What's the Difference Between Property Tax and Personal Property Tax?

If you own real estate or valuable personal items, you may have to pay property or personal property tax.

However, many people are unsure of the difference between these tax types and whether they're liable to pay.

What Is Property Tax?

Property tax generally refers to real estate tax. The terms “real estate tax” and “property tax” are often used interchangeably, but property tax can also cover personal property tax. Most jurisdictions calculate real estate tax based on the value of the property and any attached land.

How much property tax you pay depends on the tax rates where you live, and these vary significantly by area. Your municipality will appoint a tax assessor to assign a property tax amount to your real estate based on its fair market value.

Property tax pays for local services, which may include:

• Water and sewer infrastructure maintenance and improvements
• Fire services
• Police services
• Road maintenance and construction
• Education
• Public libraries

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What Is Personal Property Tax?

Personal property tax applies to certain valuable belongings that aren't physically attached to a building. For example, it may apply to motor vehicles, boats and machinery. While this type of tax most commonly covers tangible items, it may also cover intangible assets, such as copyrights. The rules apply depending on where you usually keep the property.

Jurisdictions only levy personal property tax when personal or business assets exceed a specific value. Therefore, personal property tax is more likely to affect businesses than individuals because businesses usually have more extensive inventories of valuable equipment and vehicles.

Not all jurisdictions levy a personal property tax. Those that do may impose flat rates that apply to all personal and real estate assets or charge different rates for different property classes. Like property tax, jurisdictions typically use personal property tax to fund public projects, such as road or school construction.

How Are Property Tax and Personal Property Tax Different?

Property tax and personal property tax differ because property tax refers to both real estate tax and personal property tax. Meanwhile, personal property tax only applies to belongings unattached to real estate.

In other words, all personal property tax is property tax, but not all property tax is personal property tax. This distinction may appear confusing, but the following example can help clarify the difference:

Business A owns commercial premises and owes tax on its value. This tax is real estate tax. It doesn't refer to assets unattached to a real estate property and counts as property tax, rather than personal property tax.

Business B doesn't own commercial premises. However, it possesses a fleet of commercial vehicles worth more than the state's value threshold for personal property tax. These cars are unattached to a property, so the business pays personal property tax. This also counts as property tax.

Rules and rates for property and personal property tax vary widely by area. Therefore, the best way to determine what you owe is to contact your local tax assessor's office or check its website.