Malcolm Rivera
Property tax is a tax that small businesses pay on the assessed value of their real property, such as land or real estate. This type of tax is regulated at the state and local level, and the rates vary depending on the location of the property. Small businesses are also subject to personal property tax, which is levied on tangible personal property, such as machinery, equipment, fixtures, and supplies. This type of tax can also vary between jurisdictions, and businesses may need to file personal property tax returns and pay the related tax in different localities. Understanding and navigating property taxes can be complex for small businesses, and it is important for them to be aware of their tax obligations to avoid penalties and take advantage of any available exemptions or deductions.
| Characteristics | Values |
|---|---|
| Type of property | Real property (land, buildings, real estate) and tangible personal property (goods, products, equipment, machinery, vehicles, inventory) |
| Taxing authority | State and local (city, county) |
| Tax calculation | Property tax rate x assessed value of property (based on acquisition cost, fair market value, or current market value) |
| Payment frequency | Annual, quarterly, or other frequencies depending on the locality |
| Exemptions | Some states do not tax business personal property; some states exempt property below a certain value or for businesses with total personal property under a given amount; inventory is typically exempt from taxation |
| Compliance | High compliance costs for small and medium-sized businesses |
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What You'll Learn
Business property tax
In addition to business property tax, businesses may also be required to pay business personal property tax, which is a tax on tangible personal property owned or leased by a business. This includes goods and products necessary for business operations, such as machinery, equipment, fixtures, and supplies. Some localities may require businesses to pay an annual value tax on their personal property on top of their business property tax. However, inventory is generally exempt from taxation.
Calculating and paying small business taxes can be complicated and tedious, and it is important to review tax bills carefully to ensure accuracy. Businesses can also appeal their assessment if they feel they are being charged too much or disagree with the method of determining fair market value. Consulting with a qualified tax expert can help businesses stay compliant and legally minimize their tax burden.
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Business personal property tax
The calculation of business personal property tax can be complicated and varies by location. In most cases, the local authority will calculate the tax owed and send an assessment by mail. The business property tax bill is generally calculated by multiplying the property tax rate by the assessed value of the property. The higher the assessed value, the more tax a business will pay.
Some localities may require businesses to pay an annual value tax on personal property in addition to business property tax. Businesses can usually apply for deductions on business personal property items if they are taxed by the local tax authority.
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Tax on tangible personal property
"Tangible personal property" is a tax term that refers to personal property that can be felt or touched and physically moved. This includes items such as business equipment, furniture, machinery, inventory, and vehicles. Tangible personal property taxes are levied on movable property, in contrast to intangible personal property, which includes stocks, bonds, and intellectual property.
Small businesses may be subject to tangible personal property (TPP) taxes, depending on their location. While some states and localities have eliminated or reduced TPP taxes, others continue to impose them. TPP taxes can create high compliance costs for small businesses, and the revenue generated is often small. However, TPP taxes provide localities with needed funds for schools, roads, police, and other services.
To determine if your small business is subject to TPP taxes, you should research the property tax laws and rates in your specific area. You can reach out to your local tax office for more detailed information. Your local tax authority will assess your property and notify you of the amount of annual taxes you are responsible for paying.
Calculating TPP taxes can be complex as it varies by city, county, and state. The tax amount is typically calculated by multiplying the property value by the tax rate set by the local tax authorities. Some localities may also require you to list all property and provide the fair market value for each item. It's important to carefully review your tax bill and verify its accuracy before making a payment.
To reduce the burden of TPP taxes on small businesses, some states have implemented de minimis exemptions. These exemptions eliminate the tax liability for small firms that remain below a certain valuation threshold for their tangible personal property. By adopting such exemptions, states can significantly reduce compliance costs for taxpayers and tax administrators.
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Tax on intangible property
Intangible assets are assets that have no physical nature and cannot be held or seen. They include intellectual property, such as patents, trademarks, trade secrets, copyrights, digital assets, and franchises. Other examples of intangible assets include brands, brand recognition, goodwill, business names, customer loyalty, and unique value propositions.
The term "intangible tax" refers to taxes levied on the privilege of owning, transferring, or profiting from intangible assets. These taxes are imposed on the ownership, transfer, or utilisation of intangible assets, such as intellectual property or goodwill.
When it comes to small businesses, intangible assets can have a significant impact on tax obligations. While intangible assets may not be listed or valued by businesses, they can become relevant for tax purposes when transactions occur. For example, selling an intangible asset generates revenue, and the income from such a sale may be taxable. Similarly, purchasing an intangible asset can be considered a business expense and may be eligible for a tax deduction.
It is important to note that the tax treatment of intangible assets can be complex. The Internal Revenue Service (IRS) has an expansive definition of "intangible asset," which may surprise taxpayers when they receive their tax bills. The IRS defines intangible assets as "Section 197 intangibles," which includes assets such as licenses, permits, non-compete agreements, franchises, trademarks, and trade names. These assets are typically amortized over 15 years, and the capitalized costs must be amortized if they are held in connection with a trade or business or an income-producing activity.
Additionally, the capital gains tax rate for intangible assets varies depending on the total income and the length of time the asset was held. If an intangible asset is held for less than a year, it is subject to a short-term capital gains tax rate, while assets held for a year or longer are taxed at the long-term rate.
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Tax on real property
Property tax is a tax on immovable possessions like land and buildings. It is paid by individuals or legal entities, such as corporations, that own real estate. In most cases, property taxes for businesses are assessed by the city or county where the property is located.
Business property tax is a tax on the assessed value of real property, like land or real estate, that a business owns. The tax rate is based on the assessed value of the business's land or real estate, as opposed to the fair market value. The higher the assessed value of the property, the more is paid in property tax.
Business property tax is regulated at the state and local level. Local tax authorities will notify businesses of the amount of annual taxes they are responsible for paying. Localities tend to send out property tax bills on an annual basis, but some send them out more frequently (e.g. quarterly).
Calculating business property tax can be difficult because it varies by city, county, and state. There is no precise universal formula, but the tax bill is generally calculated by multiplying the property tax rate by the assessed value of the property.
Business personal property, or tangible personal property, are any goods a business owns and uses that are necessary for business operations. Examples include machinery, equipment, fixtures, and supplies.
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Frequently asked questions
Business property tax is a tax that you pay on the assessed value of real property, like land or real estate, that your business owns. Your tax rate will be based on the assessed value of your business’s land or real estate, as opposed to the fair market value.
Tangible personal property includes all property not permanently attached to a physical location. This includes business machinery, equipment, fixtures, and supplies.
Calculating business property tax can be difficult because it varies by city, county, and state. Your local authority will assess your property and send you a bill for the taxes you owe. Your business property tax bill is generally calculated by multiplying your property tax rate by the assessed value of your property.
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