What is Personal Property Tax?
“What is personal property tax, and why do I have to pay it” are questions we hear frequently. Personal property used in a business in Texas, and most other states, is assessed an ad valorem tax, or a tax based on market value, of the tangible personal property. Some states do assess a tax on personal property used outside of a business, such as cars and boats. However, this atypical. Most states only tax property used by a business to produce income.
Types of Property
Real property is land and improvements to land.
Personal property means property that is not real property.
Types of Personal Property
Tangible personal property means personal property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does not include a document or other perceptible object that constitutes evidence of a valuable interest, claim, or right and has negligible or no intrinsic value. Examples of tangible personal property include office furniture, inventory, equipment for manufacturing, office equipment and vehicles / boats / planes.
Intangible personal property means a claim, interest (other than an interest in tangible property), right, or other thing that has value but cannot be seen, felt, weighed, measured, or otherwise perceived by the senses, although its existence may be evidenced by a document. It includes a stock, bond, note or account receivable, franchise, license or permit, demand or time deposit, certificate of deposit, share account, share certificate account, share deposit account, insurance policy, annuity, pension, cause of action, contract, and goodwill.
Taxable Personal Property
Only tangible personal property is taxable. Personal property often includes intangible personal property such as software, proprietary data, or patents. Only the tangible personal property is taxable. The portion of property that is intangible is not taxable.
Consider an office phone system. Most of the value is in the software and proprietary technology. Another example is automobiles; try driving a 2021 model car with the software removed.
Most states require owners of personal property used in a business to “render” the property. A rendition is either a list of the property, year of acquisition and cost, or an estimate of value. Transportation and setup costs should never be included in rendition. Not rendering typically triggers a penalty of 10 to 50% of the taxes otherwise due on personal property.
Should You Render Cost or Market Value?
Property owners who render should consider rendering value instead of cost, since the appraisal district depreciation schedules tend to value personal property at twice its actual value.
Tangible Personal Property Assessment Rate and Tax Rates
Personal property tax rates are the same as real estate tax rates in most states. Some states impose a higher effective tax rate on business property by using a higher assessment ratio.
States with no Tangible Personal Property Tax
States with no tangible personal property tax include: Illinois, Iowa, Ohio, Pennsylvania, New York, New Hampshire, and Delaware.
Reducing Tangible Personal Property Taxes
Owners of business personal property subject to taxation should review what is taxable and what is not (intangible personal property). If you render cost and year of acquisition, protest the valuation annually since the appraisal district uses a valuation table that generates a value about DOUBLE market value.
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