What property is subject to personal property tax, business property tax, or use tax?

In addition to federal taxes, each state and some counties impose their own set of taxes. States and counties can impose personal property tax, business property tax, or other taxes on goods or services. The types of property, goods, or services that are taxable vary by state and county. Check your state tax department or county website to see what types of property, goods, or services are taxable in your area. The amount of taxes vary depending on the location, but in most places the personal property tax, business property tax, and use tax is set as a percentage of the value of the property, goods, or service.

Property Subject to Personal Property Tax

The most common types of personal property taxed by states include cars, boats, motorcycles, and aircraft that are purchased for personal use. For example, Virginia has a car tax and all residents of the state must pay a tax each year for owning a car. The car tax in Virginia is calculated based on the value of the car. The more expensive the car, the higher the car tax is.

Property Subject to Business Property Tax

Goods purchased for use by businesses are also taxed by many states and counties. Items typically subject to business property tax include most tangible items that are used by a business, such as telephones, furniture, fixtures, computers, desks, cabinets, chairs, and machinery. Some states also impose a business tax if the business takes items from inventory and starts to use them for business purposes. For example, a hair salon that purchases shampoo to sell in its salon will have to pay business property tax if it starts to use the shampoo on clients when the shampoo was orginally intended for resale to clients. By using the shampoo that was orginially purchased to sell, the salon has converted inventory to business property.

Property Subject to Use Tax

Use taxes are different from personal or business property taxes. Use taxes are imposed when there is no sales tax. The most common type of transactions that are subject to use tax is out-of-state or internet purchases. Most states exclude items such as food, magazines, and newspapers from use tax. In Maine, if a resident makes a purchase over the internet and the seller of the item does not collect Maine sales tax, the resident is responsible for reporting the purchase and paying use tax. In most states, use tax does not apply if there is a casual sale and the seller is not a business. For instance, if John is selling his car on his own, use tax does not apply because he is not a professional car dealer.

States impose use taxes to control competition between the states. Residents of one state may be shopping for goods in another state because the sales tax might be lower or there is no sales tax. For example, the state of Washington taxes goods purchased in Oregon if the goods are going to be used in Washington.

Case Studies: Taxable Property Types

Case Study 1: Personal Property Tax – Cars

In Virginia, a taxpayer owns a car with a value of $30,000. The state imposes a car tax on all residents based on the value of their vehicles. The car tax rate is 5% of the car’s value. In this case, the taxpayer would owe a personal property tax of $1,500 ($30,000 x 5%). This tax is paid annually and helps fund local government services and infrastructure.

Case Study 2: Business Property Tax – Office Furniture

A business purchases new office furniture for $10,000. The state where the business operates imposes a business property tax on tangible items used by businesses. The business property tax rate is 2% of the value of the items. In this case, the business would owe a property tax of $200 ($10,000 x 2%) on the office furniture. This tax is typically paid annually and contributes to the funding of local schools, public safety, and other government services.

Case Study 3: Use Tax – Out-of-State Online Purchase

A resident of Maine makes an online purchase from an out-of-state seller. The seller does not collect Maine sales tax, so the resident is responsible for paying the use tax on the purchase. The purchase amount is $500, and the use tax rate is 6%. In this case, the resident would owe a use tax of $30 ($500 x 6%). Use tax is levied to ensure fairness and prevent tax evasion on out-of-state or online purchases, helping to support local services and infrastructure.