EFPR Group Companies

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How Tax Exposure is Effected by Tangible Personal Property Tax Compliance

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As businesses find growth opportunities and economic pressure to expand into markets outside a single state or region, they face challenges related to state tax compliance. Businesses with an expanded market need to be aware that creating an expanded footprint in multiple states can lead to additional tax registration and filing requirements. There are 50 state taxing schemes, with many more local taxing jurisdictions, that can create overwhelming compliance requirements for businesses with multi-state geographical markets. One tax type that is commonly overlooked by businesses operating in multiple jurisdictions is tangible personal property tax.

Tangible personal property tax is a state, or local, level tax assessed on business property held within a jurisdiction. Items such as furniture, machinery, equipment, IT related devices, and inventory may be subject to this tax. Businesses that own, or lease property located within a state that imposes tangible personal property tax, may very well be liable for this additional tax.

Remote employees and contractors are becoming much more prominent as many businesses are seeking alternatives to traditional work environments in light of the pandemic. Be advised, equipment issued to employees or contractors, required to perform job functions remotely, may be subject to tangible property tax, e.g., cell phones, computers and peripheral equipment such as cameras, scanners, and printers.

In our experience, many businesses overlook tangible property tax requirements and do not realize that issuing employees, or contractors, items such as laptops or cell phones can create exposure for this type of tax. There are currently 42 states that impose some type of tangible personal property tax on business assets. While furniture, machinery and equipment are typically always subject to this tax, items of inventory are taxable in some states but exempt in other states. It is important to review these requirements on a state-by-state basis.

Failure to comply with tangible personal property tax reporting requirements can result in penalty and interest assessments. Penalty and interest rates vary from state-to-state ranging upward to 25% of the taxes due. While some businesses take the position that complying with this requirement is not vital until the time in which a tax notice for non-compliance is received, in our experience it is much more advantageous to voluntarily fulfill these requirements before penalties and interest are assessed. Traditionally state tax auditors will subject a business to a seven-year examination period in cases of non-compliance, with more aggressive states looking back as far as ten years. The potential tax, interest and penalty exposure over a seven to ten year period can be detrimental to the financial position of many businesses.

Contact EFPR Group for more information on tangible personal property tax and the various state tax requirements, and how to stay abreast of other state tax obligations.

The materials contained herein are intended for educational and informational purposes only and do not constitute tax or legal advice. Readers are responsible for obtaining such advice from their tax and legal counsel.

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