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 34tangible personal property tax rules vary considerably even among neighboring municipalities 3some 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 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 56tangible personal property vs intangible propertytangible assets are physical items that can be touched and seen such as machinery buildings and inventory these assets are typically used for a company s operations and are typically subject to depreciation over their useful life think of some machinery that is physically used that breaks down and needs fixing intangible assets on the other hand lack physical substance but have value due to their legal or economic benefits examples of intangible assets include patents trademarks copyrights and goodwill these types of assets may lose value but they generally don t depreciate instead for tax purposes intangible assets are generally amortized over their useful life or a statutory period defined by the irs usually 15 years for most intangibles amortization allows businesses to deduct the cost of these assets over time similar to depreciation for tangible assets thereby reducing taxable income gradually the distinction between tangible and intangible assets is a part of the tax code as there is different tax treatment tangible assets are often subject to different tax rules and recovery periods compared to intangible assets additionally the initial cost basis which is the starting point for depreciation or amortization can vary depending on whether the asset was purchased produced or acquired through other means properly categorizing assets ensures compliance with tax laws and maximizes allowable deductions tax regulations can also impose specific rules for the capitalization of costs associated with acquiring or creating both types of assets for tangible assets costs such as installation transportation and testing may be capitalized while for intangible assets legal fees registration costs and other expenditures directly related to securing the intangible property are included in the asset s basis 7 all of this is to say that the distinction between tangible personal property and intangible property does matter in the eyes of the irs example of how tangible personal property is taxedin 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 jan 1 must complete form dr 405 and submit it to their local property appraiser by april 1 894if 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 98many states are aiming to eliminate or reduce personal property taxes 10