Understanding and Minimizing Maryland Personal Property Taxes
Each year Maryland business owners must pay a personal property tax on such assets as equipment, furniture and computers. The tax is calculated based on an assessed value multiplied by the applicable tax rate for the county in which the equipment is located. The rates can vary significantly, for example Baltimore City is the highest at 5.67% of assessed value while Worcester County property is taxed at 1.75%.
The assessed value of equipment is determined by applying the “depreciation” rates defined by the state for each category of property. The depreciation rates used for personal property tax assessments are completely separate and bear no resemblance to rates issued by the IRS for corporate income tax returns. There is no accelerated depreciation and assets reported are never depreciated to a zero value, hence as long as assets are reported a business will be assessed a tax.
Business must report to the state by April 15th of each year the original cost of personal property owned as of the end of the prior year broken out by location, asset category, and by year acquired. The state computes the assessment, forward this information to each county, which then generates a bill to businesses. Maryland businesses will receive two documents related to personal property taxes – 1) the assessment, which is not a bill, and 2) the actual tax bill. Failure to file the return and/or pay the tax will result in forfeiture of your corporate charter and denial of renewal of business licenses.
Here are ways to minimize this burden:
- Remove from your books and the reporting any assets that you no longer own, or that have been replaced. Computers from 10 years ago need to be off your books and the report, as well as assets that have been scrapped.
- Take any exemptions that are available – manufacturing assets are exempt, as well as customized computer software. Licensed motor vehicles are not subject to personal property tax, so make sure these are not reported as equipment.
- Put assets in the correct categories – the deprecation rates are faster for certain categories, so make sure that assets with faster depreciation rates are properly categorized.
- Where possible, locate assets in jurisdictions with lower tax rates. One firm we know moved its data center to a lower rated jurisdiction and saved about $4,000 annually.
- Make sure assets that are out of state are reported as such as these will not be subject to the tax.