If you’re a business owner who owns a building, land, or property, you are probably familiar with business property taxes. But, you may be responsible for paying business personal property taxes in addition to your other taxes. Read on to learn all about business personal property tax and whether you’re responsible for paying it.
What are business personal property taxes?
When you think of property taxes, you likely picture buildings, land, and real estate your business owns. But, property taxes aren’t limited to just buildings. They also cover other items owned by your company that you use for business.
Business personal property, also known as tangible personal property, are items a business uses and owns for day-to-day operations. Business tangible personal property can also be goods businesses take with them when moving locations.
Some examples of business personal property include:
- Furniture (e.g., chairs)
- Filing cabinets
- Paper shredders
Keep in mind that this list is not all-inclusive. There could be other property your business owns that you’re required to pay business personal property tax on. Because these items are used for business purposes and operations, some localities require business owners to pay property tax on them, along with taxes for buildings and real estate.
So … how do you know what is taxable when it comes to business personal property? There is no comprehensive list for which items are taxed because business personal property tax varies from state to state (covered more later). And, some specific types of business personal property, like supplies, are exempt from taxation in jurisdictions.
Who needs to pay business personal property taxes?
Business personal property taxes vary depending on your locality. Your local tax authority may require you to pay an annual personal property tax in addition to your business property taxes. Or, they may lump your business personal property and regular business property taxes together. And as mentioned, the items you have to pay tax on may also vary depending on your jurisdiction.
Business personal property tax by state
Some states tax business personal property, while others do not. As a business owner, it’s your responsibility to know whether or not your state/locality taxes business personal property.
Twelve states do not tax business personal property:
- New Hampshire
- New Jersey
- New York
- North Dakota
- South Dakota
Some states may have more complex personal property tax processes than others. There are a few states that tax both tangible assets (physical items) and intangible assets (e.g., stocks and bonds). Of the 38 states that do have some form of tax on business personal property, most do not tax intangible property.
Check with your state to find out state-specific personal property tax rules and how to stay compliant.
Business personal property tax form
Some localities incorporate business personal property tax into your business property taxes. If you live in a locality that combines business property and personal property taxes, you may need to complete a business personal property tax form annually.
Depending on your locality, you may be required to submit a form annually regardless of whether your taxes are combined with your other business property taxes. If your locality requires your business to fill out a form, you likely need to include business details and information about your business personal property (e.g., what items you have for business purposes).
Your local tax office uses the information from your form to determine how much you owe in business personal property taxes and business property taxes.
If you’re unsure if you need to fill out a form for business property taxes, contact your local tax authority.
Tax deductions and business personal property
If you’re required to pay taxes on your business personal property, you may be able to apply for deductions. Typically, the IRS allows you to deduct certain personal property items used for business if your local tax authority taxes them.
In Publication 535, the IRS specifies that in order for a personal property purchase to be eligible for a deduction, the item must be “ordinary and necessary” for your business. Ordinary expenses include costs that are “common and accepted” for your type of business. On the other hand, necessary expenses are expenses that are “helpful and appropriate” for your company.
Additionally, to take advantage of the deduction, your business personal property must be solely used for business purposes. For example, you can deduct a laptop you only use to manage and maintain your business’s information. But, if you utilize that laptop at home for personal uses (e.g., social media, watching videos, etc.) in addition to business-related uses, you likely won’t be able to deduct it.
Indicate any applicable business personal property tax deductions on your business’s federal tax return.
If you have any questions about what business personal property you can and cannot deduct or any other deduction-related questions, check out Publication 535 or contact the IRS directly.
Business personal property tax tips
Handling business personal property taxes can be confusing, especially if you just started your business and are learning the ropes.
To simplify managing business personal property taxes for your company, do your homework by researching local and state tax laws. Contact your state and local tax authorities to find out whether or not you need to pay personal property taxes on items used at your business. Be sure to also research what items you can deduct on your business tax return.
When you receive your business personal property tax bill, review it carefully to ensure it’s accurate. If the amount or billing details seem inaccurate, contact your local tax office.
To further streamline your business personal property tax process, consider hiring an accountant or a tax advisor to help you out. Or, consider investing in accounting software to keep track of your expenses and business income.
As always, make sure you’re keeping your business property tax records in case of an audit. Store your records in a secure location, such as a locked filing cabinet or password-protect digital filing system.
Need an easy way to track your business’s money? Patriot’s accounting software helps you streamline your books so you can get back to what matters most: your business. Try it for free today!
This is not intended as legal advice; for more information, please click here.