of Principles State and Local
Taxation
4/5/12
LOUISIANA STATE
1
Agenda 3/27/2012
Principles of State and Local Taxation
Property Taxes
Unemployment Taxes
Next Class Agenda 4/3/2012
Guest Speaker - PWC
Principles of State and Local Taxation
Sales and Use Taxes
Exam 2 Due
Homework 2 Due
Property Taxes
Valuation methods
Income
Cost
Market
Tax Planning Issues
Value of property
Jurisdiction of property
4/5/12
Jurisdictional approach to valuation of property
Property being assessed
LOUISIANA STATE
4
Property Taxes
4/5/12
LOUISIANA STATE
5
Property Tax Example
The school board decides that they require $3.515 million based
on a prepared budget to fund its salaries, building maintenance,
technology costs, etc. The board estimates that they will receive
$2 million of this budget from local sales tax.
What is the required amount of property tax?
The taxing district for the school consists of 150 residential
homes, 25 businesses, and 3 utilities properties with a combined
appraised value of $94,125,000 and assessed values of
$15,000,000.
What is the tax rate?
4/5/12
LOUISIANA STATE
6
Property Tax Example Continued
If a residential property is appraised at $100,000 what is the
assessed value of the home and the property tax on that property
ignoring any homestead exemptions?
What is the property tax on a $100,000 home if Louisiana has a
$7,500 homestead exemption?
What is the property tax on a business property appraised at
$12,000,000?
What is the property tax on a Public Service property appraised at
$2,900,000?
4/5/12
LOUISIANA STATE
7
Property tax base
Real property
Land & related structures
Assessment
Done by local assessor
Revalued:
4/5/12
Periodic revaluations
Market value changes
Changes due to modifications of real property
Exempt Property
LOUISIANA STATE
8
Property tax base
Personal property
Taxed in most states
Valued annually
Cost, Income, and Market valuation methods
Taxpayers filed annual property tax reports which show
Property in each property class
4/5/12
Original cost of their assets by year of acquisition
Dont forget to retire property from tax system
Subject to taxation where located or primary operating base
LOUISIANA STATE
9
Property tax base
Personal property
4 major classes
Machinery and equipment
Inventories
Most states exempt Inventories from taxation
Leasehold Improvements
4/5/12
Alaska, Georgia, Indiana do tax Inventories
Real or personal property?
Intangibles
LOUISIANA STATE
10
Property tax base
Personal property
Taxed in most states
Inventories are excluded for most states
Valued annually
Taxpayers filed annual property tax reports which show
Property in each property class
4/5/12
Original cost of their assets by year of acquisition
LOUISIANA STATE
11
Property base
Property tax valuation methods
The Income Method
Valuation is based on the discounted net cash flows expected to
be derived from the property
Yield capitalization
Direct capitalization
4/5/12
Discount projected cash flows back to present
Value = Income/Rate
LOUISIANA STATE
12
Property tax base
Property valuation methods
Cost Method
Replacement cost, reproduction cost
Depreciation
Market valuation
4/5/12
Comparable sales
LOUISIANA STATE
13
Property tax base
Considerations for valuation of property
Contribution
Value is determined based on the contribution of a
particular component to the value as a whole
Highest and Best Use
Substitution
4/5/12
Used to protect against property devaluation
Market prices will be fair whenever substitutes are present
LOUISIANA STATE
14
Property Taxes
Intangibles
Stocks and Bonds
Copyrights, trademarks and patents, goodwill, exploration
rights, an assembled workforce, and the intangible portion of
business enterprise value
4/5/12
LOUISIANA STATE
15
Property Taxes
Appeals
4/5/12
Can be made, but usually require substantiation
LOUISIANA STATE
16
Unemployment Taxes
Federal level employment taxes
FICA
Social security 6.2% up to annual maximum ($110,100 in
2012 up from $106,800 in 2011)
Medicare 1.45%
Federal unemployment tax (FUTA) of 6.2% on the first $7,000
of compensation paid to an employee
4/5/12
LOUISIANA STATE
17
Unemployment Taxes
Federal level employment taxes
FICA
Social security 6.2% up to annual maximum ($110,100 in
2012 up from $106,800 in 2011)
Medicare 1.45%
Federal unemployment tax (FUTA) of 6.2% on the first $7,000
of compensation paid to an employee
4/5/12
LOUISIANA STATE
18
Unemployment Taxes
Unemployment insurance is a Federal and state program
established to provide unemployment benefits to qualifying
employees when employment is terminated
Federal government provides consistency
State governments prescribe
Qualifications
Limitations
4/5/12
Tax structure
Benefit requirements
LOUISIANA STATE
19
Unemployment Taxes
Federal unemployment tax (FUTA) of 6.2% on the first
$7,000 of compensation paid to an employee
State wage base can not be below $7,000
Ranges from $7,000 to $25,800
State rates
0% - 11%
Based on unemployment experience
New employer rates
4/5/12
LOUISIANA STATE
20
Effect of Unemployment Benefits
Unemployment benefits are charged to the employers account
The amount of unemployment benefits charged determine the
employers unemployment experience
4/5/12
LOUISIANA STATE
21
Planning Issues with
Unemployment Taxes
Avoiding employee classification
Independent Contractors
Direct vs. Indirect
Employee Leasing
Operating in a New State
Acquisition of Another Company
Business Restructuring
Divestitures
4/5/12
LOUISIANA STATE
22