SELECTED BUSINESS PROPERTY TAXATION ISSUES: PERSONAL PROPERTY
John L. Mikesell
Personal property now constitutes a smaller share of the property tax base--about 10 percent--than at any time since the presumption of a general property tax developed in the first half of the nineteenth century. The share remains above 20 percent in eleven states, however, and where it does constitute a significant share, it is because of business personal property remaining in the base. In light of the quest for broader sales and income tax bases in recent years, is there a case for altering the path of narrower coverage of personal property, or should more states follow the lead of those removing such property from the general base?
Personal property was a natural inclusion in the property tax base under the "assumption of homogeneity" that drove tax policy in the first half of the nineteenth century. The idea that property ownership, regardless of form or use, indicated taxable capacity was probably reasonable in an agrarian economy that lacked complex financial instruments. That implied both broad coverage of properties, real and personal, and the uniformity clauses that dictated equal rates and valuation standards for those properties.
The zenith of personal property share occurred in the Civil War period. The real component of the ad valorem base was only 57.7 percent in 1860 but had risen to 74.4 percent by 1890. By 1937, the personal share of the base was less than 16 percent, a share that held to the mid-1950s ( Netzer 1966: 139). The 1986 share, 10.1 percent, shows decline in the next thirty years, but nothing like the decline during the first three decades of this century ( U.S. Bureau of the Census 1989: vii). Although some states have excluded personal property from the tax in recent decades, their actions have not had the aggregate influence of that experienced in earlier years.