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Taxes Plaque Self-Storage Operators Stateside and Abroad: Sales Tax, VAT, Property Tax

The 2012 tax-filing deadline is just a few weeks away, which is putting money matters at the fore of many Americans' minds. Taxes are also on the minds of U.S. and U.K. self-storage operators as they grapple with potential sales tax, value-added tax (VAT) and excessive property-tax bills.

Teri Lanza

March 23, 2012

4 Min Read
Taxes Plaque Self-Storage Operators Stateside and Abroad: Sales Tax, VAT, Property Tax

The 2012 tax-filing deadline is just a few weeks away, which is putting money matters at the fore of many Americans' minds. I would venture to say that if you haven't yet done your taxes, you either find the task extremely off-putting or you're concerned about owing money, as people expecting refunds are generally quick to claim their due. In either case, you'll likely be holed up with TurboTax in the weeks ahead or hoofing it down to H&R Block.

Taxes are also on the minds of U.K. self-storage operators this week as the British Finance Minister, George Osborne, made a budget proposal that would force them to charge their customers value-added tax (VAT), otherwise known as sales tax. The proposal is subject to discussion between self-storage operators and the British office for revenue and customs, but if the legislation comes to pass, the law would go into effect Oct. 1.

U.K. self-storage operators Big Yellow Group PLC and Safestore Holdings PLC issued statements this week, expressing concern for the potential impact on the industry. Though they indicated the blow could be largely absorbed by their commercial customers, most of whom can recover the VAT, stock prices for both companies fell as a result of the budget proposal. (To learn more, read "U.K. Self-Storage Companies Could Be Forced to Charge Sales Tax.")

Two types of tax plaque self-storage businesses in the United States: sales tax and property tax. Operators in several states have battled against the application of sales tax to their service. South Dakota is the latest to propose sales tax on unit rentals. SB 142, introduced Jan. 24, would impose a 4 percent sales tax on the gross receipts derived from self-storage unit rentals and a 4 percent privilege-use tax on the rental payments for use of the property.

The measure is similar to a law struck down three years ago by the South Dakota Supreme Court. In that case, self-storage operators successfully argued storage units were rented real estate and not a service that should be subject to sales tax. If SB 142 were to pass, it would become the first state bill to inflict sales tax on self-storage since New Jersey raised its tax from 6 percent to 7 percent in 2006. Fortunately, New Jersey lawmakers this year have introduced a bill that would lower the sales tax back to 6 percent (though self-storage will still suffer).

Sales-tax legislation was also introduced in Illinois and North Carolina last year. The potential tax revenue has become enticing to more and more state legislatures, and each time a new law passes, it increases the chances of facility operators suffering the same fate in other states. The national and state self-storage associations have become particularly vigilant on this front, and arm themselves for the battle they may face ahead.

Property tax presents another woe for some self-storage owners. Though their net operating income may have suffered in recent years due to lower rental rates and occupancies, their properties have continually been assessed at higher values by local tax assessors, who have noted the overall success of our business model. As a result, you may be paying a higher property tax than is supported by your facility income and cap rate.

Should you challenge your property-tax bill and potentially save yourself money on one of your largest expense items? Find out in this recent article, written for Inside Self-Storage by Jeffrey Turnbull: "Appealing Self-Storage Property Taxes: Reducing Facility Expenses and Increasing Profit." As president of Kodiak Mini Storage LLC, Jeff has been involved in the self-storage business as a developer, owner and operator for more than 17 years, and currently owns two facilities in the Charlotte, N.C., market.

The conflict with the proverbial tax man is as eternal a part of the human experience as the desire for free will and a love of chocolate ... It is unlikely to fade away. But we can be alert and take action when the burden on the individual or business rivals or outweighs the potential benefit to society at large. What tax-related skirmishes have you experienced in relation to your self-storage business? Have you joined with other operators in your area to fight a sales tax, or gone head to head with the county assessor? Were you successful? What would you have done differently? Share your tales on the blog. It'll be more fun than deciphering tax forms this weekend!

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