Ralston and others contest computer depreciation rules

by Rick Desloge

St. Louis Business Journal — June 20-26, 1998

Aaron Consulting, Inc. is finding itself in the same taxing dilemma as Ralston Purina Co.

Both companies are objecting to St. Louis city's five-year depreciation schedule on their business personal property taxes for computer equipment - technology that in some cases is obsolete within 18 months, computer experts said.

"Businesses are paying more in taxes on some equipment than it is worth," said Jens Sorensen, a computer consultant who testified for Aaron Consulting at a May hearing of the city's Board of Equalization.

Aaron Consulting is a three-person lawyer recruiting firm in St. Louis' Central West End.

For the moment, Aaron Williams has prevailed in his company's case. The board granted Aaron Consulting a one-year reduction of nearly $1,000 in assessed value of his computer equipment. But to maintain that assessment, Williams said he would have to appeal his case again next year.

Ralston Purina has not settled with the city. The company is negotiating with St. Louis officials, and the Missouri State Tax Commission said Ralston Purina has filed a notice of appeal. The problem of depreciating high-tech equipment impacts every business that buys computers.

"If enough businesses stand up, something will be done. There needs to be a one-year write-off on much of this equipment," Williams said. "This antiquated tax system shows that the community just doesn't care about businesses willing to invest in high technology to remain competitive.

"What I'd like to see is fair taxation. the issue is similar to that in the Boston Tea Party, with technology being the 1998 version of tea."

Ralston's attorney in the matter, Bill Falk of Thompson Coburn, acknowledged he represents Ralston, but declined to discuss specifics of the case.

Meanwhile, assessors in both St. Louis and St. Louis County are aware of the technology issue but do not see a quick solution.

However, local assessors have some latitude. St. Louis city's five-year schedule allows businesses to depreciate technology over five years and pay 20 percent of the original value on anything at least five years old. St. Louis County allows depreciation over seven years, and taxes everything at at least 5 percent of original value.

The State Tax Commission last faced a case on the technology point in 1991.

That year, IBM Credit Corp. of Greene County (Springfield) won a state tax case reducing the value of its computer equipment from $461,340 proposed by Greene County to $31,050 proposed by IBM.

St. Louis City Assessor Mary King said the issue has become before the city each year in the two years she has been assessor.

Ken Morton, the St. Louis County assessor, pointed out that some computer-controlled manufacturing equipment does not depreciate as quickly as computers themselves do, and laser printers hold their value more than other equipment does.

"There is some concern we don't depreciate some things fast enough. Every year (businesses) don't scrap their equipment. They're still using it, maybe in another part of the business," Morton said.

In St. Louis City, technology assessments generate part of the $54.8 million collected in personal property taxes. In St. Louis County, business personal property taxes, excluding autos, generate $110 million.

Bart Tichenor, chief hearing officer for the State Tax Commission, said his office is eager to hear a case on the technology issue, but most parties settle before their cases reach the commission.

Missouri law specifies that businesses are required to place a "true value in money" on their business equipment, he said.

"What these computer people are saying is the value you once had is not there," Tichenor said.

Kevin Heupel, owner of Laclede Computer Trading Co., which specializes in uses computer equipment, agreed.

Their depreciation schedules are unrealistic. I can't give away a 5-year-old computer. There's hardly a charity that will take them," Heupel said.

"Computers that were selling new for over $4,000 dollars four years ago now have a parts value of approximately $35."

In the meantime Williams said he is annoyed he likely will have to repeat his appeal effort next year.

King, the St. Louis assessor, said: "Until we get a new schedule, Mr. Williams is going to be upset with us."