First of all, we don't have this problem because the lease company we use (Clune Leasing) doesn't charge property tax. However, the potential pitfalls: 1.) Using a rate that was to include it and then having the lease company deny it later. That happened to us with Marlin Leasing. Make sure to get documentation ON EVERY DEAL done this way that all property tax is included. 2.) Property tax is a percentage of the funding amount. Anything added to the lease that raises the amount of the lease also raises the property tax bill. In essence, there is the risk of paying property tax on your property tax. 3.) The same is true of the FMV quote at the back-end. The equipment value really has nothing to do with it's actual value. It is a percentage of the original funding which now may be slightly elevated due to the inclusion of additional money set aside to pay the property tax. These are not absolutes but potential pitfalls.
PPT is a state specific issue. There are many states that do not charge PPT. Something to keep in mind if a customer has a 5 yr lease then 3 yrs into the lease the state starts to charge PPT then the customer is stuck and WILL have to pay the PPT. Or vice versa.
Let the leasing company bill it and that way the customer has an "audit-proof" deduction that can never be challenged by taxing authorities. Like business insurance and taxes on earned income, it is what it is, a cost of doing business that everyone HAS to pay. If another company says its included, force them to divulge the amount (often difficult)IN WRITING - yours will be on each bill.
Here’s a problem we run into in Maryland: The state does not charge personal property tax, but some (but not all) counties and even municipalities, do. Obviously, each county/municipality has its own tax rates. We use GreatAmerica Leasing and they offered us “Property Tax Included” rates for the state of MD, but the rates were actually very high considering some of our clients are located in areas where PPtax would not have been charged anyway (at least at the lease’s initiation…and of course there is no guarantee the local gov’t won’t change that fact before the end of the lease). Of course, using the “tax included” rates raised the lease payment on a $10K deal by about $15-$20/month, so, before quoting these rates on a competitive deal, you have to decide if it’s worth “opening that can of worms” (especially if you’re dealing with a tax exempt business whose first question is going to be “Why do I have to pay property taxes if I’m tax exempt?”...at which time you have to explain that it would have actually been better for that client to go with a $1 buyout lease so that property tax wasn’t an issue).
Those of you in states that don’t have to deal with these issues should consider yourselves lucky!
jswinberlin, since we’re both operating in different parts of Maryland, I’d love to hear where you end up with this issue…I’ve been struggling with it for years!
We use GE and Great America. The problem with GE is that sometimes they would go back to the customer and say they under estimated and have to collect the difference, thereby defeating the purpose of including it.
Great America's rates are higher, but there are no surprises.
We've decided to include personal property tax in all leases for tax exempt customers. It is at this time at the sales persons discretion to include it on taxable customers.
Sometimes the $1 buy-out is cheaper, however I we never want out customers to own their equipment, so this can get hairy.
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