De-Minimis Expensing and its Effect on Personal Property Tax Calculations

A question posed by many clients: Is there any effect on reporting personal property subject to the personal property tax if you use the de-minimis safe harbor under the new temporary repair regulations?

The short answer is no. 

The personal property tax statutes operate independently of the federal rules on expensing or capitalizing and depreciating property.

As a reminder, the IRS changed the rules recently to streamline tax reporting of small tangible property that arguably under the old rules should have been capitalized and depreciated. This includes small items of a few dollars all the way up to $500 or $1,000 or more. For convenience, most taxpayers expense these items while the IRS rules stated that any item with a useful life greater than one year should be capitalized and depreciated regardless of the cost. In order to resolve this issue, the IRS came out with a “de-minimis” expensing rule that allowed for small items to be expensed immediately even if they had a useful life of greater than one year.

Colorado’s (and many other states) personal property tax statutes basically state that all personal property (“everything that is the subject of ownership and that is not included within the term ‘real property’”) is subject to the personal property tax rules unless there is a specific exemption allowed in the Colorado Statute. After a thorough search of the Colorado statutes, there is no exemption related to property that is expensed for federal tax purposes. In fact, if you look at Colorado Form DS 056A-61-16 (Colorado Personal Property Declaration) under the instructions for Personal Property it states, that personal property includes “expensed assets with a life greater than one year.”

In Colorado, there is a minor exemption for “consumable” personal property in Code Section 39-3-119 (CRS). Consumable personal property is defined as any asset with a useful life of one year or less regardless of cost, and any asset with a life longer than one year that has a reasonable original installed cost or market value in use of $350 or less at the time of acquisition. The instructions go on to state, “The $350 limitation applies to personal property that is completely assembled and ready to perform the end user’s intended purpose(s) and it includes all acquisition costs, installation costs, sales/use taxes and freight expenses.”

So there can be some overlap in the de-minimis safe harbor for federal tax and the exemption for personal property tax reporting. Check with a qualified tax advisor for the application of your state’s personal property tax rules.