How Is Business Personal Property Taxed in California?

 Posted on January 28, 2025 in Taxation Law

There are a variety of taxes that apply to businesses. These include federal and state income taxes that apply to a business’s profits and losses. Businesses in California are also required to pay property taxes, which are usually assessed based on the value of real estate property where a business is located. However, business owners should know that property taxes also apply to other property owned by a business. This property is known as business personal property, and understanding what types of property must be reported to the State of California can help ensure that business owners are not surprised by a tax bill.

Resolving concerns related to property taxes is not always easy, especially when there are questions about the valuation of property and the taxes that may apply. A California tax attorney with experience in property tax law and the tax issues affecting small businesses can help identify any concerns, ensure that property is assessed correctly, and work to resolve any issues while minimizing the property taxes and/or penalties that a business may be required to pay.

What Is Business Personal Property?

Most items of value owned by a business other than real estate will be classified as business personal property, and these items will be assessed by the county assessor, who will determine their value so that property taxes may be applied. There are a few exceptions to taxable personal property, including the inventory held by a business that consists of goods that will be sold or leased or any materials that will become components of these products.

To determine the taxable value of personal property, the assessor will consider its fair market value. This will be based on the cost of replacing the property, and the assessor will apply depreciation factors to determine the current value. For leased property, either the owner of the property or the lessee may be taxed depending on the way leased property is handled in a particular county. In some cases, both parties may be taxed, although this is rare.

Business Personal property is reported annually on a Business Property Statement, which requires a business to list all personal property owned as of January 1. If property is sold at some point during the year, the original owner will still need to report it and pay taxes so long as they owned it on January 1. A Business Property Statement will only need to be submitted if the aggregate value of a business’s personal property is $100,000 or more.

Property that must be listed includes:

• Supplies: These include all office supplies, janitorial supplies, medical supplies, fuel, or any other supplies that will not become components of products to be sold or leased by the company.

• Equipment: This includes machinery and equipment, office furniture and equipment, and personal computers and networking equipment. Vehicles licensed to be driven on California highways are generally excluded. The costs of software and applications typically are not included in the costs of computer equipment. The full costs of equipment should be reported, without including depreciation or trade-in allowances.

• Equipment leased or rented to other parties: A business must report the names and addresses of parties in possession of this equipment, where the property is located, dates of possession, costs of property, amount of annual rent, and other information.

• Structures and fixtures: These include improvements to a property, such as air conditioning, fans, ducts, elevators, fire alarm systems, sprinkler systems, refrigerators, restaurant equipment, and special wiring used for manufacturing equipment.

• Construction in progress: When construction or improvements are being performed, unallocated costs related to equipment, machinery, furniture, or buildings must be reported.

The Business Property Statement will also include property belonging to others that is located on a business’s premises. It must include details about whether the property is being leased, whether there is a lease-purchase agreement in place, and whether any other businesses operate on the property.

Contact Our San Jose, CA Business Tax Attorney

Understanding the information that must be reported and the taxes that may apply based on the value of property owned by a company can be a complex matter. At John D. Teter Law Offices, our San Joseת CA property tax lawyer can provide guidance on the best ways to address these issues while working with a business to minimize the taxes that must be paid. Contact our firm at 408-866-1810 to schedule a consultation and get legal help with tax-related matters.