Learn the process of allocating Buildings & Structures (B&S), and Machinery & Equipment (M&E) to manage your property tax assessment.

1. Construction Cost Reporting
Assessable Cost Allocation
P R O P E R T Y T A X C O N S U LT I N G
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Once the non-assessable costs have been removed from the total
construction costs, the next step in the process is to allocate this
Buildings & Structures (B&S), and Machinery & Equipment (M&E). These
categories are assessed and taxed very differently, with the M&E category
having an advantageous position over B&S, both in assessment and tax.
The general rule is that $100 of install cost in the B&S category translates
to $100 of assessment, however, $100 of install cost in the M&E category
translates to about $58 in assessment. This is due to various assessment
factors and depreciation differences. Considering this advantage, the aim
should be to classify as much of the install cost as possible into M&E.
This would include some improvements that are not immediately apparent as being part of M&E. Concrete foundations to
support heavy equipment, in many cases are erroneously placed into the B&S category, when the foundation is 100% there to
support the equipment, and should therefore be assessed as such.
The broad definition of ‘Linear’ property includes electric power systems, cable and telecommunication systems, pipelines, and
wells. These linear assets are normally assessed on manual rates, not actual construction costs. We often find, however that
some linear costs leak into the construction costs, causing them to be double taxed. Some examples of this to be aware of are:
Utility Contribution – Often in a remote site location, a monetary contribution to a utility provider will need to be made in
order to expand the power network to the site. Usually the contribution is treated as a credit to the company by the utility
provider, and amortized over the life of the project. Often this cost is included in the construction costs, the proper treatment
is to remove this from the cost report and assess it as linear property belonging to the power company.
Cogen power plant – if the plant is generating electricity, the important thing to be aware of is if the plant is tied to the
electrical grid the cost related to power generation is to be assessed as linear. If the plant is self-sufficient and not tied to the
grid, the power generation component is assessed as machinery and equipment.
Often the purchase cost for the land ends up in the construction costs, as the land purchase occurs before construction and is
not part of construction, it should not be part of the cost report. Land is assessed at market value or manual rates (farm).
Linear and Land Considerations
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