Marina Floating Docks – Real or Personal Property? Part 3 of 3

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So is it worth going ahead and getting floating docks treated as personal property?  There are two financial advantages:  lower personal property tax rates and accelerated depreciation.

Personal Property Tax Rates Lower than Real Property

This is another one of those “it depends” discussions.  In Anne Arundel County Maryland, the real property tax rate is 0.888 per $100 of assessed value.  The personal property rate is a whopping 2.220 for 2009.  Most Maryland counties follow this pattern… but not all!  Queen Anne’s County has a real property rate of 0.770 but no personal property taxes at all.  Same goes for Talbot County.  Some jurisdictions assign tax rates by state, others by county, some by county and city.  You’ll have to do your homework to see if it’s worth it.

Depreciation Schedules

Withe the 1986 Tax Reform Act, the air was let out of the bag for real property accelerated depreciation.  Now it’s done according to a 39 year schedule.  As personal property, there are three depreciation schedules that can apply:  5, 7 and 15 years.  It may be possible for concrete docks to have a different depreciation schedule than wooden docks; I just don’t know.  This is a question for an accountant.  Regardless, the depreciation schedule for personal property is way better than 39 year real property.  I suppose the argument is easy – if you kept floating docks around for 39 years, they would have long since fallen apart and floated away.

Regardless, the depreciation schedule does not have a direct impact on the benefit of getting floating docks reclassified from real to personal property.  That’s because the depreciation applies to federal income taxes and not state, county and local property taxes.  Still, it supports the idea that floating docks are personal property because the IRS allows a quicker depreciation schedule and one that parallels other types of personal property that few would argue are such (for instance, jewelry and automobiles).

Solving the Problem

There is solution to this.  Marina owners know other owners that have floating dock marinas.  It’s common for marina owners to meet at one or more marine trade associations.  How about talking about it and splitting the cost of an attorney to file a suit so that a judge has to render a decision?  At the very least the attorney can do research to determine if there are enough prior cases to settle the issue one way or the other.  The attorney can also examine the assessment laws to see how definitively docks are treated as real estate, whether the wording is subject to interpretation or it if is simply not mentioned.  I see very little downside here.

So let’s say litigation is the way to solve the problem.  You’ve got more than just an attorney who can help you.  How about one or more Certified Public Accountants?  Certainly they are in a position of having to apply the six personal property tests so they’d make great expert witnesses.  The more professionals that you can bring to bear, the better your chances.

Solving the Problem Redux

So let’s say that the docks are treated as personal property.  Does that mean what they are assessed for is correct?  Let’s take the same logic that an assessor uses for real property and apply it to the docks as personal property.  Is it fair that your marina is assessed based on the cost approach only?  So why should a cost approach be used as the proper method for assessing the docks as personal property?

I know what you’re thinking… there’s no other way to do it.  Well, for the next marina appraiser in line there isn’t.  Fortunately, I’m not the next marina appraiser.  I’ve got it down to a science.  But like a good magician, I won’t give away all my secrets.  You’ll have to wait for my Marina Investment book.

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