What Is Personal Property Tax? Definition and How Funds Are Used

What Is Personal Property Tax?

Personal property tax is a tax imposed by state or local governments on certain assets that can be touched and moved, such as cars, livestock, or equipment. Generally, personal property means assets other than land or permanent structures, such as houses, which are considered real property.

Each locality can apply different personal property tax rules and those who collect it typically use the proceeds to fund public works projects, such as road maintenance or the construction of schools.

How Personal Property Taxes Work

States and local governments with personal property taxes can apply them differently, in terms of:

• Which types of property are subject to tax
• How the tax is calculated
• What the funds raised from personal property taxes are used for

In North Carolina, for example, property tax is assessed locally and collected by individual counties. The North Carolina Department of Revenue, which collects sales and income tax, plays no part in the collection or management of personal property taxes.

North Carolina residents are subject to taxes on both real property and tangible personal property, divided into three categories:

• Real property
• Personal property
• Motor vehicles

Other states, such as New York, only tax real property, like land and buildings, although they and their local governments may collect sales tax on personal property at the time it is purchased. In the case of personal property like automobiles and motorcycles, states also collect revenue in the form of registration and licensing fees.

Examples of Taxable Personal Property

Because state and local governments define personal property differently, what's considered personal property in one state may not fall under that same umbrella in another. As mentioned, not every state taxes personal property at all. And many that do tax it provide exemptions for personal property that is worth less than a certain amount.

Personal property basically covers anything you own other than real property. The distinguishing factor between personal property and real property is that the former is movable and isn't fixed permanently to one particular location. Examples include clothes, jewelry, furniture, and automobiles.

Personal property can also include assets owned by a business. Some typical examples are:

• Machinery
• Equipment
• Furniture
• Photocopiers
• Computers
• Telephones
• Supplies

How Personal Property Taxes Are Calculated

Broadly speaking, personal property tax is calculated based on the value of the property in question and generally assessed as a percentage of that value. Taxes based on the value of the property are sometimes referred to as ad valorem taxes.

Tax assessors determine the value of personal property in different ways. In Missouri, for example, the City of St. Louis sets car values based on the average trade-in value for that make, model, and year, as established by the National Automobile Dealers Association.

The tax rate and how it's applied will also vary by state and locality. Some states, for example, impose a flat tax rate across all property types, including real property, personal property, and vehicles. Others have different rates for different kinds of property. Many allow counties or other local governments to determine what rate to impose, although the state may set limits.

In California, for example, the basic property tax rate is 1%. This applies to personal property owned by individuals or businesses, as well as to real property. But California counties can also add fees or other charges to their personal property tax assessments.

Your local tax assessor's office (or its website) should be able to supply information on the personal property tax rate (if any) that you're subject to and what types of property are included.

How to File and Pay Personal Property Tax

Typically, personal property tax is due annually and assessed on January 1 of each year. Bills are then mailed out to individuals or businesses that owe the tax.

When you purchase certain types of personal property, you may need to register them with your local tax office. This generally means completing a form either online or in-person at the tax assessor's office, listing the details of the property.

Whether you need to file this sort of form can depend on where you live and the value of the property. In Orange County, California, for example, filing a business property statement form listing business personal property is only required when the aggregate value of the property is $100,000 or more. So if you run a business but your equipment is valued at less than $100,000 in total, it wouldn't be necessary to file.

There may be a set deadline for filing this form each year. Using Orange County as an example once again, the deadline is April 1. Businesses can, however, file for an extension if they need more time.

The Bottom Line

Depending on where you live, you may be taxed on the property you own that’s not attached to land, such as vehicles and household items. Personal property, which refers to assets that are movable, is taxed in several states and localities in the United States and can be quite complicated as each jurisdiction has its own rules on what constitutes personal property and how it’s taxed and collected.

It's not all bad, though. Places that impose this tax typically use the money to improve public infrastructure and services. And it’s possible to subtract these expenses from your federal tax return, reducing the amount of taxable income you owe.