My CPA's .02. He also owned a WISP. I think that if you can get the customer to pay for the cpe, that it's a great thing.
- improves your cash flow, eliminates need for debt or lease liability - locks the customer in even more, in my opinion - selling equipment insurance for an extra buck or two a month is a great idea - valuation of your business should be based more on cash flow vs. assets on the books. - eliminates the need to report and keep track of property taxes The lease example is kind of bogus in my opinion.... I think it assumes that the bottle neck to adding customers is how much cpe you can acquire, whether leasing or buying outright... the reality is that the bottleneck to adding customers is much more complicated than that. more like what your rates are and your coverage area. -RickG On Wed, Nov 11, 2009 at 1:52 PM, Tom DeReggi <wirelessn...@rapiddsl.net>wrote: > Again, Property tax is governed by local code, which can differ by areas, > so > checking with your local tax code and accountants is appropriate. > > > have been paying our property taxes by default because of our lessor > > passes > > it on to us. > > You only owe property tax on property that YOU own, until the time it is > depreciated, and its paid the the State/County that the property is located > in. > So if you lease equipment or property, you are not obligated by law (Tax > code) to pay property tax on the leased equipment. However, if you agreed > under contract to pay your leassor's > property tax, then that obligates you to pay the Leasor. (Note difference > between Fair Market Value Lease and Lease to Own Lease which may have > differences in law on whether the leased property is owned by the leasor or > leasee for Property Tax purposes. That question I'll leave to your > Accountant) > > > Do you pay property taxes on every screw, nut, & bolt? > > There are Expenses, Cost of Goods, and then there are Assets. You as the > business owner claim what purchases are COGS, expenses and assets, in line > with Generally Accepted Accounting Practices. So, in your books, are you > recording a Nut/bolt as an asset, expense, or COGS? Depends on your > purpose. > You might want to show that your company has a lot of assets and might > want > to show every item cost that contributed to building your network, that > physically exist to accomplish that. Technically you could argue that bolt > belongs to you. But you could also argue that Bolt was an expense because > it was an insignificant cost that cant be liquidated or reused if removed. > Its really up to you. You aren't likely going to be scrutinized for that > decission by tax auditors, but you are going to be held accountable for the > decissions you made. > > What does matter is that if you claim in your books/incometax that > something > you bought is a tangible fixed asset, no matter how small, it is property, > and it is subject to taxation.(unless code made provisions for excemption) > > In my case, lets examine why I overpaid my Property Tax. I did not provide > my accountant with detail regarding which state I installed CPE, nor did I > provide them with information on whether I owned my CPEs over time or > whther > the customer would, according to the terms of my contracts. Therefore the > accountant had no way to know, and used standard assumptions, and > calculated > owed PPT based on the total amount of property/assets recorded as owned. > How do they calculate amount of property owned? Its easy... You "itemized" > tangible fixed assets on Section 179 Form, that you wanted to expense (up > to > a specific dollar amount, where allowed to deduct full cost amount in year > asset was purchased.). And you "itemized" assets in the depreciation tables > for all remaining assets that you wanted to depreciate over time instead of > expense in the current year. > > So every asset item that you list in the Section 179 or Depreciation table > is property subject to property tax. Usually, small items are bulked > togeather as a single item/cost organized by which ledger account the item > was recorded in. So my accuntant, simply added up the cost of these > itemized assets and depreciated value of assets, and that was used as the > property that was taxable. So auditors would look to see that what you > claim on your personal property tax filing matches thse expenses reported > on > your income tax or company books. If not, it could be a flag. > For example, if you are a Maryland company, but 2/3 of your equipment was > installed in VA, and you appropriately reported only 1/3 of your section > 179 > assets on Maryland Personal Property Tax, your filing would be accrurate, > but might look odd to auditors having them wonder where the other 2/3rd of > assets weren't getting tax paid on them. When the County Estimated the Tax > owed, they estimated it on the Full section 179 costs installed anywhere, > because it never crossed there mind it wouldn't be property in Maryland. > > Its also important to classify assets correctly. For example, I originally > classified my products as computer related products which are allowed to be > depreceiated over 3 years. Section 179 items, also get property taxed based > on their equivellent of would have been depreciable life. My county ruled > that my CPE equipment was telecommunication and radio like equipment which > had to be depreciated over 4 years instead. > > So to accurately report, you'd have to calcualte tax on Nut and Bolts > different than Radio CPE. I can pose another question, what if one took > our > a RUS loan, and was allowed to state the useful life of 11 years (which has > been allowed), would that changed the length of period in which that item > would be subject to property tax? Again, a question for the accountant. > > So this all boils down to, what you have to pay is based on YOUR RECORDS. > You must provide accurate records with adequate justification for your > rational on file. The Acccounting code does give some flexibilty to the > business owner on how they account for their business. Its not always black > and white. > > So to answer your question..... Do you pay tax on every screw and Bolt? > Well, that depends on how you postiion your claim. If it were me, I would > not not record it as property. I'd argue that all hardware (mounts, > counduit, cable, bolts) become property of the building or home owner in > which it is installed into. I can back this up with some of my contracts, > that state the Conduit and Masts becomes property of the building owner, > and > should not be removed to preserve structural integrity of the building > walls. Thus an argued expense, not an asset of mine anymore. Which will > allow me to deduct full cost of the item year it was purchased. > > You could also argue, what about gifts to customers? For example, maybe you > did not sell CPE to the end user, and just give a all incompassed install > fee, but maybe your contract says that after one year of service, that CPE > becomes the property of the home owner? Meaning, they had to fullfil a 1 > year term before they paid enough to gain ownership of such. In that case > it > could be argued that the ISP pays Property tax on 1/4 the property value > (depreciation class of 4 years) for that item for one year, but thereafter > not pay tax, because ownership transfers to the customer. > > For me what it boils down to is, what do I have the ability to easily > track, > and what is the return on investment to attempt to reduce over-taxations > and > have more accuracy? If someone would only save $500 in PPT by recording > exact details related in accurate taxation, it might not be worth doing it, > if it had a $3000 cost to perform that tracking. Sometimes you say, its an > insignificant amount, and not worth worrying about, and not likely any > auditor or county official would ever worry about it either. > > it can be hard to track what is owed in Property Tax in accounting systems, > because tracking for Income and financial statements might be different > than > needs of Property Tax, so I track my property for Property tax seperately > in > a spreadsheet. I wonder how larger companies deal with this, but I assume > as companies grow larger, they probably have to work with a set of > assumption to better automate their tracking. > > Tom DeReggi > RapidDSL & Wireless, Inc > IntAirNet- Fixed Wireless Broadband > > > ----- Original Message ----- > From: "RickG" <rgunder...@gmail.com> > To: "WISPA General List" <wireless@wispa.org> > Sent: Tuesday, November 10, 2009 11:12 PM > Subject: Re: [WISPA] CPE - who buys it? > > > > Tom, > > > > Your reply is the the info I was looking for. Thanks for your reply. I do > > believe you are correct but I'll double-check with my county and CPA. > I've > > moved so many times around the country that I cant keep up! Just a note, > > we > > have been paying our property taxes by default because of our lessor > > passes > > it on to us. The reason I'm inquiring is in preparation for when our > lease > > is paid off (early next year). With that said, I have an additional > > question: Do you pay property taxes on every screw, nut, & bolt? > > -RickG > > > > On Tue, Nov 10, 2009 at 1:36 PM, Tom DeReggi > > <wirelessn...@rapiddsl.net>wrote: > > > >> Rick, > >> > >> No your assumption is not true. > >> > >> Property Tax is applied on "property". When you buy radio CPE it shows > >> up > >> on your financials as "property", and if you TAX DEDUCT the cost of the > >> CPE, > >> which I sure hope you do for your benefit, you have claimed those > >> purchases > >> as property. A Auditor isn;t going to go look for a single small > >> purchase. > >> But I assure you CPEs, a line item which adds up to be a huge > inaggregate > >> cost, they will immediately see that property and recognize whether that > >> property was declared, and property tax properly paid on it or not. As a > >> matter of fact some counties will check you federal returns, to find > your > >> claimed deductions and depreciations, and automatically assess your > >> property > >> tax based on your Federal Tax Returns. > >> > >> SO.... IF your county charges "Property Tax" then your CPEs are "TAXABLE > >> PROPERTY" UNLESS your county specifically has passsed a law to > >> "excemption" > >> radio equipment. Loudon County Virgina is one specific County that made > >> Wireless CPE exempt from property tax to foster local investment in > >> Broadband. I wish more counties were as insightful, because it was a > very > >> effective program. Property Tax is NOT just for large real estate. Its > >> paid > >> on EVERY TANGIBLE ASSET you own. That include an office chair, a > >> computer, > >> a > >> telephone, a router, a CPE, what ever it is that you own. > >> > >> Mike, Just because nobody has been commming around asking for Property > >> Tax > >> on CPE does not make it not owed. Property Tax is self claimed, so the > >> government doesn't know you have that property until they decide to > audit > >> you, or you tell them. But why do you pay any tax of any kind at all? > >> After > >> all, if you aren't audited you wont have to pay it? Because you know > when > >> you are audited, you'll be in big trouble if you didn't. The same > applied > >> to > >> Property Tax. The burden is on the Property Owner to know the law and > >> properly report Tax, or it is illegal TAX Evading, if the owner does not > >> report it. > >> > >> Yes, I've fully qualified the above with attorneys and accountants. I > >> learned this the hard way. > >> I originally over paid my property taxes, because I didn't know the > laws. > >> When I learned I over paid, I stopped reporting and paying Property tax. > >> I got audited by the county, and they decided to estimate my Property > Tax > >> based on data reported on my income tax returns, which was about 10 > times > >> more than I actually owed. > >> The way it work is, you pay everything the government claims, and then > if > >> you protest the amounts and win, they'll send you a refund. > >> I made the mistake of fighting the process, and when I didn't pay the > >> wrong > >> amounts, they simply immediately cancelled my corporate status, reported > >> it > >> to credit agencies, and made it impossible for me to get a LOAN for over > >> 1.5 > >> years. I couldn't even renew my ARIN IP, until I got it cleared up. > >> > >> The reason you report Property Tax on CPE is so you can report the > >> correct > >> amounts. The government does not have access to the fact to assess a > >> correct > >> amount and will always grossly over estimate. You should also include a > >> letter explaining anything that might look odd. > >> > >> This is the thing.... Property Tax is paid to the State that the > property > >> is > >> located and installed in. So if you are a Pennsylvania business, and > >> buy > >> equipment from California, and install the CPE into Maryland, you pay > >> Property Tax on that CPE to Maryland. The problem here is that most > WISPs > >> dont track where they will install a CPE at the time they buy bulk CPE, > >> so > >> there is usually not a good record of where to pay tax to. SO... IF you > >> buy > >> 100 CPEs and Pay Tax on 100 CPEs to your State, and then isntall 30 of > >> those > >> CPEs in another State, you owe that second State Property Tax for 30 > >> CPEs. > >> This means that you are at risk of paying Tax TWICE, if you do not > >> properly > >> track where property resides and break tax payments down appropriately > to > >> match. > >> > >> This is one of the reasons I am against tracking an ISP's end user > >> locations. The States/Counties will then have a clear record to track > how > >> many CPEs an ISP has in their County. > >> > >> To find out if you owe property tax, you need to look at county code. > >> Dont > >> look for something to say that you have to pay tax on CPE, because it > >> wont > >> be there. By default you are obligated to pay tax on EVERYTHING, unless > >> an > >> excemption was given. So you are looking for an Excemption in the County > >> Tax > >> Code specifically for broadband investment. > >> If you cant find one, Contact your County and point them to the fine > >> example > >> that Loudon County Virginia has made to help make their County one of > the > >> most advanced Broadband Counties in the Country, and ask them to follow > >> in > >> their foot steps. > >> > >> It was funny, when I contacted my County about Property Tax and that I'd > >> likely be applying for a BTOP grant bringing in a large amount of new > >> property, the first thing they saw was Dollar signs, and it was inferred > >> they had no intentions of waiving the Property Tax. I found it extremely > >> hippocritical, that they'd not waive property tax to help private > >> companies > >> invest in Broadband, but they were first in line to ask for $130 million > >> in > >> Federal grants to help pay for Broadband. > >> > >> In Summary, PPT was a big problem for me when I OVER PAID my PPtaxes, > and > >> the County actually owed me money. Just think how hard Tax Collectors > >> will > >> come after you if they learn you have not paid anything at all, and > >> possibly > >> guilty of Tax evading? > >> > >> If you haven;t paid to date, I wouldn;t recommend going back in time and > >> bringing it up. But I'd highly recommend that you start reporting your > >> current year property purchases, and establishing a method to track what > >> would be owed on an on going basis. > >> > >> Tom DeReggi > >> RapidDSL & Wireless, Inc > >> IntAirNet- Fixed Wireless Broadband > >> > >> > >> ----- Original Message ----- > >> From: "RickG" <rgunder...@gmail.com> > >> To: "WISPA General List" <wireless@wispa.org> > >> Sent: Monday, November 09, 2009 10:58 PM > >> Subject: Re: [WISPA] CPE - who buys it? > >> > >> > >> > Also note that many leases pass the property taxes on to leasee, so > you > >> > may > >> > not escape it that way either. But, that takes me to another question > >> > (more > >> > likely for my CPA). Doesnt property taxes only apply to higher dollar > >> > items > >> > that are usually on a depreciation scheule? In other words, if you are > >> > expensing CPE straight off the books, then property tax does not > apply? > >> > -RickG > >> > > >> > On Mon, Nov 9, 2009 at 4:32 PM, Tom DeReggi > >> > <wirelessn...@rapiddsl.net>wrote: > >> > > >> >> It should be noted that if you buy CPE and keep ownership of CPE, you > >> are > >> >> likely open to pay Property Tax on it. In MD that equates to about 3% > >> >> x > >> 4 > >> >> years. > >> >> As well if you own it, it is not covered by the customer's home owner > >> >> insurance if stolen or damaged by weather or other acts of god. (Not > >> that > >> >> Customers often are willing to claim it.) > >> >> > >> >> Having the customer own it, reduces a WISP's assets. > >> >> > >> >> Some lease types solve that problem, simply turning CPE into an > >> >> expense. > >> >> After the three years, if you bought it from the Leasor, you could > >> >> list > >> >> it > >> >> on your books at depreciated value (near nothing) tax free, and could > >> >> also > >> >> list it on your balance sheeet, showing the retail value and > >> depreceiated > >> >> value, as an Asset that still has a perceived value, even if > >> depreciated. > >> >> > >> >> Tom DeReggi > >> >> RapidDSL & Wireless, Inc > >> >> IntAirNet- Fixed Wireless Broadband > >> >> > >> >> > >> >> > >> >> > >> >> > >> > -------------------------------------------------------------------------------- > >> >> WISPA Wants You! 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