My company is registered here in Virginia, which happens to be a “Personal Property Tax State”. What that means to me is that where normally people are used to paying property tax on their homes every year (as they live in that property), I also have to pay property tax on vehicles as well as my business assets…every year. This is the one thing I absolutely hate about being in Virginia, though I’m sure each state has their pros and cons, which I’d love for you tell me about in the comments. Let me explain each tax so you have a clear understanding of what I deal with and pay.
Vehicle Property Tax
Don’t get this confused with sales tax…because you have to pay that too. With sales tax, you buy a car, you pay sales tax one time, and that’s that. Virginia also charges a yearly property tax of 4.2% (May be different based on your county) (billed twice a year) which is based on the NADA value of your car as of January 1st (so you are paying the full assessed value, even in December a year later). It’s like paying sales tax on your car every year! There is a little bit of relief though, especially for those with cars valued under $20,000. For my county they offer 58% relief up to the first $20,000 of value. So if you own a $10,000 car, your property tax due is $420 minus 58% = $176.40. Anything over $20,000 owes the full tax amount after the initial relief up to $20,000. So if you have a BMW for example worth $40,000…here’s the breakdown:
BMW Value: $40,000
Tax On Initial $20,000: $840
Tax After 58% Relief: $352.80
Tax On $20,000 leftover: $840
This means you will be paying $1,192.80 on top of the sales tax you already paid just to have that car. Tack on the cost of gas and insurance, it gets quite expensive to drive a nice car. That’s no chump change, and definitely keeps me from wanting to buy any new cars. Keep in mind, you have to pay this EVERY YEAR…so the value may go down to $36,000 in the second year, and you’ll pay a bit less than the original $1,192.80.
Also note that any vehicle that is used for over 50% business, is not eligible for the relief and must pay the full 4.2% every year.
Business Tangible Personal Property Tax
I just found out about this one a week ago, which is really frustrating, not only because of the money, but because of the effort required to do file this. You are required to have an asset list that you provide to the state every year of the following:
- Property owned by the business
- Property owned personally and used in the business on a full or part-time basis
- Property received as a gift
- Property that is leased or rented
- Property that is fully depreciated or expensed for federal tax purposes
This means you need to have an asset list (and pay property taxes every year) on everything from the computers to the printers to the furniture, etc, etc. You have to pay 4.2% of the assessed value EVERY YEAR. There is a breakdown depending on age to figure out the assessed value:
- 1 year old = 50% of the original cost
- 2 years old = 40% of the original cost
- 3 years old = 30% of the original cost
- 4 years old = 20% of the original cost
- 5 years and older = 10% of the original cost
To give you an example, say you own a video editing company and you have to buy a $5,000 computer. On top of the sales tax you may have already paid, you will also pay $105 the first year in property tax (4.2% of half the original cost). You will pay $84 the second year, $63 the third year, $42 the fourth year, and $21 every year after that, even 10 years later when it’s probably worth nothing. This is just one computer. Now add up all your equipment, furniture, etc, etc and see how quickly that can add up. It’s like they don’t want you to make money. Not to mention the hassle of having to create, maintain, and submit this asset list. How do you know what the cutoff is? Do I include all my pencils?
There may be other property taxes that are charged, but these are the two that I am aware of. What do you think about these taxes and how does it compare to your state?