5 Benefits of Eliminating the Business Personal Property Tax

City of Frederick Passes Legislation to Eliminate Business Personal Property Tax

UPDATE: The Mayor and Board of Aldermen voted on Thursday, April 16, 2015 to eliminate Business Personal Property Tax with an immediate exemption for new manufacturing investment and a phase-out approach for all businesses over a 10-year period. 

First, A Little History

Personal property tax dates to Colonial America and was levied on individuals. Imagine a tax assessor showing up at your home annually to review your personal belongings such as rings and jewelry, furniture, household goods, paintings, and silverware. These items are known as tangible personal property. According to the Tax Foundation, "tangible personal property (TPP) is property that can be touched and moved, such as equipment, furniture, and other possessions." 

Today, no tax collector rummages through our homes to assess the value of our possessions for tax collection purposes. However, in many areas, this tax is assessed on businesses. 

"Because most states have exempted personal property used for personal reasons, most citizens are not aware that the tax on personal property exists. TPP tax is invisible to most individuals, although it is a significant expense for businesses," states a report issued by the Tax Foundation. 

Taxing businesses on personal property has remained in many jurisdictions, including the City of Frederick, but a proposed change is under way. 

What is the Current Situation of This Tax in The City of Frederick?

Frederick County as a whole does not have a Business Personal Property Tax, but municipalities can assess this tax.  The City of Frederick currently is one of the jurisdictions within Frederick County that does. Only a handful of companies pay the majority of this tax. 

What is Being Proposed? 

The City's Economic Development Advisory Council (EDAC) has recommended a fiscally sound phase-out of this tax, and City officials agree. According to the Tax Foundation, the elimination of business personal property tax improves the business competitiveness of a jurisdiction and encourages reinvestment in a business.  

"The types of businesses that are hardest hit by this tax are also the same businesses that provide family-supporting jobs in Frederick," said Bobby Baumler, Economic Development Manager for The City of Frederick. "We want to attract and retain these companies and their jobs in our community."

The proposed ordinance would:

1. Exempt manufacturers (as a business category) from paying business personal property tax on NEW investments.  The tax credit only applies to manufacturers that are expanding or locating to the City. All business personal property, including items such as computers, printers, shelving, etc., would be eligible for the tax credit.
     
2. Implement a 10-year phase out of all business personal property tax. This includes both manufacturing personal property (currently 77.5% exempt) and non-manufacturing personal property (currently 62.5% exempt).  This portion will be achieved by gradually raising each exemption percentage until at the end of year 10 (and moving forward), the exemption percentage is 100%. The proposed ordinance does not exempt utilities or railroads.

According to the Tax Foundation, "Localities that choose to exempt the TPP base, even in part, have an advantage over neighbors with regard to the location of business personal property due to their lower tax costs." With a phase-out approach over 10 years, the increased real property, new investment, and new development generated is expected to replace the revenue stream that this tax historically provided the City. 

"Businesses can choose to locate, relocate, or expand in a number of jurisdictions in the region," said Bobby Baumler, Economic Development Manager for The City of Frederick. "There are many reasons to choose Frederick, and eliminating this tax gives them one more." 

5 Benefits of Eliminating the Business Personal Property Tax

1. It levels the playing field. Elimination of the tax places The City of Frederick on a level playing field with Frederick County and regional jurisdictions with lower overall business costs. 
2. It encourages investment and reinvestment. Businesses won't be penalized for reinvesting in aging infrastructure such as manufacturing equipment.
3. It gives Frederick a regional competitive advantage. Many nearby jurisdictions still assess this tax on businesses. This change allows both the City and County to market this advantage to businesses looking to locate or expand in the Frederick region.
4. It attracts new business. When a businesses is looking to open or relocate a business, every expense matters. This can tilt the scale between Frederick and another jurisdiction. 
5. It helps small businesses. 95% of all businesses in Frederick are small businesses. The plan to eliminate this tax doesn't just assist large corporations. It also assists small, locally-owned restaurants, retailers, and business owners that have invested in equipment, shelving, and fixtures. 

For more information about business in Frederick, visit www.businessinfrederick.com. 

Originally posted April 15, 2015 by Michelle Kershner