Sales Tax Glossary: Tangible Personal Property

Sales tax terms aren’t always the easiest to understand, especially as sales tax laws are undergoing a lot of changes. One of the most common terms in sales tax lingo that confuses many people is tangible personal property, often abbreviated TPP by those in the sales tax industry. TPP isn’t just tangible, in the truest sense of the word, anymore. So how can we now understand this term? The word tangible means “able to be perceived by touch.” In the days before computers, personal property usually could be touched and experienced through a corporal connection in some way.

You could drive your car, sit on your sofa, play your piano, and wear your clothes, so all those things are clearly tangible personal property. For most of human history, most of the things we bought and sold have been tangible. The most notable exclusion is intellectual property, like copyrights, trademarks, or ideas—all of these fall into the category of intangible property. Before computers, if an item could be experienced by touch, such as a can of tomatoes or a chair, it was subject to sales tax unless otherwise specified by certain exclusions in tax jurisdictions where sales tax was in effect. Personal property is a legal term meaning something that can be moved, excluding land and buildings. Any possession other than land or buildings is considered personal property, regardless of whether it’s owned by an individual or company.

Almost all of your possessions fall into this category and could have been subject to sales tax. With the advent of computers, it got a bit more complex. For instance, a computer software company can now sell you a program that you download directly from the internet — you never actually touch the property you buy. The true definition of the word tangible doesn’t include software that can’t be perceived by touch. However, our understanding of software does include the ability to move it from one location to another, such as between computers or from a server to a personal computer, giving software and other digital goods the designation of personal property.

States are changing the ways they interpret the word “tangible” to include concepts that normally wouldn’t fall into the tangible property category. When you download a song on the internet or a software application, that sale can be taxable and many states tax that sale. So how do you know what’s considered subject to sales tax and what’s not? It involves quite a bit of legal knowledge and determining taxability usually falls to professionals, especially in industries where definitions are changing. If your business only sells items that are clearly tangible personal property, it is a safe bet to charge sales tax to the consumer unless there’s a specific exemption. If you sell things that can’t be touched, check with a tax professional.

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