.), and current estimated value can be supplied. Similar space should be provided to record the pertinent information for all leased equipment, including the lessor's name and address.
Usually, the owners of large commercial or industrial operations which have a great deal of personal property are experienced at providing their lists and will not depend on an elaborate form supplied by the municipality. For such properties, verification by inspection is typically required if the personal property inventory is not well established. For these reasons, the declaration forms need not be designed for the largest or most sophisticated property owners, at the risk of overwhelming the home occupation beauty parlor or the one-employee electrical contractor operating out of her basement or garage.
A Communications Network
A great deal of personal property falls under the general category of non-excised motor vehicles; typically off-road vehicles such as bulldozers, skidders, tractors, etc. Because of disparities between the excise and property tax system in regard to both the criteria used to determine motor vehicle value (e.g., manufacturer's list versus current market value) and the mil rate applied to the determined value, it is sometimes reported that vehicles are excised for a few years before they "disappear." Excise tracking is an example of one area where good communications between the tax collector and the assessor are critical in order to maintain equitable assessments town wide.
Similarly, building inspectors, planning board members' CEO's, fire and police personnel, the road commissioner, or any municipal official who regularly is on or about properties throughout the town could regularly provide valuable information to the assessors, particularly in the area of residential personal property, which is, after all, most likely to avoid assessment. Items in this area which are most frequently overlooked include camper trailers, impermanently affixed satellite dishes, above-ground pools, non-excised recreational vehicles (excluding snowmobiles), or lawn and yard equipment exceeding $1000 in value. The building inspector, CEO or planning board personnel could easily alert the assessors to new businesses or home occupations that should be assessed or added to the mailing list of businesses receiving declaration forms.
This type of cooperation cannot occur without some formal organization, a little education, and regular communication system maintenance.
Inventory maintenance. After the assessors and other property-knowledgeable municipal officials have established a comprehensive list of potentially assessable personal properties, that list should be reviewed and updated by the entire working group as an annual component of the communication networking effort. This function could be easily accomplished at a single meeting or as part of a meeting and could yield a number of important benefits. Changes in tax law affecting personal property, court cases, and updated interpretations offered by the Bureau of Taxation could be shared with all concerned officials. Newly elected or appointed officials unaware of the role they can play are in this way regularly brought into the process. The importance of establishing an assessing communication network can be underscored, and any necessary improvements or formalization of communication procedures can be suggested. Finally, such a review can give assessors the opportunity to review existing personal property inventories on file as well as the entire inventory of assessed operations so that significant oversights can be discovered. Too often, personal property inventories are seriously reviewed and updated only during revaluations.
Personal property assessment is much more efficiently accomplished with a regular, incremental and ongoing cooperative effort rather than a sweeping, periodic and labor-intensive revaluation. Thorough, uniform and efficient personal property tax assessment is not only an obligation of municipal assessors, it is one way assessors can ensure that the property tax burden is shared as much as possible by those most able to pay.
For those municipalities which are not aggressively or uniformly assessing personal properties, there are three steps that can be taken to guide the development of a rational and effective assessing process. First, a working group of municipal officials familiar with local property should be established and made aware of the greater efficiency with which personal and real property can be assessed if communication systems between that group and the assessors are established, utilized and maintained. Second, this working group should brainstorm a list of personal property potentially assessable in the community so that the assessors can make the general public more aware of the variety of personal properties subject to taxation and better utilize discovery techniques such as the taxpayer's list. Finally, personal property inventories should be vigorously maintained by means of year-round and annual "pick-up" by assessors, information provided on a year-round basis by the broader network of municipal officials, and annual review of the potential personal property list as a formal, educational forum for municipal officials.
Personal Property Inventory
Computers/hard and software
Lawn machinery or snow removal items over $1000 in value
Off-road vehicles/ATVs (except snowmobiles)
Satellite dishes not permanently affixed
Personal computers over $1000 in value
Above ground pools if not included as real estate
Art/Artifact collections over $1000 per piece value (if not household furnishings)
Furniture for customer/employee use
Appliances for customer/employee use
Computers, office-type property
"Rentable" stock (e.g., VCR's and tapes, rug shampooers, etc.)
Farm (exempting first $10,000 of equipment "used exclusively in the production of hay and field crops")
Electric fencing systems
All trailers *
Non-excised road equipment (i.e., skidders, log loaders, bulldozers, whole tree harvesters)
Chain saws (commercial operations only)
Apartments/Hotels/Motels/Bed & Breakfast/Residential Facilities
Spare parts inventory
Operating telecommunication systems
All trailers/low boys*
Non-excised road equipment (e.g., bulldozers, power shovels, etc.)
Asphalt manufacturing equipment
Power machinery (saws, trowels, jackhammers, etc.)
Compressors/auxiliary compressor equipment
Welders, sprayers, etc.
Garages, Automobile Repair
Compressors, auxiliary compressor equipment
Rentable equipment (e.g., non-excised, "U-Haul" type equipment for rent)
Welders, generators, chargers, etc.
Traps and nets
Equipment Rental/Lease* *
All non-excised road, construction or yard equipment
All trailers *
Dispensing machines/water coolers
Amusement machines, pinball, arcades, lottery machines, etc.
Beauty parlor equipment
Office equipment, generally
* Although the owners of road licensed trailers are often of the opinion that the excise tax covers their trailers and precludes the possibility of "double taxing" them as personal property, this is not the case. The excise tax only covers the self-propelled component of the vehicle, or the tractor, and not attachable trailers which should be assessed as personal property.
* * In many cases the local stores renting out stock to the retail public are renting that stock, in turn, from larger distributors located outside the community or state. The assessors should therefore be careful to determine the actual owner of the property so that the tax bill can be addressed correctly.
* * * Assessors should also remain aware of their authority to assess equipment brought into the state on a temporary basis, such as for a bridge, or highway or dam repair project, in accordance with 36 M.R.S.A. § 611.