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capehnc
December 15, 2018
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How to categorize inventory that can never be sold

  • December 15, 2018
  • 3 replies
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I own a laser engraving business. When we started, we purchased a certain amount of inventory to stock our showroom. Some of the inventory has been engraved and some has not. Of the items that have been engraved, there are quite a few (mostly plaques and awards) that are engraved with fictitious names and companies in order to show our customers what we can do. Obviously, these items can never be sold and will remain in our showroom. However, I don't want to pay personal property taxes on items that aren't technically inventory anymore. They are simply display items. I'm looking for recommendations of what to name an account to put these items into so they aren't showing in inventory. Thanks.

Best answer by Regina_Lend_A_Hand_Accounting

I would create a sub-account to your inventory asset account for "No-Sale Inventory".

3 replies

Regina_Lend_A_Hand_Accounting
Regina_Lend_A_Hand_AccountingAnswer
December 15, 2018

I would create a sub-account to your inventory asset account for "No-Sale Inventory".

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    capehncAuthor
    December 15, 2018

    Thank you! That's a perfect solution!!

    M
    Malcolm Ziman
    December 15, 2018
    @capehnc wrote:

    I don't want to pay personal property taxes on items that aren't technically inventory anymore. 

    I have not heard of personal property tax on inventory. Is that your state? How does it work? If it's a business, does it still apply even though it's "personal "?

    Regina_Lend_A_Hand_Accounting
    Regina_Lend_A_Hand_Accounting
    December 15, 2018

    In Washington State there is no personal property tax for business inventory. Business inventory (products) for sale become taxable when they are sold and paid for (on a cash basis), but this is unrelated to Personal Property Tax. A periodic Washington State B&O Excise Tax Return is filed where tax is paid on gross sales less applicable credits and deductions. I believe that the other Accountant was stating that business display products that will not be sold may not be considered inventory at all, but rather a fixed asset or other business operating expense. Property of the business that is not inventory for sale can be considered tangible personal property in some states.

    qbteachmt
    qbteachmt
    December 16, 2018

    What we have in this topic is a "not inventory" condition. Example: I have a Granite Monuments client. When you go to their office space, you see on display urns, plaques, and materials. Some stuff is already engraved as examples; obviously, that is Samples, not in stock as inventory and cannot be sold. There also are pieces of blank stone and examples of urns, etc, which are in stock and can be bought, or bought and left or have engraved or etched. This is product to sell, but on the floor to show, as well. You track them differently in the accounting.

     

    And some tax authorities will value everything they see, no matter how you track it in the accounting; but they have a form you fill in and their form might have a provision for not taxing Products on hand to sell (inventory) and only "Furniture and Fixtures and Supplies" which would include these Sample Pieces that are on display. And as I pointed out, my County also counts trash cans and desk phones and desk lamps. And the forms might include an exemption for a minimum, as mine does.

     

    Then, the Business Property tables might have Classes, such as Rolling stock is not taxed the same as a Computer server farm, or the same as a Restaurant that has freezers, stoves, tables and chairs, etc.

     

     I offered Los Angeles as an easy example.  Washington State has similar rules: "Personal property is also subject to property tax when used in a business activity. Personal property includes machinery, equipment, furniture and supplies. The tax rate for real and personal property is the same."

     

    "Every person who uses personal property in a business or has taxable personal property must complete a Personal Property Tax listing form by April 30 each year."

     

    In my State, you get a questionnaire for Livestock, too.

    N
    NewToAccounting22
    July 25, 2022

    Hi -- If we are selling showroom inventory to a customer on delayed terms, would that be booked like a regular sale?  The catch is that if they hit a certain annual sales level, we would credit them for the sale.  Any guidance would be appreciated -- I am new to accounting!  Thanks!

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