ASC 720-30
Real and Personal Property Taxes
720 Other Expenses
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ASC 720-30 governs when an accrual-basis taxpayer records a liability for real and personal property taxes and how much is charged to income in each period. Legal liability for such taxes generally attaches at a specific event date (assessment date, lien date, levy date, etc.) determined by state law, but the preferred accounting is a monthly accrual over the fiscal period of the taxing authority for which the taxes are levied. Accrued property taxes are current liabilities, and later revisions of estimated amounts run through the income statement.
Key points (7)
- Unlike excise, income, and social security taxes, property taxes are based on assessed valuation of tangible and intangible property as of a given date, and legal liability generally accrues at a specific event rather than over time (720-30-25-1).
- Possible legal accrual dates include the assessment date, beginning or end of the taxing authority's fiscal year, lien date, levy date, payment date, delinquency date, or the tax period on the bill; the controlling date depends on the law and court decisions of the state concerned (720-30-25-1).
- Inability to determine the exact amount of the tax is no justification for failing to recognize an existing tax liability (720-30-25-6).
- The most acceptable basis is monthly accrual on the taxpayer's books during the fiscal period of the taxing authority for which the taxes are levied, so the books show the appropriate accrual or prepayment at any closing date, applied consistently (720-30-25-7).
- When a prior year's estimated provision must be adjusted once the actual amount is known, the adjustment is ordinarily made through the income statement, either combined with the current year's provision or as a separate item (720-30-35-1).
- Accrued property taxes, estimated or known, are presented among current liabilities, and are described as estimated where subject to substantial uncertainty (720-30-45-1).
- Property taxes may be charged to operating expenses, shown as a separate deduction from income, or distributed among accounts such as factory overhead, rent income, and selling or general expenses; capitalization in property accounts is sometimes appropriate for property being developed for use or sale (720-30-45-3).
For students. Property taxes are not income taxes—do not apply ASC 740 or combine them with income taxes on the face of the statements; the default answer is ratable monthly accrual over the taxing authority's fiscal year, with revised estimates run through current income rather than restated as errors.
real and personal property taxesassessment datelien datemonthly accrualfiscal period of the taxing authorityestimated liabilitycurrent liabilitiescapitalization of real estate taxes
Machine-generated study aid for ASC 720-30. Check the source paragraphs below.
720-30-05Overview and Background
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720-30-05-1
This Subtopic addresses the accounting for real and personal property taxes, specifically, when to record the tax liability and the amounts to be charged to income in future periods.
720-30-15Scope and Scope Exceptions
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Entities
720-30-15-1
The guidance in this Subtopic applies to all entities.
720-30-25Recognition
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Legal Liability for Property Taxes
720-30-25-1
Unlike excise, income, and social security taxes, which are directly related to particular business events, real and personal property taxes are based on the assessed valuation of property (tangible and intangible) as of a given date, as determined by the laws of a state or other taxing authority. The legal liability for such taxes is generally considered as accruing at the moment of occurrence of some specific event, rather than over a period of time. Depending on jurisdiction, various dates on which certain property taxes may accrue legally include the following:
- aAssessment date
- bBeginning of taxing authority's fiscal year
- cEnd of taxing authority's fiscal year
- dDate on which tax becomes a lien on the property
- eDate tax is levied
- fDate or dates tax is payable
- gDate tax becomes delinquent
- hTax period appearing on tax bill.
720-30-25-2
The legal liability for property taxes must be considered when title to property is transferred during the taxable year. Adjustments on account of property taxes paid or accrued are frequently incorporated in agreements covering the sale of real estate, which determine the question for the individual case as between the buyer and seller.
Accounting for Property Taxes
720-30-25-3
Accounting questions arise as to the following:
- aWhen the liability for real and personal property taxes should be recorded on the books of a taxpayer keeping his accounts on the accrual basis
- bThe amounts to be charged against the income of respective periods.
720-30-25-4
The decision is influenced by the particular circumstances of each tax. Such terms as assessment date and levy date vary in meaning in different jurisdictions.
720-30-25-5
Determination of the liability for the tax often proceeds by degrees, with several steps being taken at appreciable time intervals. For example, while it is known that the owner of real property is liable, with respect to each tax period, for a tax on property owned on the assessment date, the amount of the tax may not be fixed until much later.
720-30-25-6
The inability to determine the exact amount of taxes is in itself no justification for failure to recognize an existing tax liability. All of the circumstances relating to a particular tax shall be considered before a satisfactory conclusion is reached.
720-30-25-7
Generally, the most acceptable basis of providing for property taxes is monthly accrual on the taxpayer's books during the fiscal period of the taxing authority for which the taxes are levied. The books will then show, at any closing date, the appropriate accrual or prepayment. The monthly accrual basis is practical and satisfactory so long as it is consistently followed.
720-30-35Subsequent Measurement
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720-30-35-1
Since the liability for property taxes must frequently be estimated at the balance-sheet date, it is often necessary to adjust the provision for taxes of a prior year when their amount has been ascertained. These adjustments should ordinarily be made through the income statement, either in combination with the current year's provision or as a separate item.
720-30-45Other Presentation Matters
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Balance Sheet
720-30-45-1
An accrued liability for real and personal property taxes, whether estimated or definitely known, shall be included among the current liabilities. Where estimates are subject to a substantial measure of uncertainty, the liability shall be described as estimated.
Income Statement
720-30-45-2
In condensed income statements appearing in published reports, the amounts of real and personal property taxes, however charged in the accounts, are rarely shown separately. They are frequently combined with other taxes but not with taxes on income.
720-30-45-3
While it is sometimes appropriate to capitalize in property accounts the amount of real estate taxes applicable to property that is being developed for use or sale, these taxes are generally regarded as an expense of doing business. They may be accounted for in any of the following ways:
- aCharged to operating expenses
- bShown as a separate deduction from income
- cDistributed among the several accounts to which they are deemed to apply, such as factory overhead, rent income, and selling or general expenses.