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Focus on Manufacturing & Distribution: Final Tangible Property Regulations in Relation to Property Tax

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The Final Tangible Property Regulations address a broad range of capitalization and deduction issues related to tangible property that will impact almost all industries with tangible property, whether owned or leased, including manufacturing and distribution. Specifically, the new rules may provide state and local tax planning opportunities to the manufacturing and distribution industry.
February 27, 2015

The Final Tangible Property Regulations address a broad range of capitalization and deduction issues related to tangible property that will impact almost all industries with tangible property, whether owned or leased, including manufacturing and distribution. Specifically, the new rules may provide state and local tax planning opportunities to the manufacturing and distribution industry.

The regulations create new rules related to the acquisition, production, or improvement of tangible property. These rules are meant to help businesses better distinguish between currently deductible repair and maintenance expenses and expenditures that must be capitalized. Businesses must comply with the final regulations for tax years beginning on or after January 1, 2014.

Businesses should consider the impact the final regulations will have on state and local property taxes, specifically property tax reporting with changes to fixed asset capitalization policies and the expensing of certain costs. Many businesses report personal property by simply sending the assessor a detailed list of assets from their tax depreciation schedule. While that may be a good starting point, upon implementation of the tangible property regulations, assets may not be reported correctly.

As many of these rules apply to both current and prior year expenditures, the expected tax implications may be quite significant depending on the size and nature of the business. Many of these changes are one-time opportunities which must be seized in 2014 to avoid significant additional costs to do so in later years.

If these tangible property regulations raise concerns or uncertainties regarding property tax reporting, the State and Local Tax (SALT) professionals at RubinBrown can assist you in resolving those concerns. We are available to provide a detailed consultation regarding the application of these new regulations to your business and assist in preparation of jurisdiction filings.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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