Question #22: How would increasing the business personal property tax rate impact different types of businesses?

FY 2018 Question #22: How would increasing the business personal property tax rate impact different types of businesses?

Page updated on Jun 16, 2017 at 9:43 AM

Question:

How would increasing the business personal property tax rate impact different types of businesses?

Response:

The following table reflects a rough estimate of the impact of increasing the business personal property tax rate by 50 cents on key business license categories separated by the company size.  These estimates are based on a random sampling of businesses within different business types as individual business revenues may vary significantly. Since Council did not advertise a higher rate, the maximum business personal property tax rate for FY 2018 may not be considered for increase in add/delete; however, this information can be used for longer range thinking about revenue strategies. 

Company Size Retail Merchants Professional Services Repair Services Business Services Personal Services Financial Services Blended Average Increase

Average Impact of 1 Cent on the BPP Tax Rate

Small $182 $148 $89 $61 $97 $30 $120 $2
Medium $403 $339 $577 $100 $338 $77 $319 $6
Large $2,876 $1,817 $3,784 $1,183 $3,657 $657 $2,201 $44
Blended Average $860 $595 $515 $376 $330 $266 $594 $12

Business personal property consists of office furniture, fixtures, unlicensed vehicles, machinery, tools, and computers. The current tax rate levied on business property for office furniture, fixtures, unlicensed vehicles and computers is $4.75 per $100 of assessed value and the tax rate levied on machinery and tools used in a mining or manufacturing business is $4.50 per $100 of assessed value. An example of machinery and tools for a City business would be a manufacturer that engages in a processing activity whereby the original raw materials are transformed into a product that is substantially different in character from the original material. Should the Council decide to change the business personal property tax rates in the future on any classification of tangible personal property, the tax rate cannot exceed the general personal property tax rate on vehicles, which is currently $5.00 per $100 of assessed value.

The City assesses all business personal property, except computers, at 80 percent of the property's purchase cost in its first year of service. In each subsequent year of service, the assessed value declines by ten percent until it reaches the minimum value of 20 percent of purchase cost in the seventh and later years of service. The City assesses computers at 65 percent of the property purchase cost in the first year of service, 45 percent the second year, 30 percent the third year, 20 percent the fourth year and five percent in the remaining years. The tax is established by multiplying the assessed value of the property by the property tax rate.

Company sizes in the sampling of businesses were determined based on the total gross receipts reported. We defined small sized companies as businesses with gross receipts ranging from $100,000 to $1.0 million; We defined medium sized companies are defined as businesses with gross receipts ranging from $1.0 million to $2.0 million; Large sized companies are defined as businesses with gross receipts over $5.0 million.

It should be noted that the “Large” category can have a very wide range.  For example, looking at just businesses within the sampling with gross receipts in excess of $50 million, the average tax bill would increase by $6,070 for a business classified as Professional Services, $3,528 for Retail Merchants, and $2,287 for Business Services  which result in a blended average tax increase of $3,745 for this sample, rather than the $2,201 shown above.  Below is an example of the types of businesses under each category:

Business Classification Example of Business Types
Retail Merchants Big Box Stores, Grocery Stores, Automobile Sales, Restaurants, Gas Stations
Professional Services Doctors, Dentists, Engineers, Lawyers, Accountants
Repair Services Auto Repair, Locksmiths, Furniture Repair, Bicycle Repair
Business Services  Consultants, Information Technology, Data Processing
Personal Services Hotels, Fitness Centers, Salons, Barbers, Pet Grooming
Financial Services Money lenders, Brokers, Financial Advisors


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