What is a Tangible Personal Property Tax?
What - another tax!
Family child care providers already pay a variety of taxes: Social Security/Medicare tax, federal and state income tax, payroll taxes, property tax, and sales tax.
Now comes the tangible personal property tax.
Many city and county governments, seeking more in tax revenues, have imposed a tangible personal property tax on local businesses. This is a tax on business equipment that can include any property you use in your business: furniture, appliances, swing sets, toys, and so on. This tax is different than your property tax which is a tax on the value of your home.
You will find out if you must pay this tax when your local government sends you a letter asking for a list of such equipment. Then you will be sent a tax bill based on the value of your equipment. Usually the tax rate is relatively low. Any tax you pay is 100% deductible as a business expense (that's the good news!).
Not all city and county governments have a tangible personal property tax. In some states the tax has been on the books for many years, but is not being enforced on family child care providers. If you haven't received a notice to pay this tax, don't contact your city or county government office and ask about it! If you raise this issue, they may realize that you should be paying the tax.
If you do receive a notice to pay this tax, here's what to look for:
* Does the tax apply to all items used in your business, or only to those that are worth more than a specific dollar amount? Does it apply to a $10 toy or a $30 snow shovel?
* Does the tax apply to items used for both business and personal purposes? If not, then many of the items around your home would not be subject to this tax.
* Does the tax apply to items purchased before your business began? If not, you can exclude many household items from this tax.
* Does the tax apply to items that have not been previously depreciated? In other words, if you have not been claiming a business expense by depreciating your household items (furniture, appliances, etc.), must you pay this tax?
* How are you to determine the value of the property that is subject to this tax? Is it based on the item’s current fair market value or the original cost? (Current fair market value makes more sense.) You should only be paying tax on the business portion of your property. So, if you bought a $1,000 sofa in 2011 and your Time-Space Percentage was 40%, the value of the sofa subject to the tax should be $400 ($1,000 x 40%).
If you get a notice to pay a tangible personal property tax and don’t understand what it means, you can contact your local government office for clarification.
If you are unhappy that such a tax applies to you, work with your local family child care association and other child care organizations to lobby your government representatives to change the law.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.maxpixel.net/Furniture-Comfortable-Room-Inner-Armchair-Home-3516450
