Recent court cases in Tennessee have challenged whether indirect costs such as: freight, installation, and pre-engineering expenses should be reported on the tangible personal property tax schedule. The most recent court ruling sends mixed signals but upholds the reporting requirement.
To Report or Not to Report?
Reporting indirect acquisition costs was the main issue in an appeal by Signal Mountain Cement Company versus Hamilton County. The company expanded its plant and incurred indirect costs to acquire and bring new machinery and equipment into production. It did not report freight and installation charges. In the course of an audit, the assessor became aware of the omission and initiated a back assessment.
Administrative Judge Mark Minsky ruled in favor of Signal Mountain, saying that indirect costs should not be considered. The ruling was upheld on appeal to the Tennessee State Board of Equalization Assessment Appeals Commission.
Despite upholding the ruling, the Assessment Appeals Commission also explained:
"From an appraisal standpoint, no blanket rule can be laid down regarding set-up costs. But for the purpose of statutory presumption, the taxpayer should annually report 'gross capitalized cost' subject to depreciation."
Therefore, when reporting costs on the tangible personal property schedule in Tennessee, all direct and indirect costs incurred before depreciation should be reported.
Taxpayers who previously removed the indirect costs should file amended returns. Typically, amended returns must be filed within 45-60 days before notices are issued.
POER has filed in complete compliance of the law for all our clients. All costs associated with acquisition of assets have been reported.