In this guide, we will provide an overview of tax burden on inventory, including which states are most impacted, and tips on how to mitigate spend across WarehouseQuote’s network.
Inventory tax is a type of property tax that applies to the value of goods held for sale by a business. Inventory tax can vary depending on the location cargo is placed, type and quantity of inventory, and the valuation method used by the business or state.
Inventory tax is calculated by multiplying the assessed value of the inventory by the tax rate of the county where the inventory is located. The assessed value of the inventory may be based on the either its cost to manufacture or its market value.
In this example, let’s consider a company called Jared’s Chocolate Company, which sells chocolate and fudge products. They need to calculate the value of their inventory for inventory tax purposes.
Jared’s chocolate sold 150,000 products at $50 , totaling $7,500,000 for Cost of Goods Sold (COGS).
The value of goods at the end of an accounting period. It can be calculated by adding together beginning inventory and net purchases and subtracting from Cost of Goods Sold (COGS).
Ending Inventory = Beginning Inventory + Net Purchases – Cost of Goods Sold
The best way to calculate your ending inventory is by completing a full physical inventory audit. This will ensure you are reporting accurate numbers to the IRS and can uncover potential issues, such as inventory shrinkage from shoplifting, theft, or fraud.
For this example, Jared’s Chocolate Company’s Ending Inventory is $5,000,000 .
Jared’s Chocolate Company stores its inventory in Texas (has inventory tax) in Crockett County, which has an inventory tax of 0.37 percent . For this fiscal year, Jared’s Chocolate Company would owe Crockett County a total of $18,500.
| State | State or local Level | Assessment date | Return date | High-Low tax rates |
| Alaska | Local | January 1st | Date varies by taxing districts | 0.35-1.47% |
| Arkansas | State | January 1st | July 31st | 0.34-0.91% |
| Kentucky | State | January 1st | May 15th | 0.49-1.36% |
| Louisiana | State | January 1st | April 1st | 0.23-0.89% |
| Mississippi | State | January 1st | April 1st | 0.48-1.45% |
| Oklahoma | State | January 1st | January 1st | 0.42-1.22% |
| Tennessee | State | January 1st | March 1st | 0.37-1.37% |
| Texas | Local | January 1st | April 15th | 0.37-2.58% |
| Vermont | Local | April 1st | April 20th | 1.86-2.13% |
| Virginia | State and Local | April 1st | April 20th | 0.40-1.33% |
| West Virginia | State and Local | July 1st | September 1st | 0.31-0.77% |
Inventory tax is determined on a state level. There are currently 11 states that collect it: Arkansas, Alaska, Kentucky, Louisiana, Maryland, Mississippi, Oklahoma, Texas, Vermont, Virginia, and West Virginia. It’s important to review each state’s property tax policies before deciding where to place your inventory.
The purpose of inventory tax is to fund local governments. Each state has differences on both policy and where the funds go to.
Yes, you need to report inventory. There are three acceptable ways to calculate it: manufacture cost of product, market value of goods, or the lower of cost or market value.
Inventory is considered as an asset, not an expense. There are 11 states in the U.S. that impose inventory tax and all have different policies.
Each state calculates inventory tax in a different manner. Here are three easy steps to track inventory tax:
A Freeport Exemption is a constitutional amendment that exempts certain products from property taxes. For more information on Freeport Exemptions, check out this article.
Yes, some states do have Freeport Exemptions based on inventory type and amount. To get the most accurate information, contact the local accessor where you store your inventory.
It can be difficult to understand all the nuances regarding inventory tax. Partner with WarehouseQuote to gain peace of mind when selecting the optimal location to store inventory with our suite of supply chain consulting and advisory services.
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