Taxation of Business Property: Is Uniformity Still a Valid Norm?

By John H. Bowman; Frederick D. Stocker | Go to book overview

DOES PERSONAL PROPERTY BELONG IN THE BASE WITH REAL PROPERTY?

Inclusion of personal property in the same tax base with real property reflects the vestige of an assumption of property homogeneity that characterized the first part of the nineteenth century. "Things," real and personal, measured an individual's affluence--and probably also reflected reasonably well the cost of provided public services, mostly protective, to those things. Society has changed, but the case for merging these properties largely relies on the extent to which those old links continue.

Problems with retaining the tax encompass both logic and practice. Governments have not solved the problem of locating taxable items and must rely on self-reporting by owners, often with minimal administrative verification or audit. Indeed, the skills developed for real property assessment do not translate well to the accounting record reviews needed for personal property auditing. Second, assessment standards normally differ for the property types. While real property is appraised according to the current market value standard, personal property is typically appraised by an original-cost adjustment formula. This formula may or may not be calibrated toward a market standard; often it is not, the test being uniform application of formula, not the relationship to market value expected of real property assessment. Finally, the personal property element has become limited to business property. Differences in the production processes of industries cause property holding to be more likely driven by the type of business than by the capacity of the firm to bear the cost of government. These are fundamental problems in the attempt at achieving traditional personal property/real property uniformity in a combined local property tax. Some may conclude, however, that holdings of personal property still represent a rational basis for distributing the cost of government. If so, the tax should be shifted to the state level and levied in a fashion that does not perpetuate the fiction of uniformity now in place.


NOTES
1.
Taxable personal property is typically defined by exception ( Eckert 1990: 76).
2.
These states often have provisions that retain personal property of utilities and state assessed property in the base, however.
3.
New Jersey taxes some communication equipment, but the coverage is specialized and narrow.
4.
Kentucky assesses and taxes most personal property only at the state level. The structure is largely outside that used for real property.
5.
Where agricultural inventories are in the base, states often provide unit value tables for livestock, grain, and so on.
6.
There are the added issues of valuation to be considered, especially whether the inventory value is to be that of a bulk sale or of item-by-item sale in ordinary business, and whether inventory costs will include direct cost only, factory cost, or full absorption cost.

-169-

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