What Is Personal Property Tax?

Are you living in a state or country that imposes personal property taxes? Probably you plan on moving to one that does.

Then you must understand what personal property tax is about and how it works by now that one cost an individual who is a resident of a country is responsible for is paying tax.

So I would provide you with all the basics you need to know about property tax, types of property tax, personal property tax, and so on.

What is Property Tax?

Property tax is a levy imposed primarily on land and buildings. In some countries like the united states, businesses and farm equipment and inventories are under tax, and some times these tax also extends to automobiles, jewelry, sometimes even furniture, likewise intangible stuff such as bonds or mortgage sometimes or shares of stock that can represent claims of ownership of tangible wealth.

The amount payable does not depend on an individual’s net income, wealth or a company’s net income but on the gross value without regard to debts.

Types of Property Tax

There are different property taxes, and not all apply to everyone as different states use different tax structures to make money for the various services being provided for their residents. The following are how people are taxed.

Income taxes

Income taxes are usually charged at all three stages, state, local and federal levels. At the federal level, the amount levied solely depends on some factors, which include marital status and income. While some states, such as Florida, don’t levy on income. Although some states use the single income tax rate while other states apply different tax rates depending on the income.

Sales Taxes

This are taxes on goods or services purchased. Calculated as a percentage of the price paid. It also varies by state, in some states, sales taxes do not exist, while in some states, they charge heavily. Sales taxes are often considered as a regressive tax since the low income earners spend a greater portion of their earnings on taxes compared to the top-income earners.

Excise Taxestop income earners

They are kind of similar to sales taxes except the fact that they charge on specific goods. States usually taxes certain type of purchases that might include gasoline, cigarettes and liquor. They are often levied on what we called “sin-products’ ‘. Its major goal is not just to raise money but also to prevent or reduce unhealthy living. Excise taxes are usually combined with sales taxes on single purchases.

Payroll Taxes

Their employer mostly withheld from the employee’s paycheck or salary payroll taxes, who remits the total amounts to the federal government. Payroll taxes have both the employee and employer’s portion respectively, which the government uses to fund medicare programs and social security services.

Estate Taxes

This tax is levied on the right to transfer your property after an individual’s death. The estate taxes is considered it controversial. Among the entities considered as part of the estate tax is cash, insurance, real estate and business. They are usually levied at the state level, and some states also have inheritance tax in which the amount you pay depends on your relation to the deceased.

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Gift Taxes

It is similar to the estate tax as it also has to do with being taxed for the transfer of wealth; the difference is that it has to do with two living persons and not just one living and one deceased. The tax does not apply not only to cash but also to gifts like shares or cars and so on. 

Personal Property Tax

Personal property tax, also referred to as “Property Tax” is taxation levied or imposed by state or local governments on certain types of assets owned by their resident (i.e your personal property). It is tax levied on movable assets like vehicles, furniture, boats and so on. Personal property tax can be different for each state or locality as they have different definitions for what it makes up, for some states, it might just be tools, furniture or equipment, while others might include livestock and animals.

The main purpose of personal property tax is to fund public works such as road maintenance or for the construction of schools.

Further reading: What Is Tax Planning? Definition, Overview, And How It Works

How Personal Property Tax Works

States and local governments with personal property taxes are applied differently, in terms of: What type of property are subjected to tax.

How the taxes are being calculated.

What the funds generated are used for.

Individuals are subjected to personal tax depending on the country or states there are in. For instance, in some states such as New York, residents are only taxed on real property such as land, building and other immovable properties owned, although they might collect sales tax on personal property tax like automobiles and so on. The states also collect revenue in the form of registration and license fees. While in North Carolina, their residents are subjected to real and personal property which are divided into three categories which includes Real Property, Personal Property, and Motor Vehicles.

So in simple words what we are trying to say is that, it is different for each state, as what is considered personal property tax in one state may not fall under the same category in another state and many states that impose personal property tax provide exemptions on properties that are not up to certain amounts. Personal property can also include assets owned by business or enterprises, such as: machinery, computer, furniture, telephones, and so on.

How Personal Property Tax Is Calculated

Generally, personal property tax is calculated based on the amount of properties owned and assessed as a percentage of its value. Such taxes that are based on the value of the property are also referred to as “ad valorem taxes”. The process of calculating and remitting Tangible personal property tax is quite complicated and varies from states to states.

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The tax assessors determine the value of the property which can be done in different ways. For instance the value of a car is set based on the average trade in value for that model, the year and make. How the tax rate is applied also differs by states and localities. Some states apply the same rates for all types of property( real, personal and mortar property) and others have a different rate for different kinds of property. Assessment ratios might also be higher for TPP than for real property.

Lets take for example an aluminum factory in new Mexico. The business must first determine if it has any tangible personal property that is subjected to tax. Once the business has determined its taxable TPP, it must also value the property, which is done by examining the cost of acquiring the property and the value when sold and the value of the income generated by the property.

The property value is then depreciated with the straight-line method using the states defined depreciation schedules which is calculated by dividing the value of the assets by the number of years it is expected to be used and subtract the amount from the value of the asset each year. The value obtained is then multiplied by the state’s uniform assessment ratio, which has been fixed at 33.3% for all property, to arrive at the taxable value.

This taxable value is then multiplied by the millage, which is the applicable property tax rate. Some states may apply the same value for both real and personal property, or they might impose different tax rates for each, which is one way for the governments to generate revenues on non-residential properties and favor tax payers.

After the TPP tax is calculated, taxpayers may reduce their liability through tax credits and abatements.

How To File And Pay Personal Property Tax

Personal property taxes are usually due and assessed in the first month of each year, then they are mailed out to individuals or residents or businesses that owe.

There might be a need for you to register certain types of property you purchased with your local tax office. This is done by completing a form at the assessor’s office in person or online which requires you to list the details of the property which also depends on where you live and the value of your gained property.

For instance, in some states like Orange County, California, the value of your personal property of your business must be up to $100,000 before you can file a business property statement form; otherwise it wouldn’t be necessary to file any form.

There may also be a fixed deadline for filing such forms each year, for instance Orange County fixed their deadline as 1st of April. Although businesses can file for an extension if they need more time.

Deductibility Of Business Personal Property On Federal Taxes

Unlike the states and local rules that require you to pay tax on business property, the IRS sees purchasing of business personal property as deductible business expenses. By taking the purchases of business personal property as deductions, you may reduce the effective cost of what you have purchased by 40 percent or even more.

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The IRS stated specifically that for you to be eligible for any deductions on personal property purchased for your business, such property must be ordinary and very essential for your business. Ordinary in the sense that it must be common for your line of business and essential in the sense that it is appropriate and helpful.

In addition, for personal property to be allowed for deductible, it must basically be for business use. For instance, a computer in your office or store that you use for maintaining records of all financial information is basically for business use. 

Other tangible personal property that can also be eligible for the deductible on your federal taxes includes vehicle expenses, licenses and dues, utility bills, and any other professional fees.

Conclusion

Personal property taxes are movable items that can be subjected to tax and depending on where you live, you may be required to pay personal property tax. And also remember each state and local government have their own individual rules, which might be the same or differ a little from place to place and how taxes are calculated and collected may also be different.

So it is advisable to check with the tax office or tax assessors to know which of your personal property is subjected to tax as there is absolutely nothing that beats first hand information.

FAQs

What are tax rates?

Tax rates are the percentage at which an individual or a company is being taxed.

What is proportional tax?

A proportional tax is an income tax system that levies the same amount of tax on all taxpayers of its resident irrespective of their income or wealth.

What is a flat tax?

The flat tax system is the same as the proportion tax system, it imposed the same amount of tax on each taxpayer regardless of their type of income with no room for deductions.

What is the assessed value?

Assessed value is the dollar value that is assigned to a home or property for the purpose of tax. It is usually a percentage of a fair market value.

What is the difference between a real property and personal property?

For the purpose of tax, real property generally refers to real estate or any immovable part of land while personal property refers to all movable or tangible property that you can move with you.

References

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