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Property taxes on leased equipment

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Property Taxes on Leased Equipment are billed by the county in which the leased equipment is located.

Typically, this type of tax is referred to as ad valorem, Latin for “according to value”.   It may also be referred to as tangible property tax. Equipment Leases I have worked with in the past 30 plus years, all required the lessee to pay property taxes on leased equipment.

The Lessor Will be Billed annually for Property Taxes of Leased Equipment

The lessor then bills the lessee for the Property Taxes imposed by the county jurisdiction in which the leased equipment is located.  Here is a useful exchange of comments in a blog  by proformative.com that provides useful information regarding property taxes on leased equipment.

A Clause in the Equipment Lease spells out the responsibility for Property Taxes on the Leased Equipment

I once “rented” equipment to a customer on an in house, month by month rental through my copier company in Florida.   Somehow, the tax assessor found out the equipment was being rented by my customer.   I was initially sent a questionnaire requesting for me to state the value of the rented equipment.   I sent it back and was subsequently billed for ad valorem taxes on my company’s owned asset.   The following year, I received a similar invoice from the tax man.  This time, I pleaded that the value of the equipment had decreased to a specified amount.   They adjusted the value down and set me the reduced, corresponding invoice for the taxes.   Naturally, I paid them as the company owner and president.  I did not bill the client, as it wasn’t in our written agreement.   That was a rare situation in that I  ate the cost of the property tax.  I assure you, any leasing company you deal with will not!

I hadn’t prepared to charge for it or for the rental to be discovered. After all I wasn’t planning on filing a UCC-1 form as a leasing company will do, or record a lien.  Either of those things will trigger the tax man to put the owner (lessor or renter) in the cross hairs of the property tax assessor for the county in which the equipment resides.

Since It is the Lessee who has Possession and Use of the Equipment, the Property Taxes on the Lease Equipment are born by the Lessee.

Two Points to help you Save Money on Property Taxes on Leased Equipment

  1. Do not agree to pay a fee to the lessor, that is over and above the taxes imposed by the jurisdiction.  For instance, don’t pay a fee of $50.00 per year for passing on the cost
  2. The value of the equipment goes down (depreciates) in value each year.   Try to get your local property tax jurisdiction to lower the taxable value of the leased equipment.