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Tangible personal property (TPP) is any physical property that's both movable and can be touched, like office furniture, vehicles, and equipment. It's different from real property (or real estate) that has a permanent location. It also differs from intangible personal property, which can't be touched, such as financial accounts, copyrights, and patents.
What is tangible personal property in a business?
Tangible personal property is any physical asset, excluding fixed real property like land and buildings, that a business owns to conduct their operations. Business personal property usually falls into the following categories:
- Office furniture, supplies, and devices
- Tools and equipment
- Vehicles and machinery
- Inventory and parts
Examples of business tangible personal property
Businesses rely on a variety of tangible personal property so that their employees can perform office tasks, travel to clients, and complete work-related projects. Examples include:
- Office-related property like desks, chairs, tables, computers, phones, and fax machines
- Construction-related equipment and tools such as saws, drills, hammers, and screwdrivers
- Manufacturing tools and equipment such as large machines or 3D printers
- Company-owned cars or vans that employees use to visit clients, as well as machinery like forklifts and excavators
- Parts used by employees to fulfil work orders for customers, like pipes, hot water tanks, and lumber
In essence, business personal property includes any physical property (aside from real estate) owned by the company to conduct business. Thus, the only exclusions for business tangible personal property would be any personal property owned by individuals. For example, an employee's car, cell phone, and other items, such as household goods that they own but use for work-related activity.
Tangible personal property vs. tangible assets
A tangible asset is a broad term that includes all the physical assets of a business, tangible personal property, and real property. Thus, the major difference between the two terms is that personal property is movable while real property, which encompasses things like land, buildings, and other fixed real estate, isn't.
How tangible personal property can affect taxes
Many state and local governments levy a personal property tax to generate additional revenue. Like real property or real estate taxes, personal property taxes are an ad valorem tax, meaning the taxing authority bases the tax on the estimated value of the property. The TPP tax can be on either the fair market value or the assessed value set by a property appraiser. According to the Tax Foundation, 43 states levy a tangible personal property tax.
Because of this, businesses (as well as individuals who are self-employed or independent contractors) need to keep a running list of business property to accurately file a tax return. That increases their compliance costs and takes time since the property owner will need to work with the property appraiser's office before filing a tax return to ensure accuracy. If the personal property owner disagrees with the assessed value by the appraiser, they can file an appeal with the assessor. Success in lowering the value of the personal property will result in less personal property tax owed on the asset.
The threat of tangible personal property tax can also affect investment decisions, especially since personal property faces an ad valorem tax. A business would pay a lower tax rate by keeping older equipment that has a lower value because of taking a depreciation deduction on the original cost. It can also lead a company to consider purchasing a used asset rather than a new one since that can affect tax liability.
Tangible personal property is an important term for business owners
Businesses tend to own lots of personal property so that they can meet the needs of their customers. It's essential to understand what qualifies as tangible property since many state and local governments levy a tangible personal property tax on businesses. Because of that, those considering starting a business should check whether their state requires filing a tangible personal property return. That way, they won't unexpectedly discover that they owe unpaid taxes.
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