It is no secret that the small business is growing increasingly closer to becoming an endangered species. As if having to compete with larger, more prominent corporations wasn’t enough to discourage small business owners, state governments seem to act as an opposing force as well. A perfect example of this unfortunate reality is the business personal property tax in Maryland.
This law essentially states that all “personal property” owned by a business must be appraised and then properly taxed by The Maryland Department of Assessments and Taxation, annually. The Comptroller of Maryland’s office defines personal property as “[…] furniture, fixtures, office and industrial equipment, machinery, tools, supplies, inventory and any other property not classified as real property.” Because of this, not only do small business owners face the initial sales tax of said property, along with their business’ income tax, but they also have to pay an additional tax each year they continue to own certain assets.
The following is an interview with Terry Wood, the owner of Raymond-Wood Funeral Home, P.A., a small business located in Dunkirk, Maryland:
Patuxent Post: “How long have you owned your business?”
Terry Wood: “Since 1999”
PP: “Do you find this tax positive or negative in relation to the benefit of your business?”
TW: “I believe that for most small businesses, any tax has a negative impact. This is not my “personal property” to begin with; the items in question are owned by the company.”
PP: “If Negative, does it affect your business in a major way, please elaborate”
TW: “The negative aspect is that we pay several times over for items purchased for the business. If I buy new furniture, I pay a sales tax. I can’t write off my purchase in full, I have to depreciate the purchase over a period of time. Then, I pay the property tax, the filing fee and the tax accountant who prepares the return for me.”
PP: “Does this tax prevent you from purchasing equipment regularly, or at all?”
TW: “No. I am going to buy what I need to keep the business running smoothly and to present a positive image to the families we serve.”
PP: “Do you allocate money throughout the year to pay this tax? Or do you approach that problem closer to when that tax is due?”
TW: “I do not “allocate” money during the year, but I expect and prepare to pay the filing fees and taxes each year.”
PP: “Do you see this tax as a necessary law, or could we do without it?”
TW: “I would be happy to pay less tax anytime!”
PP: “If you think this law should be removed, do you have any ideas for alternative solutions?”
TW: “I think it is punitive to make businesses pay twice. The filing fee is excessive and the separate forms, with special envelopes, must cost the state money to produce and mail. Why can’t personal property be addressed within the standard tax forms for the year?”
PP: “Are you able to fill the form for the tax yourself, or do you hire an accountant or tax preparer to complete the form? If so, how costly is that?”
TW: “I have a tax accountant prepare the forms for my companies. I do not have a separate calculation; his fee is part of the end of year bills. The cost for each business is around $1500.00 for the end of the year. In order to assure that I am in compliance with current tax law and all of the regulations imposed, I pay about ten thousand dollars a year in accounting fees, and I am well aware that this is a modest amount compared to what larger firms pay.”
It is clear that the personal property tax is far from being both insignificant to the operation of small businesses, and from being received positively by said businesses. Not only do small business owners such as Terry Wood have to deal with multiple levels of taxation to remain competitive in their respective markets, but they also find themselves being forced to pay the fees for tax preparation as well.
For a state that tends to take pride in its sense of community and character, the personal property tax seems to prevent that sense from thriving. This law poses a very real threat for the durability of the already suffering small business model, and leaves the business owners, their customers, and pretty much everyone else all asking the same question; why?