Business Personal Property Tax Reform
Some states have completely exempted tangible business personal property from their property tax assessments to grow their economies; Texas is not one of them. Business personal property includes assets that can be moved – furniture, equipment, and inventories. Inventory includes the value of raw materials, finished goods, and supplies or parts that manufacturers need to run their business. Most states have at least done away with taxing inventory – with all but seven, including Texas, still levying a tax on most business inventories.
The taxation of Texas business personal property and inventory significantly discourages capital investment and expansion here, given that approximately 90 percent of U.S. states levy a lower property tax on industry than Texas. And with our state’s desire to attract more “advanced manufacturing” employers here, higher business personal property taxes are an even larger impediment, as these advanced industries require expensive high-tech equipment that depreciates quickly and must be replaced or updated, often within 3 to 5 years. These increasing real and personal property taxes are the centerpiece of an already higher overall tax burden, where Texas business and industry now pay 62 percent of all state and local taxes. The national average is 44 percent.
The Texas business inventory tax also forces many manufacturing companies to warehouse certain materials, supplies, and parts they need outside of our state. While this creates an added logistics cost in the form of unnecessary transportation and time, it is less expensive than paying an approximate 2.5 percent annual property tax on certain high-value assets.
TAM strongly believes that the Texas Legislature should consider exempting either equipment used directly in the manufacturing process, or alternatively, all business inventories. This would provide competitive tax relief for all kinds of businesses and industries, large and small, and would create an incredible stimulus effect for the Texas economy.