pickup truck

Understanding Personal Property Tax

By: , Contributor

Published on: Jan 30, 2020

Personal property taxes can have a significant impact on businesses and individuals in certain states.

Personal property taxes are taxes levied by some states and local taxing authorities on personal property. Unlike real estate taxes on fixed property, like land and buildings, these taxes are on movable property, such as vehicles and equipment, owned by an individual or business. It's an ad valorem tax, meaning it's on the assessed value of the item.

What is personal property tax?

Personal property taxes are taxes levied on the non-fixed property owned by individuals and businesses that reside in the authorizing entity's jurisdiction. Personal property tax enables state and local taxing authorities to generate additional tax revenue. The tax can be levied on two types of personal property:

  • Tangible personal property, which includes things like vehicles, boats, ATVs, RVs, airplanes, furniture, inventory, and equipment. In some cases, it can also include mobile homes and houseboats.
  • Intangible personal property, such as patents and copyrights.

For the purposes of this article, we'll mainly focus on tangible personal property taxes for individuals.

Taxing authorities levy a tax on the personal property based on its appraised value. A tax assessor determines this figure by looking at what an average buyer would pay for that item, using tools such as the Kelley Blue Book value or an appraiser's guide. If there is no readily available value, the assessor will use the purchase price minus depreciation.

Why personal property taxes differ by state

Each state has the authority to levy a tax on personal property. Some choose to impose tangible personal property taxes on individuals as well as on the tangible and intangible property owned by businesses. Others, meanwhile, only levy taxes on specific items or don't impose any personal property taxes.

According to the Tax Foundation, 43 states imposed ad valorem property taxes on tangible personal property in 2017. Louisiana generated the most revenue from these taxes as a percentage of its tax revenue in 2017 at nearly 29%, though on average states that collect taxes on personal property generated about 10% of their revenue from this tax. That's down from 11.3% in 2006, as several states have reformed their tax codes over the past decade.

How personal property taxes can impact individuals

Personal property taxes can have a notable impact on individuals who own lots of highly valued personal property. South Carolina, for example, imposes a tax on personal motor vehicles like cars, pickup trucks, and motorcycles at 6% of their assessed value, as well as on boats and airplanes at 10.5% of their assessed value. Residents pay a millage rate on the assessed value, which is the local tax rate for every $1,000 of a property’s assessed value. Here’s what that would look like for a family in South Carolina with two relatively highly valued vehicles and a boat:

Personal property Kelley Blue Book value Assessed value Personal property tax on assessed value (Assumed millage rate of 0.289)
Brand new pickup truck $37,000 $2,220 $642
A 10-year old minivan $10,000 $600 $173
A used motorboat $20,000 $2,100 $607
Total $1,422

Source: South Carolina's department of revenue.

Those who own less personal property, or items with low Kelley Blue Book values, on the other hand, would pay much less per year in personal property taxes.

Because personal property tax rates vary by state and the value of the taxable items, those who are relocating or buying valuable personal property should consider the impact those decisions will have on their situation. Individuals moving to a new state should see if it collects personal property taxes so that they don't encounter an unexpected bill. Meanwhile, those who are considering the purchase of new personal property, like a boat, should factor the impact of annual property taxes into their cost of ownership equation.

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