An introduction to property taxes

If you own a home, a business property, or business equipment, you’re already somewhat familiar with property taxes. In the United States, property tax is defined as an ad valorem tax imposed by nonfederal government entities (e.g., county and local governments) on the value of both real and personal property.

While property taxes are used to fund useful government services like education and hospitals, they’re considered by many to be the most despised tax in the U.S., in part because the filing and payment processes can be daunting for business owners who aren’t familiar with the laws in each state. Avalara Property Tax is here to help.

A brief history of property taxes

Property tax is one of the oldest taxes in the country — in fact, it’s older than the country itself. Property taxes in the United States date back to colonial times. During the Revolutionary War, the colonies had an organized tax system that varied from colony to colony. By 1796, state and local governments in 14 of the 15 states taxed land, and four taxed inventory. For a brief time, until the Civil War, the taxation of all property (both movable and immovable) was taxed at one uniform rate.

The two types of property taxes

While property taxes are no longer quite as simple as they were before the Civil War, there are still some standard regulations that are the same in every state. Currently, they’re divided into two categories, real property and personal property.

Real property taxes:

  • Include land, plus the buildings and fixtures permanently attached to it
  • Are assessed on agricultural, commercial, industrial, residential, and utility property
  • Apply in all 50 states

Personal property taxes: 

  • Include movable items such as machinery, fixtures, and other equipment — property not permanently affixed to land 
  • Are assessed only on property used in business
  • Only apply in 43 states

Taxes on tangible personal property are assessed mainly by local governments and are regulated at the state level. The process for calculating and remitting this tax is daunting, so it’s understandable that it can be very frustrating from a business owner’s perspective.

How property taxes are used

Most tax rates vary dramatically from state to state, and property tax rates are no exception. In fact, property is taxed by each jurisdiction within a state. However, revenues from property taxes are usually used to fund the same services regardless of location. These are:

  • Schools. For the last 100 years, state and local municipalities around the country have used property tax revenue to help build and maintain public schools and pay teacher salaries.
  • Safety. Your property taxes help keep everyone safe by funding firefighters, EMTs, police, and other public safety workers.
  • Sanitation. Trash collection, street cleaning, sewer and storm waste management all use property tax funds to run efficiently.
  • Services. Property taxes often fund public services like libraries, the health department, and possibly even your local animal shelters. 
  • Spaces. Parks, highways, and other public spaces and roads get their funding from a variety of sources, property taxes being one of them. 

When it comes to taxes, it isn’t always easy to see a return on your investment. But despite being loathed by many, property taxes tend to be an exception.

The challenges of property tax compliance

Complying with property tax requirements can be challenging for businesses. Some common struggles include:

  • Returns. For personal property tax, companies still need to print and mail returns in nearly every county across 43 states. 
  • Assessments. Assessments are compared to the current fair market value, and there is limited time to appeal. 
  • Bills. Companies often receive a large volume of tax bills from different jurisdictions, and that means different rules, due dates, discounts, and penalties. 
  • Documents. It’s important to keep all documents organized and indexed for audit support purposes. They also need to be tracked to avoid missing due dates and incurring penalties. 

The property tax compliance workflow is not without its challenges, especially as you expand your business. Luckily, Avalara Property Tax for Enterprise can simplify the process and help eliminate costly errors. This can make the entire journey less stressful.

How Avalara Property Tax can help

Avalara Property Tax for Enterprise simplifies both real and personal property tax management in one secure hub. This can improve accuracy and efficiency, minimize data entry, and help automate the process. 

By solving the most common tax compliance challenges businesses face, Avalara can help you avoid missed deadlines, penalties, and the stress that comes with keeping up with ever-changing jurisdiction rules and forms. 

Ready to learn more? Contact Avalara to speak to one of our tax specialists today. 

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