Recent personal property tax law & proposals to watch

Several states, including Alabama, Arizona, Michigan, Montana, Rhode Island, West Virginia and Wisconsin, have recently enacted legislation or promulgated regulations generally making taxpayer-favorable changes to the taxation of personal property. This trend may continue in 2024, with Connecticut, the District of Columbia, Missouri and Virginia currently proposing or examining potentially significant personal property tax changes. 

Legislative and regulatory update

Several significant state legislative and policy changes concerning personal property tax occurred or were implemented in 2023.

Alabama

In 2022, Alabama enacted legislation adding a business personal property tax exemption that became effective on Oct. 1, 2023, exempting up to $40,000 in market value of the tangible personal property on the state-levied portion of the tax.¹ The Alabama Department of Revenue adopted a new rule, effective July 15, 2023, to account for this legislation.² The rule clarifies the scope of an optional exemption whereby the county or municipality may also adopt the exemption for purposes of county or municipal ad valorem tax.

Arizona

Arizona lowered the valuation factor for new assets starting with the 2023 tax year.³ Legislation enacted in 2022 sets the valuation factor for class 1, class 2 (personal), and class 6 personal property acquired after Jan. 1, 2022, to 2.5% and eliminates any incremental statutory depreciation. These classes include commercial and industrial uses, agriculture, and non-profits. The 2.5% valuation factor for assets acquired after Jan. 1, 2022, will be used for the life of the asset. Note that 2.5% is the minimum valuation factor for business personal property, which was typically applied if the number of expected life years has passed (even if fully depreciated under federal taxation). Normal depreciation still applies for assets acquired before 2022, but this legislation will significantly lower the prospective tax burden on personal property in Arizona.

Michigan

Michigan enacted legislation in 2021 that increased the small business exemption from $80,000 to $180,000.⁴ Beginning in 2023, the legislation amends the Small Business Taxpayer Personal Property Tax Exemption, Mich. Comp. Laws Sec. 211.9o, to increase the combined true cash value limit for “eligible personal property” in a local unit from $80,000 to $180,000. The exemption is required to be claimed with the local jurisdiction and must be filed no later than Feb. 20, 2024, by submitting the completed Form 5076, “Small Business Property Tax Exemption Claim Under MCL 211.9o.” If the true cash value is greater than $80,000 and less than $180,000 on Dec. 31, 2023, the taxpayer must also attach a copy of Form 632, “2024 Personal Property Statement,” along with Form 5076.

Montana

Montana changed the business reporting requirement starting with the 2024 tax year by increasing the business equipment tax exemption from $300,000 to $1 million.⁵ Businesses that have a statewide market value of equipment of $1 million or less are exempt from the business equipment tax and no longer have a reporting requirement in 2024 unless: (i) they have acquired new personal property that would increase their equipment’s aggregate market value above the exemption amount; or (ii) the Montana Department of Revenue requests that a personal property reporting form be completed. Individuals and businesses owning business equipment (as of Jan. 1, 2024) with an aggregate market value of more than $1 million statewide must report the equipment owned by March 1, 2024, to avoid a 20% penalty. Since the exemption is based on value and not cost, a proper depreciation analysis must be performed to ensure a business qualifies for the exemption.

Rhode Island

A statewide tangible personal property tax exemption is now available in Rhode Island for the 2024 tax year. In 2023, Rhode Island enacted legislation creating a $50,000 tax exemption relating to the assessment of municipal tangible property commencing with the Dec. 31, 2023, tax assessment for taxes payable in the 2024 calendar year.⁶ This legislation also provides for reimbursement of tax revenue lost by the municipalities and establishes a tangible property tax rate cap. The $50,000 tangible personal property exemption is applicable per taxpayer in each jurisdiction statewide. Some exceptions apply for certain tangible property subject to taxation for public service corporation property or renewal energy resources equipment and any property subject to any payment in lieu of tax agreements.

West Virginia

In 2022, voters in West Virginia rejected ballot measures to amend the constitution to allow the repeal or minimization of personal property tax. The ballot measure, known as Amendment 2, was proposed to amend the state constitution and allow legislative authority to potentially scale back or repeal all tangible personal property taxes in West Virginia. Opponents argued that this amendment could possibly eliminate all business personal property and inventory tax, in addition to the vehicle tax, and disrupt the revenue stream guaranteed to local governments and school boards. Similar efforts to amend the constitution failed in 1999 and 2006. Subsequently, a proposal to provide an income tax credit to offset the amount of property tax paid on vehicles was enacted in 2023 to provide more limited property tax relief.⁷

Wisconsin

Wisconsin enacted legislation that effectively eliminates the personal property tax.⁸ Beginning with the property tax assessments as of Jan. 1, 2024, no items of personal property will be subject to the property tax. Wisconsin had been reducing the personal property tax burden on certain types of equipment like computers and manufacturing equipment in previous years before this repeal, but the administration for personal property tax compliance has always been significant in this state due to the thousands of local townships and assessment jurisdictions. The legislation also creates a personal property tax exemption to the license fee for railroad companies and public utilities subject to local property tax. In addition, the legislation makes a number of technical changes whereby manufacturing establishments located in Wisconsin, but that do not own real property in the state, may continue to claim the manufacturing income tax credit. The 2023 tax year personal property tax was still required to be paid in full by Jan. 31 to the local municipality unless installment options are indicated on the tax bill. Also, the “Wisconsin Manufacturing Real Estate Return” (Form M-R) must be filed before the March 1, 2024, deadline.

Other proposals and developments

In addition to the states that have enacted legislation or promulgated regulations addressing the taxation of personal property, several states have proposed significant potential changes to state tax law or policy that may be considered in the near future. While none of these proposals has been enacted to date, and there is an incalculable number of legislative proposals that ultimately are not approved or implemented, this discussion identifies the significant property tax proposals that are worth watching this year.

Connecticut

The Connecticut legislature formed a 22-member task force to study the possible elimination of the vehicle property tax.⁹ The task force will study the feasibility of repealing the motor vehicle property tax, including examining the potential impact of such repeal on municipal budgets, and options for replacing the resulting lost municipal revenue. According to the state Office of Policy and Management, cities and towns in Connecticut collect over $1 billion in motor vehicle taxes annually on more than three million cars and trucks. This is an unpopular tax for many reasons, including the wide disparate impact and varied tax rates determined by individual towns. Many of the financially strained municipalities do not want to lose this stable revenue, however, which would likely require taxing jurisdictions to take a similarly unpopular step of shifting this tax burden to home property taxes or other alternative taxes.

District of Columbia

A proposal to eliminate personal property tax was included in the Chairman's Mark report issued by the District of Columbia Tax Revision Commission on Jan. 5, 2024.¹⁰ The Chairman's Mark is a comprehensive draft package of recommendations the Commission may propose to the District of Columbia Council and mayor based on research findings and discussions with tax experts completed in 2023. The District of Columbia already offers an exclusion of $225,000 of the personal property value reported on Form FP-31, which exempts many of the smaller taxpayers located in the District of Columbia.

Missouri

A constitutional amendment has been proposed in Missouri to allow the general assembly to exempt tangible personal property from personal property taxation by general law.¹¹ HJR 88 was first introduced in December 2023 to propose an amendment repealing Art. X, Sec. 6 of the Missouri Constitution and replacing it with a new section relating to personal property tax. If approved, this is targeted as a ballot measure for the November 2024 general election. The measure would provide the general assembly with authority to exempt tangible personal property taxes in such amounts and upon such conditions as may be determined by law and allow the general assembly to provide certain tax credits or rebates in lieu of or in addition to this exemption. Additional constitutional amendment ballot measures are also being proposed in Missouri, including replacing the property tax on real property with a realty transfer tax.

Virginia

In December 2023, Virginia Governor Glenn Youngkin introduced a host of new tax reform initiatives, including a challenge to the Virginia General Assembly to eliminate the personal property tax on vehicles.¹² Virginia has one of the highest vehicle property taxes in the nation and has one of the most complicated and challenging processes to assess the vehicle property tax. This is due to the complex nature of how the vehicles are assessed in Virginia and the aggressive assessment tactics of its taxing jurisdictions. Similar to Connecticut, while this tax is unpopular with taxpayers, the vehicle property tax generates a predictable and steady source of revenue that the local jurisdictions depend upon. A new source of revenue would need to be identified to offset this significant local revenue source. Previous efforts to repeal this vehicle tax have all failed.

Commentary

Taxpayers should consider the significant property tax legislation or regulations enacted or promulgated by Alabama, Arizona, Michigan, Montana, Rhode Island, West Virginia, and Wisconsin that will generally benefit taxpayers in the 2024 tax year. Furthermore, taxpayers should be aware of the personal property tax proposals in Connecticut, the District of Columbia, Missouri, and Virginia. Grant Thornton will continue to monitor any developments on these proposals. Property tax repeal efforts likely require massive tax reform and legislative changes, as well as time to implement. If a proposal does receive approval, depending upon the breadth of the measure, the implementation could require a multi-year phase-out period.

1 Ala. Act No. 2022-53 (H.B. 82), Laws 2022.
2 Ala. Admin. Code r. 810-4-1-.14.
3 Ariz. Ch. 103 (H.B. 2822), Laws 2022.
4 Mich. Pub. Act 150 (H.B. 5351), Laws 2021.
5 Mont. H.B. 212, Laws 2023. For further information, see Changes to the Business Equipment Reporting Requirement for Tax Year 2024 – Tax News You Can Use, Montana Department of Revenue, Jan. 10, 2024.
6 R.I. S.B. 928, Laws 2023.
7 W.V. H.B. 125, Laws 2023. For a discussion of this legislation, see News Release, West Virginia Office of the Governor, Aug. 16, 2023.
8 Wis. A.B. 245, Laws 2023. For further discussion of this legislation, see GT SALT Summary: Wisconsin repeals personal property tax, authorizes local sales taxes.
9 For additional information, see Motor Vehicle Tax Task Force, Connecticut General Assembly.
10 Draft Chairman’s Mark, District of Columbia Tax Revision Commission, Jan. 5, 2024.
11 Mo. HJR 88, prefiled Dec. 1, 2023.
12 News Release, Office of Virginia Governor, Dec. 20, 2023.