You may already know that you need to pay property taxes on your real estate, like land, a house or a building. But what about your car, the new boat you just bought or even Fido?
Depending on what state you live in, you could have to pay personal property taxes on these and other items. Personal property taxes are usually assessed as a percentage of the value of an item. They can fall under county or state taxes, depending on where you live. Not all states tax personal property, however, and what is subject to personal property taxes varies widely from state to state.
In some states, the personal property tax refers mostly to household personal property items. Often that means a vehicle, like your car or truck. When buying such an item, you have to remember to take such taxes into consideration as part of the total cost. Expensive new cars often have the highest taxes, since personal property taxes are usually a percentage of the vehicle's worth.
In other states, the personal property tax only applies to businesses. In those states, personal property is anything that can be removed from the business without damaging it. For example, you can't remove the walls of the business, so those aren't taxed under personal property. But you could take out the office furniture, which is something that many states do tax.
If you lived on a farm, the land would be taxed under real estate property taxes. If you lived in a state with personal property taxes, you might also have to pay personal property taxes on your farming equipment and your livestock.
In this article you'll find out how personal property taxes are assessed from state to state, and what can make your property tax bill change.
Personal Property Tax Assessments
Most states that tax personal property use a tax assessor to decide how much tax a person or business should pay. A tax assessor is a public official who determines the true value of an item. This true value is an amount that the average, unbiased buyer would pay for the item. Many states and their tax assessors use a blue book value to figure out the rate for various vehicles and equipment. The blue book value is what a vehicle dealer would pay to buy the item.
In Virginia, all cities and counties levy personal property taxes. In Arlington County, this tax is applied to all motor vehicles regularly parked overnight in the county, such as cars, trucks, motorcycles, motorhomes, boats and more. In 2020, the county board set a tax rate of $5 per $100 of assessed value, with your vehicle's value being the "Clean Loan" value in the latest edition of the used car guide published by the National Automobile Dealer's Association (NADA). The assessor also takes into account the number of months your vehicle was located in Arlington County and whether or not it qualifies for tax relief provided by the Commonwealth of Virginia.
So how much could these taxes be? Let's say your family owns a sports utility vehicle and an all-terrain vehicle. The tax assessor finds that the value of your SUV is $10,650 and your ATV is worth $1,573. To find the amount of taxes due, divide the assessed value by $100, and then multiply the result by the tax rate.
SUV: $10,650 ÷ $100 = $106.50; $106.50 x $5 = $532.50
ATV: $1,573 ÷ $100 = $15.73; $15.73 x $5 = $78.65
Total Personal Property Tax: $611.15
Your family has to pay more than $600 each year in personal property taxes for your vehicles. If you live in a state with personal property tax, consider the long-term cost when you buy a vehicle.
Many states' personal property taxes apply only to business expenses. In those cases, your personal vehicles would be exempt from paying taxes. If you owned a business, you could have to pay personal property taxes on furniture, fixtures, equipment, inventory, libraries and supplies.
In Maryland, where personal property taxes apply mostly to business-related items, both the county and the town tax businesses. That means if a business bought some furniture, it would pay personal property taxes on it once to the town, and then again to the county. Since there is no blue book covering office furniture, machinery, tools, etc., assessments are based on the item's original cost minus depreciation for age.
Some states also tax intangible assets under their personal property tax. Intangible assets are goods and items you can't actually touch, such as stocks, bonds and patents. Few states tax intangible assets on their personal property taxes. Most tax personal vehicles or business assets.
Personal Property Tax on a HomeA home may seem like it should be taxed under real estate property tax, right? Not if it's a mobile home. In some states, because it's not a fixed space, a mobile home is taxed under the personal property tax.
How a Property Tax Bill Is Calculated
The concepts behind the calculation of a property tax bill are pretty simple. We'll follow the path of the property tax bill for old Mr. MacDonald, who has a farm. Here is the basic formula:
([Property Value x Assessment Rate] - Exemptions) x Property Tax Rate = Tax Bill
The biggest variable in a property tax calculation in a given assessment area is usually the value of the property. Let's say that a recent appraisal valued Mr. MacDonald's property at $800,000.
His property would be added to what is usually called an assessment roll, a long list of all the taxable properties in an assessment area.
The assessment rate is a percentage set by the local government. This rate varies widely, from 33.33 percent in most of Illinois to 1 percent in Los Angeles (which adds other debt service tax rates to the assessment rate) [sources: Illinois Department of Revenue, Los Angeles County Office of the Assessor]. If a government needs to increase its revenue from property taxes, it's more likely to change the assessment rate than to change the property tax rate. Let's say the assessment rate in Mr. MacDonald's area is 10 percent.
$800,000 x 0.10 = $80,000
An exemption reduces the property assessment value. Many states have homestead exemptions and exemptions for senior citizens and the disabled. Let's say that Mr. MacDonald's property is eligible for $50,000 in exemptions.
$80,000 - $50,000 = $30,000
So, the taxable value of Mr. MacDonald's property is $30,000.
Actual property tax rates vary widely but are generally limited by law. Let's say the property tax rate in Mr. MacDonald's area is 2 percent.
$30,000 x 0.02 = $600
Mr. MacDonald's tax bill is $600. This $600 goes toward relieving the $2.5 million the local government needs to fill out the budget.
You might be thinking about how a property tax bill could change over the years. Go to the next page to learn about various factors that influence the size of a tax bill.
Alternative Ways to Calculate Property Tax BillsExemptions might be applied before the property value is multiplied by the assessment rate. It all depends on local procedures. The numbers and calculations differ, but the outcome is, more or less, the same. Many states and municipalities offer free online property-tax estimation tools.
What Makes Personal Property Tax Bills Change?
Personal property tax bills do not fluctuate like real estate property taxes do, so while they do change over time, the amount doesn't change wildly from year to year.
For example, real estate property taxes are often based on a percentage of the market value of your property. Market value can oscillate based on the area around you. If your neighbors all renovate their homes, the market value for the area goes up, but then so do your real estate property taxes, even though you didn't do anything. Personal property taxes don't work that way. If all of your neighbors buy new cars, your car's personal property tax rate does not change. However, some circumstances can cause variations in tax bills.
Rates change from year to year based on depreciation. In general, age and wear-and-tear make your items less valuable. However, even the same items can be taxed differently. For example, you and your neighbor own the same car. It's the same make, model, year and color, and you even have the exact same optional features on it. Seems like they should be taxed the same, right? Not necessarily.
Let's say you take great care of your car. You wash and wax it regularly, keeping the inside and outside in good condition. You keep it in the garage, and because you work from home, you only drive it once a week to the store. When you do drive it, you park far away to be sure that it does not get dinged by runaway shopping carts.
Meanwhile, your neighbor commutes 50 miles to and from work every day. He drives 400 miles every other weekend to visit his family. He has gotten into a couple minor fender benders. Since they just dented his car a bit, he didn't get them fixed. Plus, he parks his car on the street, where the bumpers get scratched, and the paint is starting to fade from the weather.
Your car's exceptionally low mileage and great condition mean it's worth more than your neighbor's worn-down car, even though they're the same vehicle. However, because you have the nicer car, your car's market value is higher, and your personal property taxes will be higher too. Take heart knowing that you will make a lot more if you sell it — and of course, you have the sweeter ride.
Personal property taxes don't fluctuate much within a state, but if you're moving to a new state, you may want to check its taxes. What is taxable may change. You might even be moving to a state without personal property taxes. A few states, including Delaware, Illinois and New York, exempt all tangible personal property from taxation. And 24 states have no tax on vehicles.
To learn more about personal property taxes, follow the links on the next page.
Military ExemptionsSome places offer personal property tax exemptions for military personnel. In Virginia Beach, Virginia, for example, active duty military whose legal residence lies outside of the state are exempt from personal property taxes.
