Portland is preparing to assess the value of the furnishings and equipment in every business in the city to determine whether they are paying the taxes they should be – a process that could increase city revenue, as well as tax bills for some businesses.

It’s the first time in at least 50 years the city has done this type of audit. It will contract with a firm to assess the value of every business’s permanent fixtures, such as furniture, paintings and computer equipment.

“It’s everything you would take with you if you moved your business,” said Portland Assessor Elisa Marr, who took the job last April.

Marr said in an interview last week that the audit would be “like street canvassing.”

“They go business to business, meet with owners, and try to see what’s been reported in the past and if they need help with reporting new property.”

Maine is one of 38 states that require businesses to report the total value of all their property each year, which is all taxable except inventory.

Hope Rovelto, owner of Little Chair Printing on Congress Street, said she doesn’t remember doing this in the past and that she’s worried it will hurt her business.

“I’m all about paying my taxes to help the school system and pave the roads, but why now? Why is this just being enforced now?” she asked.

The reason, according to Marr: Only 51% of businesses in the city reported their personal property values last year, and 25% have never done so.

“It sounds like the process has almost been considered voluntary, but it’s a state-mandated tax,” Mayor Mark Dion said.

NEVER BEEN DONE 

The City Council last week approved spending $192,000 to do the audit, which will begin in July and probably take a full year.

There’s no way to know how much new revenue the assessments of business property could bring in.

A lot of factors will come into play.

The value of furnishings and equipment, for instance, automatically depreciates every year. So a business reporting a brand-new pizza oven this year would pay less tax on it over time as it loses value.

Businesses also might be exempt or qualify for reimbursements, according to the state’s website. Restaurants and retail stores are not exempt, but manufacturing businesses and medical offices might be.

Decisions about whether to grant reimbursements are made by the state and based on the date specific equipment went into use at a business. If equipment was first used after April 1995, it should qualify for reimbursements, said Laurie Carlson, the city’s personal property appraiser.

The city still gets some revenue from the state for businesses that are exempt, Marr said. Portland collected $7.8 million in business personal property taxes last year, she said, and just under half of that – $3.6 million – came from state reimbursements for exempt businesses.

When Marr was hired as the city’s tax assessor, she was surprised to learn that Portland had never conducted an audit like the one that is soon to begin.

“There are staff in the assessor’s office who have been here for 40 years, and they don’t ever remember having this process done. It’s not clear it ever has been done,” she said.

As the tax assessor in Windham, Marr said, she oversaw this process for many years, and it brought in new tax dollars to the city.

Marr said she doesn’t know why previous assessors didn’t crack down on businesses that failed to declare personal property.

One possible reason is that until just a few months ago, all such records were kept on index cards. They’ve only recently been digitized, she said.

“It’s possible previous assessors just thought it was too big of an undertaking to keep track of this with our previous system,” Marr said.

‘CAPTURING EVERY PENNY’

Marr says the audit is fundamentally about equity. While some businesses have been paying tax on their personal property for years, others never have. She believes it’s the city’s job to make sure taxes are applied fairly.

Councilor Anna Trevorrow, who chairs the council’s finance committee, agrees. But she said she also sees the audit as a path to a new revenue stream at a time when the city’s budget needs seem to grow every year.

“This is a really challenging budget year, and this is an existing law that’s on the books, so it makes sense that we’re making sure everybody is paying what they’re supposed to be paying,” Trevorrow said.

Councilor Kate Sykes said she feels the assessment could help bring in some desperately needed revenue.

“It’s so important that we do our due diligence on this,” she said. “We have to be capturing every penny.”

Sykes said she is shocked that the city has let this slide for so long.

“It’s easy to look back and weep for the lost revenue here. That’s the heartbreaker,” she said.

Dion said he worries about pushback from the business community but agrees that the assessment is only fair.

“I’m concerned about how we’ll manage the backlash because if you’ve never paid, it’s going to hurt this time,” he said. “But the revenue collected from this initiative may help reduce the burden that property taxpayers have been shouldering.”

Quincy Hentzel, president of the Portland Chamber of Commerce, declined to talk at length about the audit.

In a statement, she said the chamber “understands the city’s efforts to enforce this requirement” and is willing to help ensure its members are informed about the process.

Marr said businesses that have been accurately reporting their equipment for years are unlikely to notice any changes. Those that haven’t, however, may face a rude awakening.

Leo Pelletier, who owns Mainely Frames & Gallery on Congress Street, says he isn’t too worried about it. He thinks he remembers paying taxes on his shop’s personal property in the past, but he isn’t sure.

When the assessor comes to his shop and asks for estimates on the cost of the furnishings and equipment inside, he has a plan, he said.

“We’re all going to come up with low numbers for this assessment,” Pelletier said. “Nobody is going to come up with a real number because they don’t want to be taxed.”

He said he doesn’t believe the city will have an accurate sense of what his items are worth. And why should it?

“We’re small businesses, and that’s tough enough already,” he said.

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