State & Local Tax Blog

Business Personal Property Tax: 4 Things You Should Know

Every company relies on personal property to conduct business. But with property ownership comes taxes and liability. In this post, we break down everything taxpayers need to know about business personal property tax.

What is Business Personal Property?

Any item your company uses to conduct business is considered business personal property. This includes computers, tools, furniture, supplies, inventory, phones, vehicles and more.

A notable exception is real estate and physical locations, known as real property, which are taxed separately.

There are two types of personal property: tangible and intangible. Tangible property includes physical items like equipment, cables, furniture and machinery. Intangible personal property includes immaterial assets, like stocks, bonds and intellectual property.

How Is Business Personal Property Taxed?

Every state government has a unique approach to taxing personal property. And finding detailed information about each states’ specific property tax codes can be a challenge.

That said, there are three general categories that most states fit into:

  • States with no personal property tax
  • States that tax tangible property
  • States that tax both tangible and intangible property

Many states also offer exemptions to certain types of property, like inventory.

While the way each state defines personal property is different, the final steps are fairly universal.

First, you identify the total value of your taxable personal property in a given state. Then, you use that assessment and the state’s personal property tax rate to calculate how much you owe.

You Might Be Overpaying on Business Personal Property Tax

As a taxpayer, it’s your job to know how much you owe in personal property tax for each period. If your assessment is too low, the state will let you know. But if you overpay for your property taxes, the state won’t say a word. (Because they want your money.)

That inevitably leads to many businesses significantly overpaying for personal property tax. Because of this, there’s a good chance you have the opportunity to save your business some money.

While property tax is incredibly complex, most businesses that overpay do so because they made simple mistakes. Saving money on your property taxes can be as easy as not overlooking these basic areas. Let’s look at what they are.

Don’t Include Real Property

As we reviewed above, real estate is taxed in a separate category from personal property. Despite this, many businesses continue to confuse the two. This could lead to you overpaying on real property or paying twice for an asset labeled in both categories.

Keep Accurate Property Records

Paying taxes on property you no longer own is like flushing money down the drain. There’s really no other way to put it. That’s because you’re paying expenses for something that can’t generate revenue.

The way to prevent this problem is to keep detailed, up-to-date records on all of your property. If you sell or retire an asset, write it off the books immediately.

Track Depreciation

Over time, the value of property declines. Tracking depreciation takes this into account because you mark down the value of your property. And when your property value is lower, the amount you’ll have to pay in property taxes will be lower.

Of course, you will have to calculate your depreciation accurately and honestly, using industry-accepted formula. But if you do it properly, you can expect significant savings.

Leverage Exemptions

Sales tax exemptions are one of the most effective tools for mitigating how much you owe in property tax. That’s because taking a look at state-by-state exceptions and opportunities is likely to reveal significant savings. Michigan, for example, provides a number of personal property tax exemptions for categories such as small businesses, eligible manufacturers and new personal property.

Outsourcing Personal Property Tax

Some businesses simply don’t have the time or required level of interest to manage their property tax in-house. Nevertheless, you’ll still need a way to manage your compliance while finding ways to save money.

That’s why many firms outsource the work of personal property tax compliance to specialists. Dedicated tax firms can stay on top of fast-changing tax laws, allowing your firm to focus on core functions, and saving you from countless hours trying to understand state and local tax law.

Conclusion

Effectively managing personal property tax is an essential part of doing business. And while there is a lot that goes into getting compliant, saving your business thousands in overpaid taxes can be as easy as giving it a closer look.

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