Property Taxes vs Tangible Personal Property

Property owners are expected to pay taxes on that Property in virtually every municipality in America. Owners of industrial and commercial property are unsurprised by the need to pay taxes on their real property, but they may be less familiar with the requirement to pay taxes on “tangible” property. Understanding what tangible property is and how it is taxed may be vital to knowing whether or not your property is being accurately assessed.

1. What Is Tangible Property?

The two basic categories of property are real and personal. Real property is generally considered to be land and structures that are permanently affixed to it. The personal property category encompasses everything that is not real property. Personal property may be either intangible or tangible. Intangible property is essentially abstract. It may consist of stocks, bonds, trademarks or patents. These items may be represented by a certificate or other paperwork, but they are not actually physical items. Accordingly, tangible property consists of items that can be transported, seen and touched. The tools, equipment, desks and computers that a business keeps on its property all are considered tangible property.

2. Who Has To File a Tangible Property Tax Return?

Any individual or company that owns a certain amount of Tangible Personal Property for business purposes may be subject to paying taxes on it. Most municipalities set a minimum threshold, typically $25,000, that triggers the need to pay property taxes. This means that a company that has little in the way of tangible property may not be required to pay property taxes. Conversely, a business that has considerable tangible personal property may be responsible for a sizable tax bill each year.

3. Do Fully Depreciated Items Have To Appear On the Tax Return?

Occasionally, a company will have older tools and equipment that are still on the property but have been fully depreciated in the company’s accounting. Most jurisdictions still require that this property be disclosed on the tax return. When in doubt, it is nearly always advisable to include an item on the tax return than risk a penalty for submitting an inaccurate accounting.

4. Do Leased Or Loaned Assets Count For Property Tax Purposes?

Some business owners make the mistake of not including items that they have leased, borrowed or loaned. In most municipalities, a section of the tax return form is provided where such items can be listed. It well may be that these items will not be used to determine how much tax is owed on this tangible property. Still, it is essential to report these items to provide an accurate picture of the company’s situation.

5. What If I Bought Or Sold a Business?

Things can get complicated when a business is bought or sold in the course of a year, but it remains the responsibility of the property owner to include any pertinent items on their tax return. Taxes on tangible property typically can be prorated at the time of closing, allowing the owner to account for partial year ownership.

Assessment of tangible property for tax purposes can be immensely complicated. It becomes even more so when the property owner feels that the assessment is inaccurate or unfair. Municipalities that tax tangible personal property typically provide a means of protesting or appealing assessments. Unfortunately, the process for doing so is frequently cumbersome and time-consuming. If you have received an assessment on tangible property that you feel is unfair, contact a property tax expert to help you evaluate it.