What Is Tangible Personal Property?
Tangible personal property is a tax term describing personal property that can be felt or touched and physically relocated, such as furniture, office equipment, machinery, and livestock. It is always depreciated over either a five- or seven-year period using straight-line depreciation but is eligible for accelerated depreciation as well and is taxed in several countries, including large chunks of the U.S.
Key Takeaways
- Tangible personal property is personal property that can be felt or touched and physically relocated.
- Examples include office equipment, livestock, jewelry, toys, light trucks, and buses.
- In several countries, including many states in the U.S., tangible personal property is subject to ad valorem taxes.
- These taxes vary considerably, may not apply to all types of tangible personal property, and are exempt in some states.
Understanding Tangible Personal Property
Tangible personal property is the opposite of real property, in a sense, as real property is immovable. It can also be touched—unlike intangible personal property.
Tangible personal property, or TPP as it is sometimes called, includes items such as furniture, machinery, cell phones, computers, and collectibles. Intangibles, on the other hand, consist of things that cannot be seen or touched like patents, copyrights, and non-compete agreements.
Most states impose property taxes on tangible personal property. These are collected on top of the taxes applied to real property like land and buildings to help fund various services such as schools, roads, and emergency medical services. Tangible personal property taxes are regulated at the state level but are levied primarily by local governments. They can vary considerably by jurisdiction.
Some states don’t charge a tangible personal property tax. And those that do may only apply it to certain items, such as personal property that is valued above a certain threshold or only used for business purposes.
How Tangible Personal Property Is Taxed
Tangible personal property can be subject to ad valorem taxes, meaning the amount of tax payable depends on each item’s fair market value. In most states, a business that owned tangible property on January 1 must file a tax return form with the property appraisal office no later than April 1 in the same year.
The property appraiser places a value on the property, and the tax amount due is calculated by multiplying the property value by the tax rate set by the tax authorities in the state.
Tangible personal property tax rules vary considerably, even among neighboring municipalities.
Some counties and cities require the filer to list all property on the tax form and to provide the fair market value and cost for each tangible property. In these cases, the county will also provide a valuation table that can be used to estimate the value of the property based on its age and useful life. Some states only apply a tax on tangible property in the year the property was purchased.
Deductions
Tangible personal property tax is paid by a landlord or company to its local government, but landlords or company owners can claim a deduction on federal income tax returns. To claim the deduction, the tax must only apply to personal property owned and bought for the business’ operation, be based on its fair market value, and be charged on an annual basis (as opposed to a one-time basis).
Example of How Tangible Personal Property Is Taxed
In Florida, anyone who has a proprietorship, partnership, or corporation; is a self-employed agent or contractor; or leases, lends, or rents property and owned tangible personal property on January 1, must complete Form DR-405 and submit it to their local property appraiser by April 1.
If the tangible personal property is valued above $25,000, the entity or person will start paying tax on it. The property appraisal office will usually mail a letter to the company notifying it to file taxes on its property. If the company or landlord believes the letter is not applicable, they can return the letter to the office along with another letter explaining why taxes on tangible personal property do not apply to the business.
Many states are aiming to eliminate or reduce personal property taxes.
Where Is Tangible Personal Property Not Taxed?
Seven states exempt all tangible personal property from taxation. They are:
- Delaware
- Hawaii
- Illinois
- Iowa
- New York
- Pennsylvania
- South Dakota
Moreover, other states exempt most tangible personal property from taxation. They include:
- New Hampshire
- New Jersey
- North Dakota
- Ohio
Resistance against a tangible personal property tax appears to be growing. In 2023, according to MultiState, a state and local government relations company, 23 states sought to reduce or eliminate taxes on tangible personal property.
The tax has been described as complex, costly to administer, and guilty of pushing businesses to set up shop in other states with friendlier rates.
What Is an Example of Tangible Personal Property?
Tangible personal property consists of anything that can be felt or touched and physically relocated. That can include big items such as cars, refrigerators, livestock, and gasoline storage tanks and pumps at retail service stations, as well as little stuff such as a printer, cell phone, or jewelry.
What Qualifies as an Intangible Asset?
An intangible asset is something of value that is not physical in nature. Classic examples include brands, goodwill, and intellectual property. These things are worth a lot to companies but cannot be held or touched and are sometimes more difficult to value.
What Is the Tangible Personal Property Tax in Pennsylvania?
Pennsylvania is one of the states that doesn’t collect personal property taxes. It doesn’t technically collect real property taxes, either, although several of its counties, municipalities, and school districts do.
The Bottom Line
Tangible personal property, or TPP as it is often called, is personal property that can be felt or touched and physically relocated. That covers a lot of stuff, including equipment, livestock, and jewelry.
In many states, these items are subject to ad valorem taxes. How tangible personal property is taxed can vary considerably, not just by state but also by city. Some places rely heavily on this tax, whereas others have completely banned it or offer various exemptions.
