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Additional benefits of a managed maintenance program

August 17, 2009

Our work with clients has made us aware of the beneficial impact of a standardized maintenace program on efficiencies within a manufacturing facility and the quality of the product it produces. Whether maintenance programs use an older version of software such as MMS, a newer web based software such as EAM or an in-house program developed for the specific needs of a company, there are frequently overlooked benefits to be derived from these systems that can further reduce a company’s operating costs and increase cash flow.  Reliable Plant Magazine www.reliableplant.com in an article published on May 9, 2009 discussed the many benefits of a maintenance system implemented by Mohawk Fine Paper but only the benefits directly related to the manufacturing side of the business.

In today’s business enviornment, where cash flow is of primary importance to  business, almost every company is looking to reduce costs where ever possible. Personal property tax paid on the value of assets is a very common area where current year costs can be reduced and the benefit will continue to be realized over subsequent years.  Almost every company utilizes some form of fixed asset software to track, record and depreciate assets and relies on the information in their fixed asset system to report assets to taxing jurisdictions for property tax assessment. In reality, most fixed asset systems overstate the amounts that need to be reported on property tax returns and consequently, pay too much property tax.  Seldom if ever does the maintenance software interface with the fixed asset system and a significant portion of the excess tax paid can be attributed to the inability of the most companies to reconcile these two systems. On average, many companies are paying 5-9% to much in property tax because they are reporting nonexistent assets, because assets are replaced during the  maintenance process but the original cost and in some cases, the book value remain on the books, because exempt assets are bundled in with taxable assets and because they lack information to be able to support reporting assets in catagories with lower assessment rates.  This can be corrected if a company invests the time to perform a fixed asset inventory, incorporates bar coding of assets and reconciles the inventory information to the books of the company and to the maintenance system. Before undertaking a fixed asset inventory project, a company should evaluate if it has the time, resources and expertize to complete the inventory, reconcile the findings and implement an ongoing process to ensure fixed asset changes are reported accurately in each system and can be reconcilled to the tax returns.

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3 Comments leave one →
  1. Sgelter permalink
    August 20, 2009 7:08 pm

    This is an interesting article however, if you take a broder perspective, a fixed asset inventory can provide other benefits. Aside from the benefits mentioned on the article and your Blog, several other opportunities can be derived from fixed asset inventories; primarily tax related. One is including an analysis and identification of assets that can be claimed for pollution control credits. This requires utilizing the permits the company complete in order to install the equipment in conjunction with the fixed asset inventory. Identification of pollution control equipment has a beneficial impact on both income tax and property tax. Another project that can be performed concurrent with a fixed asset inventory is a federal depreciation look back analysis. This would require an analysis of the lives assigned to assets for Federal Tax depreciation calculations,identifying those assets where shorter lives can be claimed, and then recalculating the catch-up depreciation amount. While this is a timing issue, the amount can be significant and would have a material impact on cash flow.

  2. September 1, 2009 2:35 pm

    Companies benefit from fixed asset software because their fixed asset management process becomes more automated and complete. Follow up inventories and associated reconciliations are more efficient when using state-of-the-art barcode technology in conjunction with fixed asset software.

  3. TaxManB permalink
    September 1, 2009 5:30 pm

    SGelter,
    You mentioned Federal Depreciation Look-back Analysis in your comment. Our company has attempted to address this issue as we fully see the benefit, however our attempts have not been able to come up with accurate numbers and we don’t have the time/resources to dedicate much more to it. Can you recommend a way to streamline this process to come up with more exact numbers? Obviously in times like these cost is a major concern for every company, what would our upfront costs be for a project like this? I would pose the same question in regards to a Fixed Asset Inventory as well. Is there an opportunity for the results of this process to pay for themselves? Thanks for your help. – TaxManB

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