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How E-Commerce Impacts Retailers’ Personal Property Tax Liability


An assessor processes your annually filed personal property tax return and assigns a value based on the cost of and age of your store fixtures. Is that assessment correct?

Increasingly the answer is “no” in a fast-changing retail environment in which online sales are turning in-store shelves into museum pieces. Online sales have increased 75.8%, to $341.7 billion, over the past five years alone. Statista forecasts that to double by 2020.

One-third of all North American transactions (excluding auto, petroleum and food services) are done on Amazon, whose shelves are in warehouses around the country that no customers peruse. Amazon won’t buy your fixtures. They don’t need them.

Brick-and-mortar retail, once built to lure customers in with one-stop shopping in big stores offering a large variety of goods, is reacting in many different ways, all of which impact the secondary market for store fixtures, the items that make up a large part of your property tax assessments.

Some reduce payroll, close stores and consolidate operations, as Staples has done. Bookstores such as Barnes and Noble have closed some locations and changed their business model to combine book sales with those of toys and e-reader accessories that drive online sales.

Still others – Macy’s, Kohl’s, and Best Buy are examples – have worked hard to improve their customer experience. Their typical store size has shrunk significantly. Inside the stores they have reduced the number of fixtures to allow for wider aisles. They have also replaced existing fixtures with branded table height displays to provide a more showroom like feel.

Retailers are working harder than ever to create brand loyalty, knowing that it’s extremely likely that the consumers in their stores will not purchase an item without grabbing their phone and price shopping it first. Every retailer knows that a strong e-commerce platform is absolutely critical to their long term survival. All of this has resulted in a loss of economic value to retail store fixtures. Retailers simply are not as dependent on fixtures to generate income.

That brings us back to our original question: Are assessor’s valuing retail store fixtures correctly? The answer is no – not unless they are considering all forms of depreciation in their valuation. Remember, the assessed value is not supposed to reflect what you paid for it, but what it’s worth today. The difference between the two is depreciation. The depreciation tables that assessors use to arrive at value seek to account for physical wear and tear but ignore the loss in value resulting from influences external to the property itself, otherwise known as economic obsolescence.

Be Proactive: So what can you do about it? Be proactive. Your local assessor’s office has a near impossible job. They need to process the thousands of personal property returns they receive during a window of time that typically lasts no longer than a couple of months. In order to consider economic obsolescence, they need to review information unique to each individual industry in their jurisdiction. They do not have the luxury of time or relevant supplemental information without the help of the taxpayer.

Publicly available information, such as 10-K’s or statistics published by the U.S. Census Bureau, paint a picture of declining brick and mortar sales per square foot for the vast majority of retailers. Studies published by the National Retail Federation show how material the impact that e-commerce has had on the industry as a whole. Obtaining and summarizing this data can go a long way towards proving that economic obsolescence exists with your local assessor.

Still, having these discussions with assessors about changing retail trends is not always going to have an impact on your tax bill. Filing an assessment appeal and taking your case to an Assessment Appeal Board is sometimes a necessary step in the process. Increasingly, appeal boards are ruling in favor of retailers who properly show that the rise in e-commerce has changed their business model and has had an adverse effect on the value of their brick-and-mortar store fixtures.

A big-box retailer successfully appealed its business personal property assessments before a Southern California County’s Assessment Appeals Board and received more than $400,000 in refunds. A Texas County’s Appraisal Review Board recently ruled in favor of another retailer’s appeal resulting in tax saving of more than $250,000 or 48% of the initially assessed tax liability.

In an era of slimmer bottom lines, retailers in transition can appreciate this meaningful financial contribution. The key is to know the market, or hire representation that knows the market and has proven success in strategic tax planning, assessor negotiations and board hearings. Investing extra time in managing your personal property tax filings and assessment review can improve your company’s ability to compete in this ever-changing retail environment.

Pat Broome leads Altus Group client engagements in real and personal property tax. To learn more about Altus Group, click here.

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