Understanding Business Personal Property Tax: Real Property vs Personal Property and Beyond

June 6, 2023 |

Today’s commercial property owners have a lot on their plates. In addition to day-to-day business operations, property upkeep and other tasks that keep calendars filled, there are a multitude of tax obligations to consider. Among these is the often-misunderstood business personal property tax.

The business personal property tax is an ad valorem fee commercial property owners pay for items that generate income. Business personal property can include anything from company vehicles to heavy machinery, office furniture and supplies — and assessments are based on the value of the business personal property itself.

Of course, having a healthy understanding of a subject is the first step toward ensuring you, the property owner, are prepared for the tax seasons to come. In this blog post, the Lane team will shed light on the intricacies of business personal property tax and provide essential tips for commercial property owners to help navigate business successfully forward.

Diving Deeper into the Business Personal Property Tax
As we’ve mentioned, the business personal property tax is a tax levied on the value of a business's tangible assets (or in other words, its personal property). The tax is typically imposed by local jurisdictions such as cities or counties and is calculated based on the assets’ assessed value. In Texas, Section 11.01 of the tax code dictates the state has jurisdiction to tax tangible commercial property as long as it meets one of three general criteria:

  • The property is located in the state for longer than a temporary period
  • The property is temporarily located outside the state and the owner resides in Texas
  • The property is used continually, whether regularly or irregularly, in Texas

Business personal property taxes generate revenue that supports public services and education, as well as infrastructure needs. It’s important to note that business personal property tax regulations and requirements may vary by jurisdiction. We recommend working closely with a trusted tax firm that understands the laws impacting your particular property, to ensure you’re in compliance and operating in your business’s best interests.

How do local entities know how to calculate your business personal property taxes? Much of it is based on your rendition. A rendition is a form commercial property owners are required by law to complete and return to their local central appraisal district (CAD) each year. Failure to supply a rendition — or to list all necessary business personal property — can result in substantial penalties.

A Closer Look at What’s Being Assessed: Real Property vs Personal Property
Not all commercial property is created equal. At least, it isn’t all taxed together, or in the same way. Taxing entities will generally divide your assets into two separate categories — real property vs personal property. And different regulations apply to each.

  • Real Property: This category lumps together elements permanently affixed to your location. They’re the items that would stay behind in the event that a commercial property owner would decide to sell. Real property includes, but is not limited to, land, driveways, fencing, landscaping and buildings.
  • Personal Property: This category comprises movable assets that are not permanently attached to a commercial property owner’s land or building. (And it’s this blog post’s key focus.) Business personal property includes, but is not limited to, equipment, machinery, furniture, computers, inventory and other tangible assets used in business operations.

Business Personal Property Tax Exemption Considerations
Tax laws are complicated things — made all the more so due to the fact that they vary from one jurisdiction to another. In Texas, for instance, where there is no state property tax, such taxes are assessed on a local basis. Many jurisdictions offer exemptions or deductions related to certain types of business personal property. Business personal property that often doesn’t require payment includes:

  • Farm Products: Livestock, poultry, eggs, agricultural products and some nursery products
  • Implements of Husbandry: Machinery and equipment used in ranching, farming and timber production
  • Motor Vehicles Used for Production of Income and Personal Activities: The exemption does not apply for vehicles used to transport passengers for hire
  • Offshore Drilling Rigs: These are exempt only if being stored for a purpose other than repair — and if they are not used for drilling

Lane Tip: For more insight into Texas Property Tax Exemptions, download the Property Tax Exemptions PDF found on the Texas Comptroller’s website.

Tax Season Best Practices for Commercial Property Owners
An effort to remain informed — and to stay organized, too — can go a long way toward ensuring a smooth tax season. Here are a few things to keep in mind.

  • Maintain Accurate Records: Keeping meticulous records of all personal property assets is vital. Include details such as descriptions, purchase dates, costs and depreciation information. This documentation not only helps during tax filings, but supports accurate valuations and potential insurance claims.
  • Understand Local Assessment Methods: Familiarize yourself with assessment methods used by your local jurisdiction. Assessments may be based on cost, market value or a combination of the two. Stay informed about any changes in assessment practices or rates to avoid surprises during the tax season.
  • Look for Qualifying Exemptions: Research and understand the exemptions available in your area. Taking advantage of these opportunities can help reduce your tax burden.
  • Plan for Depreciation: Personal property assets typically depreciate over time. Understanding depreciation rules and methods is crucial for accurate tax reporting. Consult with a tax professional to ensure you are using appropriate depreciation schedules and methods to maximize deductions.
  • Get Professional Assistance: Tax laws and regulations are complex and ever-changing. Engaging the services of a tax professional with expertise in property taxation can help. They can provide guidance, help you navigate the intricacies of tax laws, and ensure compliance with all filing requirements.

The issues surrounding business personal property tax might not be cut and dried, but they’re much more manageable with the right team on your side. If you have questions about any of the above, or if you’re interested in learning how Lane can help you ensure you’re only paying what’s fair with regard to your commercial property taxes, feel free to contact our team. We’re here to help, and we look forward to working with you!



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