News & Publications
Business Personal Property Tax Considerations
Whether you’re a business that’s just starting out, or an established one looking to expand into another state, obviously there are a multitude of factors (tax and otherwise) to be considered. Regarding the business personal property tax piece of the equation - if you have a large-dollar asset cost or carry inventory, there are a few other aspects to consider besides just the tax rate. All of them must be looked at in conjunction with one another when deciding which state would be the most favorable. Below is a brief glance at each one.
Does the state tax business personal property?
Most states do tax business personal property, but there are currently 12 states that do not. A majority of the non-taxed states are in the eastern and central sections of the country.
Does the state tax business inventory?
Contrarily, most states do not tax business inventory; there are eight that definitely do, and an additional six that we refer to as “footnote” states.
Are there value thresholds?
A fair number of states have instituted thresholds. The threshold is an amount set by either a state or county. If the total depreciated value your assets falls below the threshold, you will not be taxed. In addition, you may not even have to file a return (NOT an option for first-time filers). A couple examples are an $80K threshold per township in Michigan, and a $207,366 statewide threshold in Arizona.
Are there incentives?
Several states offer incentives. As with most matters in the tax world: It depends. They are normally triggered by a particular level of capital investment or job creation, and you’ll be rewarded with a multi-year tax abatement generally ranging from 50% – 100%.
What are the depreciation factors & floor %?
Different types of assets are depreciated differently, depending upon their perceived “useful life.” Furniture is normally assigned a life of 8-10 years, whereas a laptop is depreciated over a 3-5 year span. However, even within similar categories, there are a plethora of depreciation factors that vary from state to state. In addition, there’s a “floor %” – meaning that while an asset is in use, it’ll continue to be taxed. So even if it may have a $0 book value, it will retain a taxable (albeit usually low) value until it is disposed.
As an example, a Colorado asset with an eight-year useful life is valued at 87% in its first year, with continually reduced factors until its 8th (floor) year of 15%. In Virginia, a similar asset is valued at just 60% in its first year and has a floor of 2%. Over the first eight years, the aggregate Colorado valuation totals over $36K, and the Virginia valuation just $23K. So Virginia appears to be the front-runner.
Is there a state assessment ratio?
The final property consideration is whether a state has an assessment ratio. Think of this as an additional value reduction that’s placed on your assets prior to the tax calculation. There are currently 18 states that offer such a rate. It ranges from 3% in Montana to a whopping 70% in Connecticut!
Staying with our state examples from before, Colorado does have such a value-reducing rate – and it’s 29%. When that percentage is applied to their previous value of $36K, we see that their final aggregate amount has been reduced to just over $10K! So does that make Colorado the front-runner?
At this point, the valuations are now at an “apples to apples” comparison. The jurisdictional tax rates can be applied, and at least the “business personal property tax piece” of your equation can finally be solved!
For More Information
If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.
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