I know, I know, I’m supposed to be an expert in Sales and Use tax, however I had a really great mentor (John) who walked into my office at Quiksilver one day many years ago and told me he could save me money on my Business Personal Property Taxes (California Form 571-L) and it wouldn’t cost me anything but time. He wanted 50% of the refund that we would receive after adjusting our current 571-L to the proper way of reporting our fixed assets. So, once the state received our current 571-L they immediately contacted us for an audit as our taxable base decreased dramatically and many categories shifted. The audit covered the prior 3 years, after which I gladly wrote John a check for nearly $160,000, half of the refund that we received.
So what magic did he have? Knowledge. Yes, educate yourself and you really are a gift to others. Back in the 90’s all we had were paper forms to fill out and the state only provided minimal categories and limited documentation on how to fill out the 571-L. Naturally the categories included were the highest tax rate categories and John taught me that there are MANY other categories and other things that are just plain legally excludable from being entered on the 571-L. Much of this has transitioned online, however it is still difficult to property report your fixed assets and pay the appropriate amount of tax.
Let me know if you’re interested in more information or a review of your 571-L as I can increase your cash flow, save you money on your current filing and on an ongoing basis, as John did for me.
I probably should have started this discussion differently, with a little more explanation on what these taxes are. Most people probably don’t know this but every business that has assets or buys supplies gets to pay not only tax on the initial purchase, if they are going to use the assets in their business, but also pays 1% of the assets purchase price every year until they sell or destroy the assets. So, if you buy a desk that costs you $1,000 you will also pay a minimum of $72.50 for tax on that purchase and then every year you’ll also pay $10. So if you keep that desk for 10 years you will have paid an additional 10% of the purchase price of the desk, or the equivalent of 17.25% tax. The $10 is the Business Personal Property Tax associated with business asset purchases.
There happen to be exceptions to the tax, like software is excluded from the tax, but many businesses don’t know this, so they report it and pay tax on it annually through California’s Form 571-L. While at a former business, and prior to gaining the knowledge to report appropriately, I was reporting $140,000 in software annually, costing the Company an additional $1,400 per year in tax alone on this 1 asset. I am very thankful that someone helped me gain the knowledge to help the Company pay its proper tax due.
Please let me know if you have any questions regarding Business Personal Property Taxes in California and I’ll do my best to answer them.