by Joyce Errecart, Ed Gerrish, Scott Drenkard
October 09, 2012
Compared to real property ad valorem taxation, tangible personal property (TPP) taxation creates greater economic distortions due to the inherent mobility of unat¬tached property. TPP taxation also has other unfavorable aspects such as greater complexity and higher compliance costs as compared to real property taxation. Fortunately, TPP tax levies have decreased nationwide in the past decade, and there are avenues for states to address some of the uncompetitive aspects of tangible personal property ad valorem taxation. For the seven states that continue to tax inventory, exempting inven-tory is an essential first step to reducing economic distortions, compliance burdens, and competitive disadvantages with states with no inventory tax. Second, since TPP is usually taxed locally, offering localities the option to exempt all or new property will create incentives for other localities to reduce or eliminate their reliance. Finally, a number of states have successfully demonstrated that all or most TPP can be exempted from the property tax base.