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1 Garett Watson, States Should Continue to Reform Taxes on Tangible Personal Property 1 (2019)

handle is hein.taxfoundation/ssreftx0001 and id is 1 raw text is: States Should Continue to Reform Taxes on Tangible Personal Property Garrett Watson' Special Projects Manager Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) nonprofit organization. ©2019 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 IMany state and local governments impose ad valorem property taxes on tangible personal property (TPP) in addition to property taxes applied to land and structures. Tangible personal property taxes are levied on property that can be moved or touched, such as business equipment, machinery, inventory, and furniture. Forty-three states include TPP in their property tax base. Of states reporting personal property tax data, state reliance on personal property in 2017 ranged from 1.79 percent to about 29 percent of state property tax bases. For states reporting, personal property as a proportion of the average state tax base has declined from 11.27 percent to 9.98 percent from 2006 to 2017. Taxes on tangible personal property are a source of tax complexity and nonneutrality, incentivizing firms to change their investment decisions and relocate to avoid the tax. Different types of TPP often receive preferential treatment depending on how the property is used or where it is invested, further distorting economic decision-making. State and local governments have many options to alleviate the burden of TPP taxes. In addition to repealing them, options include enacting de minimis exemptions for firms with small amounts of property, expanding existing de minimis and universal exemptions already existing in statute, permitting localities to lower TPP taxes through lower millage rates or assessment ratios, and streamlining rules related to depreciation of TPP and the declaration of taxable TPP to tax authorities. The experience of state and local governments expanding TPP tax exemptions and offering local-option tax reductions over the past decade can provide a road map for policymakers reforming TPP taxes in their jurisdictions. States should permit local-for-local tax swaps to reduce TPP tax burdens while transitioning localities from TPP taxes as a revenue source. 1 The author thanks Brittany Moore for contributing to statutory research for this piece. taxfoundation.org FISCAL FACT No. 668 Aug. 2019

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