Who taxes what you own?
Part 2 of an October series on who gets to tax you. Part 1 was Who taxes what you earn?
Not the federal government. Property tax is local. The county, city, or district where the property sits taxes it every year, whether it earns anything or not.
Real estate is taxed where it sits
Where you live doesn't matter here, and neither does where you formed your LLC. A rental in Ohio owned by a Wyoming LLC with a Texas owner pays Ohio property tax to the Ohio county. There's no nexus analysis to run. The property is the connection.
The bill is the assessed value times the local rate. How property is assessed, how often it's reassessed, and whether increases are capped all vary by state and often by county.
Your business's equipment can be taxed too
Most states also tax business personal property: furniture, computers, machinery, equipment, and in some states, inventory. Fourteen states broadly exempt it. The rest tax it, and some of those exempt small amounts. Arizona and Idaho have large exemptions, while a few states exempt almost nothing.
Where it's taxed, it's usually self-reported. The business files a return with the county listing what it owned on the assessment date, often January 1. A business that doesn't file gets an estimate from the assessor, and the assessor's estimate is rarely in your favor.
This follows the equipment, not the company. A laptop at a remote employee's home in another state can be that state's taxable property.
Vehicles
Some states tax vehicles every year as personal property. Others charge a registration fee based on the vehicle's value, which works much the same way. Titling a vehicle to your LLC changes who owns it, not whether it's taxed. Should you put your vehicle in your LLC? covers the rest of that decision.
Homestead: the tax break that asks where you live
Many states reduce property tax on your primary home, through a lower assessed value, a cap on annual increases, or both. This is where property tax connects back to residency. In Florida, you have to be a permanent resident as of January 1 and apply by March 1. Claiming a homestead is a statement about where you live, and the state will hold you to it.
That has two consequences worth knowing before you act:
Claiming a homestead in a state where you don't actually live can cost you the exemption, plus back taxes and penalties, and it undercuts any claim that you live somewhere else.
Moving your home into an LLC can end the exemption. In Florida, a home titled to an LLC generally doesn't qualify.
Retitling property can also trigger a reassessment in some states, California the best known, where a change in ownership resets the assessed value to current market value. Before you record any deed, read can you move a mortgaged property into your LLC?
What you own isn't what you're worth
Property tax reaches real estate and, in most states, business equipment. It generally doesn't reach stocks, bank accounts, or your ownership interest in a company. Those get taxed at other points: when they produce income or you sell them (Part 1), and when they pass to someone else (Part 4).
What to do
List your real estate by county, and know when each county's bill and any appeal deadline come due.
Check whether your business has to file a personal property return in each state where it keeps equipment.
Make sure any homestead you claim matches where you actually live.
Before you retitle property, check the homestead, reassessment, and mortgage consequences first.
Keep reading: Your living trust doesn't own your house yet; Can you move a mortgaged property into your LLC?; and Should you put your vehicle in your LLC?
Next in the series, Tuesday, October 20: Who taxes what you spend?
This is general information, not legal advice for your situation. If you want an answer for your situation, book a consultation.
