States Continue to Move Away from Taxing Personal Property

This year, MultiState’s tax team has tracked nearly 100 bills from 23 states that sought to reduce or eliminate taxes on tangible personal property (TPP). While we often think of property taxes as the taxation of land or structures built on that land, TPP taxes extend this to any of the individual things that a business might utilize. This can include everything from office furniture, to industrial equipment, to saleable inventory. This is distinct from a sales tax, which is applied at the moment property is acquired through a transaction, and is instead a recurring ad valorem tax based on the state’s appraisal of the value of that property.  

State Personal Property Tax Legislation

Generally these bills fall into one of four categories: bills eliminating the tax, bills reducing the assessment rates used to calculate tax liability, bills increasing the minimum property value threshold for taxation, and bills establishing a credit for taxes paid. As you can see from the map, bills that propose to eliminate the tax were the most prevalent this year. 

The Most Common Types of Bills Create a Full Exemption or Fully Eliminate Tangible Personal Property Tax 

Bills that would fully eliminate the tax on TPP or provide a 100 percent exemption were the most popular, with introductions in thirteen states (Arizona, Colorado, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Texas, West Virginia, Wisconsin, and Wyoming). This popularity is at least partially attributable to the fact that economists and tax policy experts typically favor the full repeal of the tax on TPP in order to eliminate the economic distortions that can occur from taxing inputs and inventory. While several states took steps towards fully eliminating taxes on tangible personal property, Wisconsin made the most progress legislatively.

• Texas has been the most active state, proposing six measures that would fully exempt TPP from taxation. Four of these measures would enshrine this new exemption into the state’s constitution. Property tax reform was a particular legislative focus this year in Texas, with Governor Greg Abbott (R) calling two special sessions focusing on it, but lawmakers ultimately chose to exclude TPP tax elimination as part of their final deal (which instead increased the homestead exemption, established an appraisal cap, and franchise tax cuts).

• Wisconsin legislators repealed their tangible personal property tax this year after several attempts in previous years. Governor Tony Evers (D) originally included the proposal as part of his executive budget (SB 70), but it ultimately passed as a part of a deal (AB 245) to allow the city of Milwaukee to increase its local sales tax levy. 

• An Arizona TPP elimination bill (SB 1263) also gained some traction, clearing the Senate by a vote of 16-13 in late February. It has not moved since a second reading in the House on February 28. The Arizona Legislature is currently in recess but is set to return to finish its legislative work for the year in August. 

• There were also bills that only sought to eliminate the tax as it related to certain kinds of TPP. For example, Colorado enacted a new law (HB 1233) exempting electric vehicle chargers from business personal property tax and Maryland enacted legislation (HB 132) exempting machinery that is used to generate electricity or steam.

Other Types of Tangible Personal Property Tax Bills 

Assessment and Valuation Limitations

Lawmakers from four states (Alaska, Virginia, Missouri, and Texas) introduced bills that would reduce the assessment rates used to compute TPP tax liability. No bills in this category have passed the committee phase, but the Alaska bill will carry over to next year’s legislative session. The most aggressive of these was a Texas bill (TX HJR 104) that would have amended the constitution to exempt from taxation 75 percent of the market value of TPP. Alaska lawmakers also introduced a bill (SB 50) that would have adjusted the assessment for oil and gas exploration equipment such that the taxable value of the equipment could not exceed its value on the open market.

Increased Minimum Exemption

Lawmakers from ten states (Connecticut, Georgia, Michigan, Missouri, Mississippi, Montana, North Carolina, Rhode Island, Texas, and Washington) proposed bills that would exempt TPP valued below a certain dollar value from taxation, but most of these bills set this tax floor at a level that would mostly benefit small businesses (typically $100,000 or less). Two bills from this category have become law so far this year: a  Montana proposal (HB 212) increasing the exemption for most kinds of business equipment to $1 million and a Rhode Island proposal (HB 6333) creating a $100,000 exemption for certain kinds of municipal property. 

Credits for Taxes Paid

Two states (Missouri and West Virginia) worked on legislation granting credits to TPP taxes paid. West Virginia has intermittently focused on securing TPP tax relief for years. This year, lawmakers enacted a credit for taxes paid. The bill (HB 2526) was a compromise Governor Jim Justice (R) brokered as part of his larger effort to reduce the state’s personal income tax. Coming into the session, the governor wanted to eliminate or at least significantly reduce the personal income tax, but Senate Republicans renewed their opposition and pushed for fully eliminating the TPP tax. Stuck in this impasse, both sides ultimately agreed to a plan that included cuts to the personal income tax and the new TPP credit; however, we expect the drive for further TPP tax relief to continue. The Missouri bill (HB 1097) died in committee. 

What to Expect in 2024: More of the Same

Lawmakers in Wisconsin and West Virginia have prioritized easing tangible personal property tax burdens for several years and were able to achieve those goals, at least partially, this year. While other states did not make as much progress, given the expert consensus on the value of eliminating TPP taxes, we can expect these efforts to continue. 

Track State Tax Legislation

MultiState’s team actively identifies, categorizes, and tracks all tax policy legislation so that organizations, their government affairs teams, and other internal stakeholder teams have the information they need to navigate and effectively engage. If your organization would like to further track these and other tax policy issues, please contact us