The Personal Property Tax Fair? Unfair? Or just outdated? Vote for two. (VOTE HERE)
Commentary Owners of real estate in Wisconsin are aware of the state's property tax; they are reminded of it every December when they open their tax bill. While homeowners receive one bill, many business owners receive two. Like the typical property owner, they receive one for their building and land. But many business owners receive a second tax bill for the business' personal property, such as office chairs, desks, tools, and many other items. Unknown to most citizens and un liked by most people it affects, the personal property tax is a shell of its original, following decades of exempting both household and business property. A Brief History In the 1830s, before statehood, there was no income or sales tax in Wisconsin. Funding of the territorial government was primarily from property taxes. But, almost two centuries ago, the property tax was a very different tax. Not only was real property—land and buildings—taxed then, so too was personal property, such as stocks, bonds, jewelry, furniture, livestock, crops, inventories, and vehicles. Challenges Encountered While nearly all property was subject to tax in the early- and mid- 1800s, personal property presented several challenges. Finding the Property. First, finding personal property was difficult. Clearly, land and buildings could not be hidden from assessors, and livestock and furniture generally were conspicuous. However, items such as stocks, bonds, and jewelry could be easily hidden from assessors. Potentially hidden property raised issues of tax fairness. What little property low-income taxpayers had was difficult to hide; for the most part, their property was fully taxed. High-income taxpayers were more likely to have financial instruments and jewelry that could be hidden from assessors. It was possible that this property would not be taxed. This problem was recognized in an 1898 Tax Commission report that argued Wisconsin's property tax system exploited the poor and farmers, since, unlike the rich, most of their property was visible. Valuing Personal Property. A second challenge assessors faced was valuing certain items. Markets existed for property such as livestock or shop inventories, so determining market values was not difficult. For other property, e.g., a five-year old chair, a seven-year old watch, or a 30-year old set of tools, markets were scarce or nonexistent, making valuation difficult. The dual challenges of locating and valuing per-sonal property were two of the reasons most personal property was removed from taxation during 1830-2000. A Long History of Exemptions Early exemptions were mostly household items, such as furniture, clothing, personal libraries, kitchen furnishings, and certain stocks Most financial instruments and other household items became exempt after the 1911 creation of the state income tax. Exemptions for business property came much later. In 1962, half of so-called "Line A" stocks—named after the line on the assessment form—were exempted. Line A stocks included livestock, business inventories, and manufacturing materials. They were fully exempted by 1981. A second major exemption of business personal property occurred in 1974 when manufacturing machinery and equipment (M&E) was removed from tax rolls. Beginning in 1999, various forms of business electronic equipment, especially computers, were exempted. Declining Share. As the number of exemptions increased, personal property declined as a share of the property tax base. In 1950, it accounted for 17.7 of the base, with real property (land and buildings) claiming the remaining 82.3. That percentage eroded slightly over the next 25 years, reaching 16.5 in 1975. The M&E exemption helped reduce the personal property share to under 10 by 1980. The elimination of Line A stocks reduced it further to 3.7 in 1982. Computers and other electronic equipment became indispensable for businesses during the 1980s and 1990s and personal property's share of the total crept up, reaching 5.1 by 1992. The computer exemption further eroded the importance of personal property. Since 2005, personal property has represented between 2.2 and 2.6 of the property tax base. The long-term decline in taxable personal property is not surprising. Several commissions, including one in 1912 and one in 1956, suggested eliminating the tax.