Understandably, Maryland business owners are confused by the idea that they have to report and potentially pay taxes on “business personal property.” Particularly since it's important to be clear on how business and personal expenses should be separately accounted for—with extra attention paid to what personal items a business owner may have converted to partial or total business use. (And that's even more significant if you're talking about a home office or home-based business.)

So, let's discuss what business personal property is and how it is taxed.

WHAT IS “BUSINESS PERSONAL PROPERTY”?

First off, you're not crazy if you think “business personal property” sounds like an oxymoron right up there with “jumbo shrimp.”

The confusion lies in terms of the nature of “property” itself. In the law, “real property” is land and any assets that are permanently attached to land, including houses, barns, and office buildings. But the law recognizes that people own things that aren't land, affixed to it, and still have value.

So small(er) and moveable items are considered “personal property.” The distinction makes sense in the context of assets such as paintings, home furnishings, televisions, clothes, and jewelry—the last of which do seem “personal.”

In Maryland, the “personal property” nomenclature still applies in the business context to any assets that are not real property or vehicles. Therefore, business personal property includes office furniture, computers, copiers, telephones, machinery, and even inventory.

HOW BUSINESS PERSONAL PROPERTY IS TAXED

Previously, any business personal property needed to be reported in an annual filing, and then the business with more than $2,500 in assets would receive a tax bill based on the property's assessed value. Business personal property taxes are based on the rate charged for where the assets are physically located in Maryland. (So, for example, any business owner with assets in Annapolis or Highland Beach could receive a tax bill from the Anne Arundel County tax office.)

However, in June 2022, Maryland raised the exemption of business personal property from $2,500 to $20,000. This means that an estimated 42,000 Maryland small business owners won't owe any business personal tax. This change in the law also lowered the administrative burden because these business owners can now self-attest that their assets are exempt and won't have to submit a return listing of their personal property.

Please note: If a business fails to file its personal property tax, the state will forfeit the business which could lead to the closure of the business bank accounts and credit lines. It can also prevent the renewal of the business licenses.

HOW A TAX ATTORNEY CAN HELP SMALL BUSINESSES

Maryland tax attorney Gabaie & Associates, LLC. has offices in Baltimore, Annapolis, Rockville, and Columbia. Juda Gabaie specializes in helping business owners with taxes, including keeping up with the most recent changes in deductions and filing requirements. We can review your current tax liability and help you reduce your taxes in the future.  

Contact Gabaie & Associates, LLC. today by calling us at (410) 358-1300 or by emailing us to schedule a free consultation.