Many state and local governments levy a personal property tax to generate additional revenue. Like real property or real estate taxes, personal property taxes are an ad valorem tax, meaning the taxing authority bases the tax on the estimated value of the property. The TPP tax can be on either the fair market value or the assessed value set by a property appraiser. According to the Tax Foundation, 43 states levy a tangible personal property tax.
Because of this, businesses (as well as individuals who are self-employed or independent contractors) need to keep a running list of business property to accurately file a tax return. That increases their compliance costs and takes time since the property owner will need to work with the property appraiser's office before filing a tax return to ensure accuracy. If the personal property owner disagrees with the assessed value by the appraiser, they can file an appeal with the assessor. Success in lowering the value of the personal property will result in less personal property tax owed on the asset.
The threat of tangible personal property tax can also affect investment decisions, especially since personal property faces an ad valorem tax. A business would pay a lower tax rate by keeping older equipment that has a lower value because of taking a depreciation deduction on the original cost. It can also lead a company to consider purchasing a used asset rather than a new one since that can affect tax liability.