Intangibles: Review and State Analysis

Transcription

1 Intangibles: Review and State Analysis Heath Sutton Managing Consultant Modern Tax Group Sam Kinslow, CMI Executive Director Ernst & Young 1

2 Learning Objectives Identify most common types of intangible assets Comprehend how jurisdictions tax or exempt intangible assets Accurately report intangible assets leading to the potential for tax savings 2

3 Intangible Assets: Several Definitions FASB s definition under ASC 350 and 805 Defines an intangible asset as one which lacks physical substance. Examples include goodwill, leases, research & development, copyrights, client listings, etc Found in the context of business combinations AKA purchase price allocation reports AICPA definition under Valuation Section 100 Defines intangibles as nonphysical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts that grant rights and privileges Found in the context of book accounting and tax 3

4 Intangible Assets: Several Definitions Most states property tax codes generally include a listing which may address the following: Cash on hand Accounts Receivable Bonds Stocks Annuities Goodwill Workforce Patents Copyrights Software Licenses Permits Franchise Trademarks Leases Mortgages Promissory Notes 4

5 Intangible Assets: Examples Marketing - related intangible assets Trademarks Newspaper mastheads Internet domain names Noncompetition agreements Customer- related intangible assets Customer lists Order backlog Customer relationships Artistic - related intangible assets Performance events Literary works Musical works Pictures Motion pictures and television programs -Listing from accountingtools.com 5

6 Intangible Assets: Examples Contract - based intangible assets Licensing agreements Service contracts Lease agreements Franchise agreements Broadcast rights Employment contracts Use rights/easements/row Technology - based intangible assets Patented technology Computer software Trade secrets Recipes - Listing from accountingtools.com 6

7 Let s Discuss Some Gray Areas Process software versus canned software Should capitalized leases or interest be reported? Transfer pricing of assets and inter-company markups of inventory How can we deduct embedded intangible costs from an asset? 7

8 Let s Discuss Some Gray Areas Are the following taxable? Engineering costs Designs and Surveys Expedited completion costs Software programming Process improvement studies Should freight, sales tax, and installation be reported? 8

9 State Guidance Versus Assessor Autonomy Let s discuss what you have seen in practice by local Assessors versus what state governments say These states indicate intangibles are exempt, but you have heard Assessors say AK HI MI NH OK WA AZ ID MN NJ RI WV CO IL MO NM SC WI CT IN MT NY TX WY DE MA NE ND UT DC MD NV OH VT 9

10 States Which Couldn t Make Up Their Minds on Taxability of Intangibles Alabama Exempt except for utilities, bonds, and hoarded money Arkansas Exempt except for centrally-assessed property California Exempt, but assumes the presence of intangibles to put the taxable property to beneficial use 10

11 States Which Couldn t Make Up Their Minds on Taxability of Intangibles Florida Exempt except a one-time tax on intangibles secured by real property. Recurring tax on lease of government-owned real estate Iowa Exempt except for a tax on credit unions Kansas Exempt except for gross earnings of an intangible 11

12 States Which Couldn t Make Up Their Minds on Taxability of Intangibles Kentucky Exempt except for public utilities Louisiana Exempt except for public service properties, insurance companies, and loan companies Maine Exempt except for financial institutions to meet administrative costs of state supervision 12

13 States Which Couldn t Make Up Their Minds on Taxability of Intangibles Mississippi Exempt except some local jurisdictional exceptions as listed on rendition forms New York Exempt except for public utilities North Carolina Exempt except for leasehold interests present on exempt real property 13

14 States Which Couldn t Make Up Their Minds on Taxability of Intangibles Ohio Exempt except for dealers of intangible assets Oregon Exempt except for centrally-assessed properties Pennsylvania Exempt except some local jurisdictional exceptions as listed on rendition forms 14

15 States Which Couldn t Make Up Their Minds on Taxability of Intangibles South Dakota Exempt except for centrally-assessed properties Tennessee Exempt except for some classes of intangibles for insurance companies, loan companies, cemeteries Virginia Exempt and as a bonus some tangible personal property is considered intangible 15

16 Suggested Resources and Further Reading Reilly, Robert. Property Tax Valuation of Taxpayer Intangible Assets. Willamette Insights. Spring 2014 Edition U.S. Master Property Tax Guide. Chicago. CCH Wolters Kluwer American Institute of CPAs aicpa.org Financial Accounting Standards Board fasb.com accountingtools.com businessdictionary.com 16

17 Questions and Discussion 17