A personal property tax is a levy imposed on a person’s property. The tax is levied by the jurisdiction where the property is located and it includes tangible property that is not real property. Tangible property includes movable man-made objects that have a physical form and can be seen and touched. Not every state requires personal property tax to be paid, and the rate at which taxes are levied by those states that do varies. To explore this concept, consider the following personal property tax definition.
Definition of Personal Property Tax
- A tax levied on an individual’s personal property by the county or state in which they reside.
18th century Colonial America (as property taxes apply in the U.S.)
What is Personal Property Tax
Most Americans understand that they must pay taxes on any real property they own, such as their home and other real estate, or residential or commercial buildings. While there is no federal property tax, some states do levy taxes on valuable personal property items owned by people living in the state. Understanding the difference between real and personal property is as easy as understanding that personal property is movable, an asset that cannot be fixed permanently to a location, such as a building. Personal property such as art, furnishings, cars, boats, and other valuable assets may be taxed based on a percentage of the item’s total value.
Each state has specific laws regarding what is considered taxable personal. In most states that require personal property tax, items that are considered taxable include such things as equipment and machinery, furniture used in a business, kept in storage, or held for sale. These may include such items as:
- Motor vehicles
- Mobile homes
- Farm equipment and machinery
- Supplies not included in inventory
- Movable machinery, equipment, and tools
- Office furnishings and equipment
- Store furnishings, equipment, and displays
- Libraries, including physical and electronic media, manuals, books, CDs, tapes, and videos
Items Not Subject to Personal Property Tax
While the list of personal property subject to taxation varies by state, common items not subject to personal property taxes include:
- Intangible personal property – shares of stock, bones, notes, money at interest, business records, patents, trademarks, computer software, designs and surveys
- Farm animals – livestock, fur-bearing animals, poultry, bees
- Inventories – tangible items that are to be sold in the ordinary course of business
- Personal Use Items – items held solely for personal use around the home, such as household furnishings and goods, clothing, tools, and equipment
Joe’s Farm Supply must pay personal property taxes on the company’s delivery truck, the tractor used to move things around out behind the store, and the furnishings and computer equipment in the office. The business also has about $100,000 worth of livestock feed and farm equipment that is not taxable inventory, as it is intended to be sold to customers in the ordinary course of business.
In local jurisdictions across the United States, the government official appointed to determine the value of taxable items within its jurisdiction. To determine the taxable value of personal property items, the assessor must determine what the average person would pay for the item. This is simplified by the use of a personal property “blue book.”
For example, if in Virginia, the tax assessor uses the National Automobile Dealers Association Blue Book Value for vehicles and the tax rate on vehicles is 4.25%. If the NADA lists a truck value at $10,650, the tax could be calculated by multiplying the value $10,650 x .0425 = $452.63. This means that the owner of the truck would pay this amount each year unless the tax rate were to fluctuate, or the value of the item decreases. It is also common for the personal property tax rate to vary depending on the type of property, and local jurisdiction. For instance, as of 2015 in Missouri, the personal property tax rate is 33.5% for most types of person property, except mobile homes, which are taxed at a rate of 19%.
Failure to Pay Personal Property Tax
All states that impose property taxes have specific penalties for those who fail to pay those taxes in full and on time. If personal property taxes become delinquent, the owner is notified by mail, and provided a copy of the tax bill which reflects the tax amount, interest, and penalties. The tax authority may obtain a court judgement allowing it to garnish the individual’s wages or bank accounts to recover the delinquent amount. In extreme cases, the tax authority may issue a warrant for seizure and forced sale of the personal property.
Related Legal Terms and Issues
- Forced Sale – A civil court action in which a property owner is forced to sell the property in order to satisfy delinquent taxes.
- Judgment – A formal decision made by a court in a lawsuit.
- Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
- Personal Property – Any item that is moveable and not fixed to real property.
- Real Property – Land and property attached or fixed directly to the land, including buildings and structures.