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aruba
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Personal Property Tax
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May 21 15:18 UTC 2001 |
Scott went to the Pumpkin to turn Grex off yesterday. No one had been
there for a long time, and there was some mail waiting for us.
One piece is a form from the City of Ann Arbor Assessor's office, our
"2001 Personal Property Statement". We knew this might happen to us
eventually, as it happened to M-Net. I haven't gone through the form in
detail, but essentially we need to estimate how much all our equipment was
worth new (and the year it was bought). They'll depreciate from there and
tax us on it.
I spoke with Mike Courtney at the City Assessor's office and apologized
for the form being late (it was due in February); he told me there is no
penalty for lateness, and offered to help me with the form. He'll also
send me a form to apply for exemption on the basis of being a non-profit,
but as I recall from the last time I investigated this, the City's
standards for exemption are such that we probably don't qualify. It might
be worth applying, though. (M-Net's experience, though, was very bad -
they applied and then appealed, and were turned down in a rather nasty
fashion.)
I'll look over the form and try to narrow it down to the fields we need to
fill out. Then I should meet with a staff member or two at the Pumpkin
so we can go through the stuff.
I think this might be a great opportunity for the staff to think about
getting rid of some of the extra stuff in the Pumpkin.
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| 144 responses total. |
keesan
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response 1 of 144:
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May 21 20:09 UTC 2001 |
How much tax does M-Net pay on its relatively new equipment?
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aruba
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response 2 of 144:
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May 21 20:11 UTC 2001 |
Since M-Net's equipment is no longer in Ann Arbor, I imagine they pay a
different rate than we will. But maybe dpc could tell us how much they used
to pay?
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aruba
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response 3 of 144:
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May 22 05:12 UTC 2001 |
OK, I've read through the instructions. Here are some quotes:
Page 1, Question 6 says:
Have any of your assets been subjected to "rebooking" of costs or been
purchased used?
The instructions for that line say:
The valuation multipliers contained in sections A through F on Page 2 are
intended to be applied to the acquisition cost of new personal property,
not the acquisition cost of used personal property. If the acquisition
cost new of an asset is known to you or can be ascertained through
investigation, you must report that cost in the year it was new when you
complete sections A through F, even if you have adjusted the costs in your
accounting records to reflect revaluation of the asset using a "purchase,"
"push-down," or similar accounting methodology or even if your booked cost
reflects a "used" purchase, lease "buy-out" price or a "trade-in" credit.
If you were unable to report the acquisition cost new for one or more of
your assets, you should check "Yes" and attach a list of all such assets.
On the list, provide a detailed description of each asset, the year or
approximate year that the asset was new, and the amount and acquisition
year at which you have reported the asset. You must also provide a
written explanation of the reason(s) that the original acquisition cost
information is not available.
(My blood ran cold when I read this, because I thought of all those 8086
machines in the Pumpkin. New, they probably cost $2000 apiece. The
lowest the depreciation for computer equipment goes on this form is 8%, so
we may be taxed on them as if they were worth $160 each.)
You must report on these Sections the full acquisition cost new in the
year of its acquisition new (sic), of all machinery and equipment,
computer equipment, furniture and fixtures, signs, coin operated
equipment, office equipment, electronic, video, and testing equipment,
rental video tapes and games, and other tangible property owned by you and
located in this assessment jurisdiction, even if you have fully
depreciated the asset or have expensed the asset under section 179 of the
Internal Revenue Code or under your accounting policies. All costs
reported must include freight, sales tax and installation.
...
If you purhased an asset used, and do not know and cannot ascertain the
acquisition cost new, attach the list required by the instruction to Page
1, Line 6.
...
You must report the original acquisition cost, *not* your estimation of
the value of the property.
...
The cost of all assets must be reported as acquired in the year that they
were placed in service, rather than the year of purchase, if those years
differ.
...
If the asset is of a type that it (sic) is never sold to an end-user or if
you have constructed the asset for your own use, report the price at which
the asset would sell if a market sale did occur.
...
Inventory is exempt from assessment.
(Note: maybe we can claim that those 8086s were inventory, since the
intention was either to sell them or to use them for the computer rehab
project. That would get us off the hook.)
...
Computer software, if the purchase was evidenced by a separate invoice
amount and if the software is commonly sold separately, is exempt.
Those are the highlights of the general instructions. The particular
sections break down assets into categories, each of which has its own
depreciation schedule. Three of these categories apply to us:
Section A:
furniture
shelving
filing systems
(And lots of other stuff that we don't have)
Section D:
copiers
binding equipment (our donated stapler comes back to haunt us!)
telephone and switchboard systems
electronic testing equipment (not sure if Grex owns any of that)
and the big one, Section F:
personal and midrange and mainframe computer and peripheral equipment
including servers,
data storage devices
CPUs
printers
monitors
networking equipment
The depreciation schedule for Section F looks like this:
2000 .60
1999 .44
1998 .32
1997 .24
1996 .19
1995 .15
Prior .08
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krj
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response 4 of 144:
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May 22 16:08 UTC 2001 |
Once the assessment is completed, what is the tax rate which will be
applied to that value?
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keesan
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response 5 of 144:
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May 23 01:56 UTC 2001 |
The donated stapler (and the copier that Kiwanis was unable to sell for $25)
may be considered personal gifts to Mark, along with the filing cabinet. They
are not located on property currently rented by grex. He is free to lend them
to anyone he wants to. (The filing cabinet at the time we acquired it also
had no value since it needed fixing before it could be opened). If Mark does
not want to own them, I am willing to own and lend them.
Is it not worth first applying for non-profit status?
Why is grex holding on to 8086 computers when we have about 40 486s that are
essentially worthless, that could be sold cheaply for use by potential
grexers? (Grex does not own them, but I would donate the purchase price.)
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jp2
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response 6 of 144:
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May 23 02:14 UTC 2001 |
This response has been erased.
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aruba
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response 7 of 144:
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May 23 03:07 UTC 2001 |
Grex is 501(c)3, yes. But Michigan has stricter standards than does the IRS
for exempting corporations from personal property tax. When I get the forms
for applying for the exemption, I'll post more info. Maybe some of the
M-Netters who were involved in M-Net's application for exemption could post
something too.
I called Mike Courtney in the asessor's office today with some more
questions. Here are the questions and answers:
I told Mike we have basically 4 kinds of stuff:
1. Old computer equipment that we don't use anymore, most of which is
completely worthless.
2. Equipment currently in service.
3. Spare parts.
4. Donated junk, which we meant to sell at the JCC sale but never did.
He told me there is a form to fill out for stuff of type 1, and he will send
it to me. We still have to pay tax on it, but it will be discounted by
about 40%. He wasn't sure about spare parts. He'll get back to me on that.
He was fine with calling the donated junk inventory, which means we don't
have to include that in our assessment.
Question: How much work do we need to do to determine the "new" price of
stuff we got used?
Answer: If we don't know, the assessor's office doesn't expect us to do a
lot of research to find out. Just make our best estimate, or say "unknown"
if we can't even guess.
Question: What is the tax rate?
Answer: We take the depreciated value of our assets, divide by 2, and
multiply by 5.8%. That's how much we owe each year.
Finally, I told Mike we were worried that our old equipment would be
assessed much higher than what it would actually sell for, given that the
depreciation table only goes down to 8%. He said that we should fill out
the form and submit it, and they'll tell us our assessment. If it's way out
of line with what we think our equipment is worth, there's some room to talk
them down. He sounded like they would try to be reasonble with us.
Over all, he was very helpful.
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i
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response 8 of 144:
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May 23 12:10 UTC 2001 |
I do this stuff for my employer, and have never had a problem turning in
a slapped-together-in-MSWord schedule of property purchased from UM Prop.
Disp. & similar, giving good descriptions of stuff, date we bought it, &
price paid, and noting why we can't tell when it was new or original cost.
I'd be tempted to ask if we could give once-expensive old stuff that we
didn't think was worth the tax to the City *instead* of paying the taxes
on it.
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keesan
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response 9 of 144:
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May 23 14:00 UTC 2001 |
Can the 8086s be offered for sale along with grex t-shirts and considered
'inventory'? (Or recycled to save space?). A couple of grexers are still
(I think) volunteering at Kiwanis and might be persuaded to come up with a
letter stating the probable value of grex equipment at Kiwanis, or one of the
three local computer stores that used to donate unsellable things to Kiwanis
might be willing to make an estimate. Kiwanis could not sell an 8086 for the
$5 that the city would tax grex on it per year. They were not selling at all
three years ago.
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aruba
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response 10 of 144:
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May 23 15:55 UTC 2001 |
Yes, we should be able to call the 8086s inventory, since they were intended
for the JCC sale and not for our own use.
We may take you up on that letter offer, Sindi.
Re #8: THanks Walter, that's very helpful information. Do you do that for
computer equipment as well as other stuff?
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i
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response 11 of 144:
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May 24 03:21 UTC 2001 |
Yes. We give our guess as to age of our cheap-used-good-enough-for-service-
work laptop, perhaps even its serial #. (No point even trying to guess the
age of stuff like old desks, tables, etc.) I dimly recall talking to them
(early '97?) and being told "attach a sheet telling us what you know" for
stuff that we couldn't get real ages & original prices for.
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mdw
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response 12 of 144:
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May 24 07:38 UTC 2001 |
I think those "8086's" are actually "8088"'s, and one of them is
currently the grex console, so shouldn't be sold.
I think we should be forgetting about "original new price", and should
only be concerned about "current market price", or perhaps in a few
cases, "what we paid for it". In every business accounting situation
I've ever heard of, depreciation applies against what you paid for it,
not against what it may have sold for originally (unless you bought it
new).
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keesan
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response 13 of 144:
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May 24 12:45 UTC 2001 |
The city possibly cannot imagine a business using a computer more than five
years old, hence the lack of depreciated prices for anything older than that.
When I bought my first and only new computer I think it was four-year
depreciation. At Kiwanis we were selling computers, used, at about 1% of new
price. For instance Tim donated a lot of IBM PS/2 Model 80s that were $5000
new even without hard drive and monitor, and we sold them at prices that
eventually got down to $40 (with two large hard drives and monitor) at which
point the 486s were coming in fast enough to stop selling 386s. How old is
grex's current Sun computer? Our 1% computers were under ten years old.
Seem's like the least time-consuming approach would be getting non-profit
status, unless people enjoy doing all these estimates.
The current value of an 8088 might be ten cents/pound for the green boards
(which have a bit of gold on them) at Friedman's nonferrous metals recycling.
The steel case is worth about $24/ton. Subtract from this the labor involved
in taking them apart and delivering them to two recycling places.
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aruba
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response 14 of 144:
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May 24 14:38 UTC 2001 |
Re #12: The forms we have are quite clear that they want new purchase
prices, but that we can give used prices if we don't know "and cannot
ascertain" the new prices. But Mike seemed to want things to come out in
line with current market prices, so if we give him good reason to think the
depreciation formulas are off, I think he'll adjust the result.
Re #13: Thanks for that info, Sindi. When I get the exemption forms I will
post them here, but I wouldn't get our hopes up too much about becoming
exempt. Dave Cahill and Larry Kestenbaum described M-Net's experience of
applying for exemption to me, and it was very discouraging. If they grant
permission I'll post their descriptions here.
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keesan
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response 15 of 144:
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May 24 15:02 UTC 2001 |
Where does one find current market prices on very old computers?
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jp2
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response 16 of 144:
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May 24 19:26 UTC 2001 |
This response has been erased.
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gull
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response 17 of 144:
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May 24 21:12 UTC 2001 |
I say if the taxes on the 8088's end up being at all significant, you should
tip them into a dumpster at midnight and pretend we never owned them.
Hardware like that isn't worth paying taxes on.
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aruba
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response 18 of 144:
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May 24 21:23 UTC 2001 |
Like I said up there somewhere, the 8088s are clearly inventory, since they
were intended to be sold at the JCC sale to benefit Grex. Therefore they're
exempt from taxes. (Which isn't to say we shouldn't get rid of them.)
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aruba
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response 19 of 144:
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May 25 01:34 UTC 2001 |
Here is the short history of M-Net's application for exemption, according to
dpc and polygon:
Date: Fri, 31 Jul 1998 22:39:10 -0400 (EDT)
From: "Mark A. Conger" <aruba@grex.cyberspace.org>
To: David Cahill <dpc@grex.cyberspace.org>
Subject: Personal Property Taxes
Hey Dave -
I wonder if you could tell me the story of how M-Net got stuck paying
personal property taxes. I'm not an M-Netter, so I have only heard bits
and pieces of the story here and there, and I would like to know the
details.
Grex is going to apply for exemption, and I'm wondering what we can
learn from M-Net's experience to help us out. I guess I'd like to know
specifically why M-Net's application for exemption was turned down. And
maybe if Grex gets the exemption, there will be a chance for M-Net to say
"Hey, Grex is exempt, why not us?" to the city, and maybe something will
happen. You never know. (Well, sometimes you *do* know, but not in this
case. ;))
Anyway, I'd appreciate any info you could give me, or if you could
refer me to someone who knows more about it, if I've got the wrong guy.
Thanks.
__ ____ __ __ ____ __
/__\ ( _ \( )( )( _ \ /__\ Mark Conger
/(__)\ ) / )(__)( ) _ < /(__)\ aruba@grex.cyberspace.org
(__)(__)(_)\_)(______)(____/(__)(__)
Date: Mon, 3 Aug 1998 10:16:29 -0400
From: David Cahill <dpc@cyberspace.org>
To: aruba@grex.cyberspace.org
Subject: Re: Personal Property Taxes
Hi, aruba! Even though I didn't participate directly in the personal
property tax saga, I'm the right guy. Here's what happened.
M-Net went to the City of Ann Arbor and applied for a personal property
tax exemption based on our 501(c)(3) status. The City Assessor said
"That's not enough. You not only have to have 501(c)(3) status, but
also have to fit *our* criteria for what acceptable charitable
non-profit activity is." The Assessor turned us down. We appealed
to the City's Board of Review. Another set of thumbs down. Then
we appealed to the Michigan Tax Tribunal. We filed a brief, but
didn't show up for oral argument due to a scheduling screw-up.
Thumbs down ditto.
I don't *think* I have any of the records, but they may be somewhere
at Supreme HQ.
Let me know whether or not this helps. Feel free to call me voice
at 769-0753 during regular business hours.
--Dave
Date: Wed, 5 Aug 1998 15:06:11 -0400
From: David Cahill <dpc@cyberspace.org>
To: aruba@grex.cyberspace.org
Subject: Re: Personal Property Taxes
>From what I remember, the City just didn't think that running a community
bbs was "charitable" enuf for them. You might want to ask Larry Kestenbaum
(polygon). I think he did the actual research.
--Dave
Date: Mon, 10 Aug 1998 23:15:15 -0400 (EDT)
From: Lawrence Kestenbaum <polygon@grex.cyberspace.org>
To: "Mark A. Conger" <aruba@grex.cyberspace.org>
Subject: Re: Personal Property Taxes
On Thu, 6 Aug 1998, Mark A. Conger wrote:
> Hi Larry -
> Dave Cahill suggested I write to you. Grex is going to apply for an
> exemption from the City of Ann Arbor's personal property taxes, and I'm
> wondering if we can learn anything from M-Net's experience that might help
> us to write a better application. I'm not an M-Netter, but Dave told me
> you did some research for the M-Net application.
Dan Napolitano and I appeared before the city's Board of Review. They
paid little attention to us except to express scorn on our application.
One of the three members didn't find it necessary to remain in the room
while we presented, but voted against us anyway. Do not expect a friendly
reception.
> What I'd most like to know is what reason (if any) the City gave for
> turning down M-Net's application for exemption. I know part of the
> application is about how an organization gets its funding, and I'm
> wondering if the differences between M-Net's patronships and Grex's
> memberships are going to help us or hurt us. Anything you can tell me
> will be appreciated.
I'm sorry to say that I doubt you will be successful. The issue is not
the source of funding -- that hardly came up at all. The issue, rather,
is what kind of organization, what category applies. The only one which
is even vaguely plausible is "charitable foundation".
The problem is that Michigan's property tax laws provide for MUCH narrower
classes of exempt organizations than does the federal tax code. If you
tell them you have 501-C-3 status, they will yawn and say you don't
qualify. You have to demonstrate a LOT more than that. For example, to
qualify under the educational property tax exemption, you pretty much have
to be an accredited school.
Because of Michigan's history as a high property tax state, exemptions are
given out very frugally. Just for example, a church that owns a building
not used for church purposes has to pay property taxes on it. This is not
true in most other states.
> My condolances on losing the primary; I wish I were in the 52nd
> district so I could have voted for you. I really enjoyed the excitement
> the race generated on Grex.
Thank you!
Larry
Date: Thu, 13 Aug 1998 12:38:46 -0400 (EDT)
From: Lawrence Kestenbaum <polygon@grex.cyberspace.org>
To: "Mark A. Conger" <aruba@grex.cyberspace.org>
Subject: Re: Personal Property Taxes
On Wed, 12 Aug 1998, Mark A. Conger wrote:
> Thanks for the info, Larry, even though it is not very encouraging. Do
> you know where I can get a copy of the document which defines the classes
> of organizations which are exempt? Is that something the city of Ann
> Arbor decides, or is it a state law?
It's the state law, administered and interpreted in this case by the city.
Probably the easiest thing would be to look at the section of the state
property tax law that defines who is (or could be) exempt. You can find
it in the library, in MCLA (Michigan Compiled Laws Annotated). Beware the
very bad subject index!
There is some movement toward abolishing or limiting the personal property
tax, on the grounds that it is not implemented consistently across the
state. For example, Grex (or M-Net) got a bill from the city because
somebody came out to the various office buildings and wrote down all the
names of businesses listed. Not every city or township is anything like
that aggressive about locating personal property to tax, especially from
small entities. On the other hand, for those jurisdictions which do
vigorous collection efforts, it is an important source of tax revenue.
I guess I won't be taking a direct role in that decision. :-)
Larry
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keesan
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response 20 of 144:
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May 25 01:57 UTC 2001 |
What type of Sun computer does grex use? I found a site that sells used
computers. 400MHz etc. for about $1000.
We have taught many people who never used a computer before how to do e-mail
with grex. Some of them type with one finger. Would letters from a few of
them be of any use? One is Russian, one seriously ill, two retired
(one-finger typists all). Is this not educational?
Would the tax come to more than $50/year?
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i
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response 21 of 144:
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May 25 04:22 UTC 2001 |
Re: #12
It doesn't matter what either the market or normal accounting rules say
our old computer equipment is worth. The City's property tax runs off
it's own set of rules - probably written by lawmakers indifferent if not
clueless as to the market value of old computer stuff.
Reasonable, forgiving, and ready to accept reasons why less tax is owed
are probably not traits that the City encourages in its tax collecting
department.
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aruba
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response 22 of 144:
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May 25 13:40 UTC 2001 |
There *is* a special depreciation schedule for computer equipment, which as
I posted goes down to 15% for 1995 stuff and 8% for all "prior" stuff.
Most businesses probably don't use anything nearly as old as our stuff, so
that schedule may be reasonable for them.
Couldn't tell you what the City encourages, but Mike seems like a reasonable
guy willing to listen to good reasons why the assessment is off. He said
they try to stick to the formulas, though, so we'll have to give them good
reasons not to. I think we *have* good reasons, namely what I said above -
most businesses don't use stuff as old as what we're using, so 8% may be
reasonable for them but not for us.
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keesan
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response 23 of 144:
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May 25 17:51 UTC 2001 |
What year was Grex's computer made? What is the model?
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aruba
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response 24 of 144:
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May 25 18:28 UTC 2001 |
That's a complicated question, because the components of the current system
were manufactured by different companies at different times.
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