A lot of entrepreneurs, while starting up, indicate their place of residence as the official seat of their business. Thanks to that, they do not have to bear the additional costs of premises rental, and may charge the expenses related to the real estate into tax-deductible costs (proportionally to the premises part used for the purposes of running the business activity). With respect to that, should they be subject to a higher property tax liability? Everything depends on how the part of the real estate designated for the purposes of the business activity is used.
The Act on taxes and local levies provides for two property tax rates – one with respect to residential buildings and the other – to residential buildings or their part adapted for running a business activity. The Act determines maximal rates (respectively, PLN 0.74 per 1m2 and PLN 23.03 per 1m2), whereas the actual amount of the rate is determined by the council of the local commune by way of adopting a resolution. The resultant difference is quite significant – the tax due for buildings utilized for running a business activity is in excess of 30 times higher (however, it is payable only on the premises part designated for running the business activity).
The key issue in assessing the liability of an entrepreneur who designated part of their premises for running a business activity is the interpretation of the term “part of a residential building occupied for running a business activity”. If an entrepreneur designates part of their premises and that whole part is utilized solely for the purposes of running a business activity, then an obligation arises to pay a higher property tax rate. Such situation occurs, for instance, when one room is designated to serve as an office, wherein clients are seen. Conversely, when the business activity is run in such part of the premises that also serves residential purposes (e.g. in a bedroom or kitchen), then the property tax rate remains unchanged. Such entrepreneur will keep on paying the rate adopted for residential buildings.
The abovementioned way of assessing which tax rate is due and payable is supported by the ruling of the Supreme Administrative Court, which already on 11 August 1992 decided (docket number: SA/Wr 650/92) that for the provision on the higher tax rate to be applied to part of a residential building, it is required that such part of a residential building be designated for running a business activity to the exclusion of its residential or other related functions. Similar rulings have been awarded also afterwards.
An entrepreneur should, nevertheless, bear into account the possibility that the local commune may interpret the term “residential buildings or their part occupied for running a business activity” otherwise. If that is the case, the entrepreneur may claim in a court suit.