If you can feel it and relocate it, then it meets the definition of tangible personal property.
Tangible personal property is a term most often used for tax purposes. It describes a wide range of items used in the course of conducting business or for operating a rental property. Items that are considered tangible personal property can be depreciated over five or seven years using the straight-line depreciation method. However, these items also can be depreciated using the accelerated method if you desire.
In this article we’ll take a closer look at what makes up tangible personal property and how it’s treated at tax time.
Tangible Personal Property Versus Real Property
The term real property refers to land and buildings. It can be classified in a number of ways, including residential, commercial, agricultural and industrial. Real property includes the surface land, as well as any permanent fixtures that are either above or below ground regardless of whether they are natural or man-made features.
Tangible personal property (TPP), meanwhile, are items that can be moved and physically handled. In a business office, tangible personal property refers to computer equipment, keyboards and mice, desks, furniture, copy machines, phones, supplies and similar equipment. For a construction company, tangible personal property could include commercial fleet vehicles, heavy equipment such as loaders and graders, hand tools such as nail guns, cordless drills and extension cords, and similar items related to the company’s business functions.
A company’s banking accounts aren’t considered tangible personal property because you can’t physically touch a checking account; however, you can handle the checks in a ledger book, which does meet the definition of tangible personal property. Items that are considered intangible personal property include patents, copyrights, and other forms of intellectual property.
Tangible Personal Property and Taxation
Property taxes are a primary source of revenue for local and state governments, accounting for roughly 31 percent of all taxes collected in a given year.¹ According to the non-profit Tax Foundation, there are 42 states that include tangible personal property in their property tax bases. The states that don’t levy this tax are Iowa, Pennsylvania, Ohio, Delaware, New Hampshire, Hawaii, New York and Illinois.
Calculating the amount you’ll be taxed on TPP varies from state to state and county to county. As an example, Palm Beach County, Florida, does not levy a TPP if the combined value of the assets is $25,000 or less. However, taxpayers in the county still must file an initial Tangible Personal Property tax return form with the county appraisers’ office to be approved for an exemption.
Although there’s not a blanket taxation policy on TPP, in nearly all instances TPP is taxed at the fair market value of the asset.
The Bottom Line
Tangible Personal Property is assets that can be moved about and touched. Most states levy a tax on TPP, and taxation rates vary wildy from state to state and in different county, city or municipal jurisdictions. Consult with your county appraiser’s office to learn more about tangible personal property taxation.
Sources:
1. States Should Continue to Reform Taxes on Tangible Personal Property, Tax Foundation, https://taxfoundation.org/tangible-personal-property-tax/
