Tangible Personal Property: Definition, Meaning & Examples

KEY TAKEAWAYS

• Tangible personal property is a tax term that represents anything that can be physically used.
• This includes anything from various small office fixtures to large vehicles.
• Tangible property also includes assets that don’t inherently qualify for any other class life. This includes toys, sports equipment, and jewelry.

What Is a Tangible Personal Property?

Tangible personal property is a tax term for personal property that can be moved physically. Furniture and office equipment are common examples of tangible personal property. In addition to being eligible for accelerated depreciation, tangible personal property is always amortized. This is over a five- or seven-year period. This can be done by utilizing straight-line depreciation.

Anything used in the running of a business or rental property that is not real property (land and buildings) is referred to as tangible personal property.

How Is Tangible Personal Property Taxed

Any tangible personal property would be taxed via ad valorem taxes. In the majority of states, a company that owned tangible property as of January 1 is required to submit a tax return form to the office of real estate assessment in the same year no later than April 1. The property is assigned a value by a property appraiser, and the amount of taxes owed is determined by multiplying the assigned value by the state tax rate.

How to Calculate Tangible Personal Property Tax Liability

Tangible personal property tax liability can be calculated by first figuring out the assessed value of the property. Once you have done that, you multiply it by the assessment ratio that comes with that property class. 

This method can be visualized via the following formula:

What Are the Tangible Personal Property Tax Limitations?

State governments have implemented controls on the increase of personal property taxes, similar to the limitation regimes established for real property. 

There are three ways to limit property taxes: 

• Levy limitations
• Rate limits
• Assessment limits

What Are the Exemptions for Tangible Personal Property?

Each tangible personal property tax return can be eligible for an exemption that totals up to $25,000 of assessed value. Each owner may be eligible for this $25,000 exemption if the property appraiser finds that there are separate and distinct owners and each submits a return.

What Is the Economic Impact of Taxing Tangible Personal Property?

When collected on real property, property taxes are consistent with the benefit principle and the ability to be economically effective. Real property taxes are a very clear kind of taxation that support state and local government services. Land, which produces economic rents and is a reliable source of tax income, is part of the real property tax base.

Landowners must fully pay any tax imposed on their property and cannot shift their property to escape paying taxes. There is evidence to suggest that property taxes are a key consideration in decisions about where to locate businesses. Buildings and other improvements on land are subject to real property taxes, which have an impact on the marginal decision to improve and build on the property.

Examples of Tangible Personal Property

Examples of tangible personal property include:

• Furniture
• Machinery
• Cell phones
• Computers
• Vehicles
• Clothing
• Jewelry
• Collectibles
• Fine art
• Aircraft
• Watercraft
• Inventory

Summary

Tangible personal property is any physical asset that a company owns that can be touched, moved, or physically used. It differs from real property (or real estate), the second main category of property, in that you can move it from one place to another while real property is fixed to a single place.

It’s important for businesses to have a clear understanding of what tangible personal property is so that they can accurately file their taxes and avoid having to pay a fine.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.