Understanding Real Property and Business Personal Property Taxation in California: An Overview

In 1978, Proposition 13 was passed which allowed California properties to be reassessed to current market value only in instances of a change in ownership or the completion of new construction (called the base year value). In addition, Proposition 13 generally limited annual increases in the base year value of real property to no more than 2 percent, except when property changed ownership or underwent new construction. The good news is that longtime property owners, whose assessed values generally have not increased more than 2 percent per year, tend to have markedly lower property taxes than recent purchasers. However, new buildings and new owners now have assessed values that approximate current market levels.

Additionally, personal property tax, which is also known as a "Luxury Tax," because it is collected on pricey possessions, such as yachts, air planes and expensive jewelry, is collected from California citizens. Personal property taxes are a value-based property tax and, as such, are the liability of the person or entity assessed for the tax. Property that is not real property (e.g., land) is considered personal property for which the state of California issues an unsecured tax bill.

Definition of Real Property and Business Personal Property

Real property refers to land and any permanent structures attached to it, such as buildings or improvements. Business personal property refers to all other types of property used in a business, such as machinery, equipment, tools, and furniture.

Importance of Understanding the Difference

Differentiating between real property and business personal property is crucial for businesses, as it affects various aspects of business operations, including taxation, liability, and asset management. Understanding the difference can help businesses make informed decisions about the management and transfer of their assets.

Overview of California

Law In California, property is classified as either real or business personal based on specific criteria, such as the manner in which it is attached to land, its mobility, and its intended use in the business. California law governs the ownership, transfer, and taxation of both real and business personal property, and it is important for businesses to be aware of these laws when making decisions about their assets.

Real Property

Definition

Real property is defined as land and any permanent structures attached to it. This includes buildings, improvements, and other structures that are considered to be a part of the land and are not intended to be moved.

Characteristics

Real property is typically considered to be immovable and permanent. It is usually attached to the land in a manner that makes it difficult or impossible to move. Additionally, real property is often considered to have an indefinite lifespan and is a long-term investment.

Examples

Examples of real property include homes, apartment buildings, commercial buildings, and other structures that are permanently attached to the land. This also includes any improvements made to the property, such as swimming pools, decks, and garages. Landscaping, sidewalks, and retaining walls may also be considered real property.

Business Personal Property

Definition

Business personal property refers to all other types of property used in a business, including machinery, fixtures, equipment, tools, and furniture. This type of property is typically not permanently attached to the land and is not considered to be a part of the real property.

Characteristics

Business personal property is typically mobile and can be moved from one location to another. It is also often considered to have a limited lifespan, as it may need to be replaced over time.

Unlike real property, business personal property is appraised annually. Owners must detail the cost of all their supplies, equipment, and fixtures in a 571-L. Depending on the county in which the property is located, a business not only must pay for items that they own like machinery, fixtures, office furniture and equipment, they also may need to account for leased equipment. While computers are understandably taxable, operating systems also are included on the taxable-items list. However, most application software isn’t taxable. Most importantly, the good news is that business inventory is exempt from taxation.

A business not only pays for items that are owned, but also may need to account for leased equipment when reporting to the county assessor. Additionally, when personal property is sold, the seller must pay taxes on the property for the ensuing fiscal year. So if you sold office furniture in January, you would have to pay taxes on it as though you possessed the furniture for the entire year!

For businesses located in multiple places, taxes must be paid in each county in which the taxable property is located. Because businesses located in multiple places must pay taxes to each county in which they have property, filing 571-Ls can be complicated. Although the Board of Equalization gives out an Assessor’s Handbook to all assessors in California, filing can vary county to county. Even deadlines for filing taxes differ by county.

Examples

Examples of business personal property include computers, office furniture, manufacturing equipment, and vehicles used for business purposes. This also includes tools and machinery used in construction, farming, and other types of businesses. Business personal property may also include inventory, such as raw materials, finished goods, and supplies.

Differences between Real Property and Business Personal Property

Ownership

One of the key differences between real property and business personal property is ownership. Real property is often considered to be a long-term investment and is often owned for many years, even decades. Business personal property, on the other hand, is often owned for shorter periods of time and is more readily transferable.

Transferability

Another difference between real property and business personal property is transferability. Real property is typically considered to be more difficult to transfer, as it is attached to the land and involves a more complex process of transfer. Business personal property, on the other hand, is more easily transferable and can be sold, leased, or donated.

Duration of Ownership

The duration of ownership is another difference between real property and business personal property. Real property is often owned for much longer periods of time, as it is a long-term investment. Business personal property, on the other hand, is often owned for shorter periods of time, as it may need to be replaced over time or may not provide the same return on investment as real property.

Importance of Distinguishing Real and Business Personal Property

Taxation

Distinguishing between real property and business personal property is important for taxation purposes. Real property is often taxed at a higher rate than business personal property, as it is considered a more valuable asset. Additionally, the assessment and taxation of real property and business personal property may vary depending on the jurisdiction and the type of property.

Liability

Liability is another important consideration when distinguishing between real property and business personal property. Real property often carries a higher degree of liability, as it is considered a more permanent asset and is often attached to the land. Business personal property, on the other hand, may carry less liability, as it is more easily transferable and may not be attached to the land.

Estate Planning

Estate planning is another important consideration when distinguishing between real property and business personal property. Real property is often considered a more valuable asset and is often included in estate planning decisions. Business personal property, on the other hand, may not be considered as valuable and may not be included in estate planning decisions in the same way as real property.

Appealing Property Taxes in California

Overview of Property Tax Appeal Process

The property tax appeal process in California allows taxpayers to contest the assessed value of their real property or business personal property. The appeal process is typically administered by the county assessor's office and provides a means for taxpayers to contest the assessed value of their property if they believe it has been overvalued.

Reasons for Appealing Property

Taxes There are several reasons why a taxpayer might choose to appeal their property taxes in California. These may include changes in the property market, changes in the use of the property, or errors in the assessment process. Taxpayers may also appeal their property taxes if they believe the assessed value of their property is not representative of its fair market value.

Appealing Unsecured Personal Property Taxes

Definition

Unsecured personal property taxes refer to taxes assessed on business personal property in California. This type of property is typically taxed at a lower rate than real property, as it is considered to be less valuable and less permanent.

Steps for Filing an Appeal

If a business disagrees with the assessment made, first contact the appropriate county to request an explanation of how the assessment was determined and inform the assessor of any facts affecting the value of the property. Most disagreements are settled this way, however, if an agreement cannot be reached an appeal should be considered.

In most counties an appeal is heard at an administrative hearing before the Board of Equalization. The property owner has the burden of proving that the assessor has improperly valued the property and the property owner can be represented by a lawyer.

Time Limits

Taxpayers who wish to appeal their unsecured personal property taxes in California must do so within the specified time frame, which is typically set by the county assessor's office. This time frame may vary depending on the jurisdiction and the type of property, so taxpayers should contact their county assessor's office for more information on the specific time limits for their property. You can use our Tax Calendar to help you identify the important deadlines to file in California.

Appealing Secured Property Taxes

Definition

Secured property taxes refer to taxes assessed on real property in California. This type of property is typically taxed at a higher rate than business personal property, as it is considered to be more valuable and more permanent.

Steps for Filing an Appeal

To appeal secured property taxes in California, taxpayers must first contact their county assessor's office. They must provide the assessor with information about the property, including its description, value, and use. Taxpayers must also provide any relevant documentation, such as property appraisals, market analysis, or other financial records.

Time Limits

Taxpayers who wish to appeal their secured property taxes in California must do so within the specified time frame, which is typically set by the county assessor's office. This time frame may vary depending on the jurisdiction and the type of property, so taxpayers should contact their county assessor's office for more information on the specific time limits for their property. You can use our Tax Calendar to help you identify the important deadlines to file in California.

Representation during the Appeal Process

Taxpayers who wish to appeal their property taxes in California may choose to represent themselves during the appeal process, or they may choose to hire a representative, such as an attorney or a tax consultant. Representation may be especially helpful for taxpayers who have complex tax issues, who are unfamiliar with the appeal process, or who wish to ensure that their appeal is handled professionally and effectively. Regardless of whether a taxpayer chooses to represent themselves or to hire a representative, it is important for them to be well-informed and prepared for the appeal process in order to ensure the best outcome.

Paramount Property Tax Appeal - Your Solution for Real and Business Personal Property Taxes

Overview

At Paramount Property Tax Appeal, we understand the complexities of property taxes in California and are dedicated to helping our clients navigate this challenging area of law. Whether you need assistance with your real property taxes or your business personal property taxes, our experienced team is here to help.

Business Personal Property Tax Services

Our team has a deep understanding of business personal property taxes in California and can help you ensure that your property is properly classified and taxed. Whether you need assistance filing a 571-L or appealing a property tax assessment, we have the knowledge and experience to help you achieve your goals.

Real Property Tax Services

In addition to our business personal property tax services, we also offer a wide range of real property tax services. Whether you need help appealing your real property taxes or ensuring that your property is properly classified, our team is here to help. With years of experience and a deep understanding of California law, we are your trusted partner for all of your real property tax needs.

Representation Throughout the Appeal Process

At Paramount Property Tax Appeal, we are committed to representing our clients throughout the entire property tax appeal process. From filing the initial appeal to representing you in court, our team will be by your side every step of the way. With our expertise and commitment to your success, you can trust that we will achieve the best possible outcome for your property tax appeal.

Conclusion: Understanding Business Personal Property vs. Real PRoperty - Key Takeaways

Summary of Key Points

This article has outlined the difference between real property and business personal property in California, as well as the importance of proper classification for taxation and liability purposes. The article has also discussed the property tax appeal process in California, including steps for filing an appeal and the representation options available to taxpayers.

Importance of Proper Classification

Properly classifying real property and business personal property is crucial for ensuring that taxpayers are subject to the correct tax liabilities and obligations. Understanding the difference between these types of property is also important for estate planning and for ensuring that property is properly transferred to heirs and beneficiaries.

Final Thoughts

While the difference between real property and business personal property may seem complex, it is important for California taxpayers to understand this distinction in order to ensure that their property is properly classified and taxed. By understanding the key differences between these types of property, as well as the property tax appeal process, taxpayers can make informed decisions about their property and ensure that their rights and obligations are properly protected.

Frequently Asked Questions (FAQs)

Business Personal Property

What is considered business personal property in California?

How is business personal property taxed in California? 

Can the value of business personal property be appealed in California?

Yes, the value of business personal property can be appealed in California if a taxpayer believes that the assessed value is incorrect. The property tax appeal process in California provides taxpayers with the opportunity to contest the assessed value of their property and potentially have their tax liability reduced.

Real Property

What is considered real property in California?

Real property in California refers to any type of real estate, including land and buildings permanently attached to the land. This type of property is typically considered to have a longer duration of ownership than business personal property.

How is real property taxed in California?

In California, real property is subject to annual property taxes, which are calculated based on the value of the property. The amount of tax owed will vary based on the location of the property, the type of property, and other factors.

Can the value of real property be appealed in California? 

Yes, the value of real property can be appealed in California if a taxpayer believes that the assessed value is incorrect. The property tax appeal process in California provides taxpayers with the opportunity to contest the assessed value of their property and potentially have their tax liability reduced.