Property tax

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Property tax, or millage tax, is an ad valorem tax that an owner pays on the value of the property being taxed.

There are three species or types of property: Land, Improvements to Land (immovable manmade objects; i.e., buildings), and Personal property (movable manmade objects). Real estate, real property or realty are all terms for the combination of land and improvements. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.

Role of property tax

Property tax is an ad valorem tax that an owner of real estate or other property pays on the value of the property being taxed. The role for this tax is that the local governments in developed countries supply a range of public services, from those that exhibit mainly private goods characteristics, such as: water, sewers, solid waste collection and disposal, public transit, public recreation, to those that exhibit mainly public goods characteristics (local streets and roads, street lighting, fire and police protection, neighborhood parks, and so forth) from it (Kitchen 2003).

Historical overview

The Physiocrats’ credo in the eighteenth century, more or less was:

It is from the right of property, maintained in all its natural and primitive fullness, that all the institutions which make up the essential form of society necessarily flow: you can think of the right of property as a tree, and all the institutions of society are the branches which it shoots forth, which it nourishes, and which perish when they are detached from it (Schiatter, 1951).

Quesnay (founder of the Physiocratic school) claimed in his Fourth Maxim:

That the ownership of the landed properties and the mobile wealth be assured to those who are their legitimate possessors; for the of property is the essential fundamentals of the economic order of society (Oncken 1888, 331).

When Quesnay argued that “the security of property is the fundamental essential of the economic order of society,” the reason he advanced for its necessity is that:

Without the certainty of ownership, the territory would rest uncultivated. There would be neither proprietors nor tenants responsible for making the necessary expenditures to develop and cultivate it, if the preservation of the land and produce were not assured to those who advance these expenditures. It is the security of permanent possession which induces the work and the employment of wealth to the improvement and to the cultivation of land and to the enterprises of commerce and industry (Oncken 1888, 331-332).

The major tenets of Physiocratic ideology are the two following restrictions Quesnay formulated on the use of property:

That a part of the sum of incomes not pass to a foreign country without returning, in money or in merchandise. ... and, that they prevent [evite] the desertion of inhabitants who would carry their wealth out of the kingdom (Oncken 1888, 233).

But Physiocratic property theory also encompassed the reasoned modification-reconstitution of such rights as necessary to maintain and strengthen the same social interest by which private property itself was sanctioned. The evidence recorded below suggests that the Physiocratic theory of property rights is more nearly a theory of “social utility” than a theory of exclusive or absolute private dominion.

Such a view was propounded by de Tocqueville, when he observed that the Physiocrats had neither concern nor respect for contractual and proprietary rights. Such claims are minor, compared with the social interest: "there are no longer private rights, but only a public utility"(de Tocqueville 1955, 159).

With respect to property, the role of the state was thus seen as an active manipulator, rather than a passive securer. Turgot’s attitude towards “property foundations,” an attitude comparable to the Anglo-Saxon "law of perpetuities," was that

the government has an incontestable right. . . to dispose of old foundations, to extend their funds to new objects, or, better still, to suppress them altogether.... …Public utility is the supreme law, and it ought not to be nullified by any superstitious respect for what we call the intention of the founder - as if ignorant and short-sighted individuals had the right to chain to their capricious wills the generations that had still to be borne (Stevens 1895, 227-228).

When private right or private interest is not coincident with social interest, then "public utility is the supreme law" (Stevens 1895, 228).

In the context of property (land) taxes the Physiocrats were not unduly hostile to taxation per se; rather they attribute to taxation (and government) considerable positive social significance. In short, taxation becomes less of a nemesis and more of an instrument of social utility. Indeed, a principle of Physiocratic tax theory was that:

Tax, if kept within its rational limits, is not a burden at all. On the contrary, is a condition toward the maximization of the national dividend…, and …..., taxation for the Physiocrats was …a problem not of a burden laid on individual producer’s shoulders for the sake of keeping the consumptive governmental machine going, but... a problem of distribution between productive agents—the State being counted among them according to his (its) proper nature—of a total national dividend produced by the same agents (Einaudi 1933, 131-135).

It is also clear that the reconstruction of the tax system proposed by the Physiocrats would have necessarily involved the abrogation of valuable and privileged property rights of long standing:

The expenses of the government having for their object the interests of all, all ought to contribute to them; and the more one enjoys the advantages of the society, the more ought it to be held a matter of honor to participate in these charges. ... Taxation being subject to considerations of public utility, privilege would have to give way to a rational tax administration. That such a reconstruction involved a concomitant reconstitution of property rights goes without saying (Shepherd 1903, pp.108-109).

Thus, for the Physiocrats it was axiomatic that the state was responsible for the development of property, that it was through the agency of the state that property was to be reconstructed continuously in the social interest. The role of the state was thus to manipulate property law, thereby manipulating the bundle of rights that constituted property.

From the perspective of the individual holder of property, the un-interfered-with use of private property was contingent upon the consonance of that use with the public interest as defined by the state. "The concept of social function was thus correlative to that of private right, and for practical purposes the former would govern the latter" (Tawney 1920).

Physiocrats’ definition of property tax

The use of a land tax as the chief source of revenue has often been proposed. It was favoured by the Physiocrats in 18th-century France.

The definition of their programme from the Oxford English Dictionary cannot be bettered. They maintained that:

"...Society should be governed according to an inherent natural order, that the soil is the sole source of wealth and the only proper object of taxation, and that security of property and freedom of industry and exchange are essential...."( McLean, 2004)

Another, slightly different view offered du Pont:

"....The tax is a kind of inalienable common property. When proprietors buy or sell land they do not buy and sell the tax. They can only dispose of that portion of the land which really belongs to them, after deducting the amount of the tax. This tax is no more a charge upon property than is the right of fellow proprietors a burden upon one’s property. And so the public revenue is not burdensome to anyone, costs nothing, and is paid by no one. Hence, it in no way curtails the amount of property which a person has...."( in: Samuels, 1961)

Thus, Physiocrats almost exclusively tied the land tax – into which they sometimes included “ the mobile wealth”; see Quesnay’s Fourth Maxim above - to the “social and public interest” and left the rationalization of the tax ( i.e. state ) revenue and its partial return back to increase the poorer people’s wellbeing to the state. As the state officials, generally, were not up to the task, this was a clear invitation to a “wholesale” corruption, just like Henry George claimed in his treatise ( George,1879).

Under these conditions, probably the best-known exponent of land-alone tax was a 19th-century American, Henry George. His Progress and Poverty (1879) drew upon economic analysis in the tradition of British economists David Ricardo and John Stuart Mill.

Henry George’s alternative suggestion of single rent-of-land tax

His solution lay in the taxation of the rent of land and natural opportunities. That is, the recapture of rent for public use, rather than the taxation of labor and capital.

George said:

"....We have reached the deplorable circumstance where in large measure a very powerful few are in possession of the earth's resources, the land and its riches and all the franchises and other privileges that yield a return. These positions are maintained virtually without taxation; they are immune to the demands made on others ….The very poor, who have nothing, are the object of compulsory charity. And the rest — the workers, the middle-class, the backbone of the country — are made to support the lot by their labor……We are taxed at every point of our lives, on everything we earn, on everything we save, on much that we inherit, on much that we buy at every stage of the manufacture and on the final purchase. The taxes are punishing, crippling, demoralizing. Also they are, to a great extent, unnecessary....."( George, 1879)

According to George, the nation is no longer comprised of the thirteen original states, nor of the thirty-seven younger sister states, but of the real powers: the cartels, the corporations. Owning the bulk of our productive resources, they are the issue of that concentration of ownership that George saw evolving, and warned against.

He saw nothing wrong with private corporations owning the means of producing wealth. Georgists believe in private enterprise, and in its virtues and incentives to produce at maximum efficiency. It is the insidious linking together of special privilege, the unjust outright private ownership of natural or public resources, monopolies, franchises, that produce unfair domination and autocracy.

The means of producing wealth differ at the root: some is thieved from the people and some is honestly earned. George differentiated; Marx did not. The consequences of our failure to discern lie at the heart of our trouble.

However, shortly after George's death, it dropped out of the political field. Once a badge of honor, the title, "Single Taxer," came into general disuse. Except in Australia and New Zealand, Taiwan and Hong Kong and scattered cities around the world, his plan of social action has been neglected while those of Marx, Keynes, Galbraith and Friedman have won great attention, and Marx's has been given partial implementation, for a time, at least, in large areas of the globe.

Causal relation between the Physiocrats and the modern property tax

Property taxation finances local government in the United States and other countries—not fully, but enough to make the fiscal independence of local government meaningful. This permits the decentralization of government, which may be considered a benefit because it enables citizens to exercise choice over the public services they receive. Local governments in developed countries generally supply a wide range of services, from those police, fire protection, roads, public transportation, to parks and recreational facilities. Property taxes provide revenue that pays for the services that are used by those who own the properties served in this way.

Here, an important issue must be mentioned:

Virtually every study of property tax capitalization finds a statistically significant negative impact of property taxes (or property tax changes) on house ( and/or the property ) values.

Evaluation of the property

All taxable properties must be identified and described on the assessment roll (with each property assigned a roll number) and, above all: assessed. The roll number is important for linking assessment information with tax billing and property transfer records.

However, there is no uniform tax base that applies everywhere. In some countries, the property tax is based on property value as determined by:

• market value,
• site value, and/or
• rental value.

In other countries, the tax is based on building area and property area - this is referred to as unit value. In a few countries, a mix of these approaches is employed. Each of these systems is briefly considered below.

Market value

Market value is the price that is determined between a willing buyer and a willing seller in an arms length deal. Market value estimates the value that the market places on individual properties. For properties that sell in any year, market value is the selling price. For properties that do not change hands in the year, market value must be estimated.

There are at least three estimation methods that may be used:

• First, when markets are active and similar properties are being sold in the same or comparable neighborhoods, a comparative sales approach could be used. This assigns a market value to an unsold property by looking at valid selling prices of similar or comparable properties.

• Second, a depreciated cost approach is sometimes used. This is most appropriate when properties are relatively new, there are no comparable sales, and improvements are relatively unique. Here, the property is valued by assigning a value to the land as if it were vacant and adding the cost of replacing the buildings and other improvements.

• Third, a capitalized income approach may be used. This is primarily for properties that generate actual rental income. Here, the annual net rental income (gross annual rental income minus annual operating expenses) is estimated with this annual net income subsequently converted to a capitalized property value (market value) using a capitalization factor.

To illustrate, if net annual rental income from a specific property is $10,000 and if the current interest rate is 5 percent (current rate of return on a bond, for example), the capitalized value of the property would be $200,000 (net rent divided by interest rate or $10,000/.05). This is also the market value because an individual would be willing to pay $200,000 for a property that generates an annual net rent of $10,000 – this is a 5 percent return and is identical to the return on bonds.

Site graded value assessment

Site value assessment (SVA) is a special case of market value assessment where only land is assessed. All capital improvements (buildings, for example) are excluded from the assessment base. Under a graded SVA system, capital improvements are included in the base and taxed at lower rates (sometimes significantly lower) than land, with the level of gradation varying according to the taxing jurisdiction's policies and practices. A form of site value assessment is used in New Zealand, Kenya, Jamaica, and South Africa (Bahl 1998).

There are two potential problems with site value assessment Evidence is scarce on the effects of a system that taxes land more intensively than it taxes buildings. A study published in 1997 did evaluate economic development in Pittsburgh, Pennsylvania after the City’s decision in 1979-1980 to adopt a graded system and apply a rate to land that was more than five times the rate on structures. The study concluded that Pittsburgh did experience a dramatic increase in building activity, one far in excess of any increases in other cities in the region, but it stopped short of concluding that the change in tax policy had caused the boom (Oates and Schwab 1997).

On the whole, it may seem that a graded system does encourage development, much of this development tends to be at the expense of neighboring communities that have not adopted a similar system and that replacement of the current property tax system with either a system that taxed land alone or a graded system would generate windfall gains and losses in the short run as tax bills rise for certain properties and fall for others (Bird 1993, 82).

Unit-value assessment

On the other hand, support for unit-value or area assessment (based on size of property and buildings) has emerged in a couple of instances. First, it would be superior to value based assessment systems in countries or areas of countries that do not have fully functioning and operational real estate markets. Estonia, Poland, Czech Republic, Slovakia, Russia, and Armenia use it for this reason.

Similarly, it may make sense to use it in parts of countries (Canada and Russia, for example) where there are isolated hamlets and no clearly functional market for property values because the government owns most of the housing and rents it to occupants.

Single or variable tax rate?

The issue here is whether a local taxing jurisdiction should apply a single uniform property tax rate to all properties within its taxing jurisdiction or whether variable tax rates should be used; that is tax rates that vary with the cost of servicing different properties by type or by location within a municipality.

Traditionally and historically, in Canada, as in most other countries with a history of property taxation based on property values, the practice has been to apply a single tax rate to all residential properties and a higher tax rate to all commercial and industrial properties.

However, more recently, in Canada, but not everywhere, this practice has changed. All municipalities in the provinces of Alberta, British Columbia, and Ontario are now permitted to use variable property tax rates. Other countries have also moved in this direction.

The taxation of business properties (commercial and industrial) at higher tax rates than residential properties is generally done in one of two ways:

• either through the practice of assessing business properties at higher values than residential properties with the same tax rate applied to both property types;

• or through the simple application of higher tax rates on business properties (Netzer 1993).

This over-taxation of the non-residential sector has been addressed in empirical studies in Canada and in the United States. Both Canadian studies compared the property tax paid by business properties with the cost of municipal services used by them. The first study included a number of municipalities in the province of Ontario in the early nineties.

It concluded that the residential sector when compared with the business sector is the recipient of proportionately more benefits from local government services (social services in Ontario, elementary and secondary education, libraries, recreational facilities, etc.). When combined with higher effective property tax rates paid by the business sector, it concluded that the latter is over-taxed and the residential sector under-taxed.

A more recent study in the United States found similar results. Specifically, it was estimated that the “business related” share of combined state and local expenditures in the United States is about 13 percent, although there is considerable variation from state to state. These businesses, however, pay proportionately more of the state and local taxes ( ibid. )

Spatial factors

In reality, the extent to which firms and businesses respond to property tax differentials depends on many factors. These include, for example, the importance of being in the core of the region or area for business reasons; the opportunity to shift the tax differential on to consumers (of the final service or product), employees and owners; and the enhanced amenities that may be offered by a ‘downtown location.’

An extensive literature in Canada and the U.S. suggests that spatial factors do affect the costs of development (Marchand 1992). In particular, the density of development and its location with respect to existing services influence the costs of providing services. For example, “hard” services such as sidewalks, roads, and water and sewer mains cost less to provide in denser neighborhoods. With water, a pipe is laid down the center of a street and individual service lines extend from the water main to each building. In high-density neighborhoods, there are more dwelling units per kilometer of water main over which to spread the costs. Furthermore, increasing the distance from central infrastructure facilities such as water and sewage treatment plants will increase costs.

An efficient property tax would thus reflect the higher costs associated with providing services in less dense developments. This would generally mean that property taxes based on services received should be higher in suburban municipalities than in the core. If property taxes are higher in the core and service provision less costly, the property tax creates an incentive to move to less dense developments.

Danger of regressivity

Property tax revenues (in the U.S.) account for about 74 percent of local government revenues and 30 percent of combined state and local government revenues. This is down from 97 percent and almost 80 percent respectively in 1927. Notable declines in the relative importance of property taxes occurred:

• In the 1930s and 1940s as result of the increases in state government aid for education, welfare, health and highways (financed through taxes on income, sales and highway users).

• After 1965 because of a) increased aid through the state and federal governments, and b) the proliferation of non-property taxes and user charges.

This has had an unfortunate impact on municipalities that have, therefore, shifted much of the financial burden from “progressive” income taxes to property taxes, thus creating a more “regressive” tax system and less equitable distribution of tax dollars across the states.

Income taxes are based on your ability to pay; meanwhile seniors—and this is the fast growing segment of population in developed countries—who own their home are facing increasing property taxes without increasing income to pay those taxes.

Hence, the real “tax reform”is addressing, or are about to, this trend of

the historic decline in the role of the property tax by the decision, within the fifty state-local fiscal systems, to replace local property taxes with state (and, to a much lesser extent, local) non-property taxes (Netzer 1993).

Property taxes in various countries

Canada

Many provinces in Canada levy property tax on real estate based upon the current use and value of the land and this is the major source of revenue for most municipal governments in Canada. While property tax levels vary between municipalities in a province there is usually common property assessment or valuation criteria laid out in provincial legislation. There is a trend to use a market value standard for valuation purposes in most provinces with varying revaluation cycles. A number of provinces have established an annual reassessment cycle where market activity warrants while others have longer periods between valuation periods.

The federal government of Canada, pursuant to the Constitution Act, 1982 and the British North America Act, 1867, has exclusive jurisdiction over aeronautics, shipping, telecommunications, as well as typical top-level jurisdiction over immigration, national defence, taxation, criminal justice, fiscal and monetary policy and postal services to name a few. On the other hand, the provinces have jurisdiction over property and civil rights. Accordingly, planning legislation, property tax legislation, municipal government, most highways, hydroelectricity are all provincial jurisdictions.

All but the most sparsely populated areas of Canada are governed by local municipal governments which, in most cases, exercise, through zoning and other controls, the most influential powers over land use. These powers are exercised in accordance with senior government policy and master policy plans as determined and laid down by the municipal council. These regulations are unique to each municipality, based on local preference. No generalizations can be made about the scope and nature of such local controls.

The Ontario Development Charges Act authorizes the municipalities to apply specific taxes or charges in order to pay for the infrastructure costs which the municipality might incur in any new development. These charges are intended to offset the additional costs and to ensure an adequate level of infrastructure and services for new developments.

Hong Kong

In Hong Kong, there is a kind of tax named a property tax, but it is not an ad valorem tax; it is actually classified as an income tax.

Jamaica

This tax is paid in the same way as a mortgage, an annual payment depending on the value of one's assets, such as property.

Netherlands

Property tax (Dutch: Onroerend goed belasting or Onroerende zaak belasting (OZB) ) is levied on homes on a municipal basis in two parts: for the one who lives in the house, and for the owner of the house. When one has a rental home, he/she should only pay the living part of the tax. The last year's lots caused concern because of the annual raise of this tax by more than 10% in some municipalities. As of 2005, there was a Parliament proposal to retain only the owner's part of the property tax, and to raise it annually not more than the inflation rate.

United Kingdom

The modern system of rates have their origin in the Poor Law Act 1601, for parishes to levy rates to fund the Poor Law, although parishes often adopted property rates to fund earlier poor law measures. Indeed, the Court of Appeal in 2001 called the rating an "ancient system," suggesting that it had medieval origins.

In the United Kingdom, rates on residential property were based on the nominal rental value of the property. Whilst still levied in Northern Ireland, they were generally abolished in Scotland in 1989 and England and Wales in 1990 and replaced with the "Community Charge" (poll tax), a fixed charge the same for everyone. This proved even more unpopular than the rates, and was replaced by a mixed council tax which combines elements of property tax and a poll tax. Rates are still (2006) levied on business property, though some classes of business are exempt.

This was soon replaced with the Council Tax, a system based on the estimated market value of property assessed in bands of value, with a discount for people living alone. As of 2007, Northern Ireland has moved to a rateable value based on the capital value of properties (similar to the Council Tax).

The Crown Estate Paving Commission still levies rates on residential property within its jurisdiction, in the area of Regent's Park, London, under the provisions of the Crown Estate Paving Act 1851.

Rates on non-residential property (Business Rates) are still charged, at a uniform rate set by central government. Rates are collected by local councils, but the moneys collected are distributed nationally according to population.

Council Tax is the system of local taxation used in England, Scotland, and Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge. The basis for the tax is residential property, with discounts for single and vulnerable people.

Council Tax is collected by the local authority (known as the collecting authority). However, it may consist of components (precepts) levied and redistributed to other agencies or authorities (each known as a precepting authority).

The collecting authorities are the councils of the districts of England, principal areas of Wales and council areas of Scotland, i.e. the lowest tier of local government aside from parishes and communities.

The precepting authorities are councils from other levels of local government such as a county or parish councils and other agencies. In metropolitan counties where there is no county council, the joint boards are precepting authorities. There may be precepting authorities for special purposes which cover an area as small as a few streets or as large as an entire country.

These all set their precepts independently. Each of the levying authorities sets a precept (total amount) to be collected for households in their area. This is then divided by the number of nominal Band D properties in the authority's area (county, district, national park, etc.) to reach the Band D amount.

Each dwelling is allocated to one of eight bands coded by letters A to H (A to I in Wales) on the basis of its assumed capital value (as of 1 April 1991 in England and Scotland, 1 April 2003 in Wales). Newly constructed properties are also assigned a nominal 1991 (2003 for Wales) value. Each local authority sets a tax rate expressed as the annual levy on a Band D property inhabited by two liable adults. This decision automatically sets the amounts levied on all types of households and dwellings. The nominal Band D property total is calculated by adding together the number of properties in each band and multiplying by the band ratio. So 100 Band D properties will count as 100 nominal Band D properties, whereas 100 Band C properties will only count as 89 nominal Band D properties.) Each collecting authority then adds together the Band D amounts for their area (or subdivisions of their area in the case, for example, of civil parish council precepts) to reach a total Band D council tax bill. To calculate the council tax for a particular property a ratio is then applied. A Band D property will pay the full amount, whereas a Band H property will pay twice that.

Individuals may apply to their local authority for council tax benefit, and subject to eligibility, will receive contributions to cover their tax liability. Payments are made direct to their council tax account, and no cash is paid to recipients. Local authorities receive funding from the Department of Work and Pensions to both administer the council tax benefit system, and to cover payments. There may be further modifiers in certain circumstances, for example a discount for unoccupied property, a 25% discount for single occupants, or a total dispensation for diplomatic residences and residences completely occupied by students.

Although it is the only tax which is set by local government, the Council Tax contributes only a small proportion (25%, on average) of local government revenue. The majority comes from central government grants and from business rates which are collected centrally and redistributed to local authorities.

Local government provide services such as police, fire, recycling, refuse collection and removal, schools, leisure centres, park and ride schemes, parks and open spaces, street cleaning, subsidising of public transport, tourism, museums, social housing grants, housing and council tax benefits, environmental health and food safety in pubs, restaurants and shops, planning services, support for voluntary groups, meals on wheels, facilities for young people, adapting homes for disabled people, play centres for children, cctv installation, sports facilities, issuing taxi licences, flood defences, and many others.

A significant proportion of local government services are stipulated by central government in the form of statutory provision. Local councils are obliged by law to provide these services. The remainder of services are discretionary and are determined by the local council.

Council Tax is criticised for perceived unfairness in not taking into account the ability to pay (see regressive taxation). These critics point out that while the capital value of the property in which a person lives might give some indication of the relative wealth of the individual, it does not necessarily relate to current income. This argument however ignores the fact that those on low incomes can apply for council tax benefits which can significantly (or totally) reduce the amount the applicant pays.

Critics also claim that Council Tax has a disproportionate impact on renters, or those occupying part-owned social housing. They are paying tax according to the value of a property that they may not have been able to afford.

Equally, the tax isn't actually particularly proportionate even to property values. A band H property will pay at most three times as a band A, even though the value of the property may be ten or more times higher.

Whilst the tax may have regressive characteristics, supporters point out that there is a significant means tested benefit regime in place which offers rebates to those on low incomes. This has the effect of making the tax less regressive.

The Liberal Democrats have proposed a system of local income tax to replace Council Tax, however when such a scheme, the Scottish Service Tax, was proposed for Scotland, they opposed it. Critics of that suggestion have claimed that administering such a system independently of the national tax system would impose significant costs for government and business would significant erode the value gained from it as a source of local government income. Conversely, administering a local income tax as part of the national tax system would leave local taxation entirely under the control of central government.

Another alternative scheme would be to allocate all funding directly from central government finances - already around 75% of local authority income is from central budgets. The biggest argument against this is that it removes fiscal independence from local government, making them mere service providers. However, since local government in the UK has no constitutional guarantee, and is shaped entirely by the whim of central government, some critics argue that local authorities can never be independent of central government.

United States

In the United States, property tax on real estate is usually assessed by local government, at the municipal or county level. A very important benefit of a tax on property over a tax on income is that the revenue always equals the tax levy, unlike income or sales taxes, which can result in shortfalls producing budget deficits. The property tax always produces the required revenue for municipalities' tax levies.

The assessment is made up of two components—the improvement or building value, and the land or site value. In some states, personal property is also taxed. A tax assessor is a public official who determines the value of real property for the purpose of apportioning the tax levy. An appraiser may work for government or private industry and may determine the value of real property for any purpose.

Tax assessor offices maintain inventory information about improvements to real estate. They also create and maintain tax maps. This is accomplished with the help of surveyors. On tax maps, individual properties are shown and given unique parcel identifiers. The tax maps help to ensure that no properties are omitted from the tax rolls and that no properties are taxed more than once. Real property taxes are usually collected by an official other than the assessor. Examples of a proposed reform to a property tax on real estate to one that falls more heavily on the land portion is provided at the following sites as sponsored by the The Henry George Foundation. Maryland, King County, Washington, Indiana, New Jersey, New York.

The assessment of an individual piece of real estate may be according to one or more of the normally accepted methods of valuation (i.e. income approach, market value or replacement cost). Assessments may be given at 100 percent of value or at some lesser percentage. In most if not all assessment jurisdictions, the determination of value made by the assessor is subject to some sort of administrative or judicial review, if the appeal is instituted by the property owner.

Ad valorem (of value) property taxes are based on fair market property values of individual estates. A local tax assessor then applies an established assessment rate to the fair market value. By multiplying the tax rate x against the assessed value of the property, a tax due is calculated.

Property taxes are imposed by counties, municipalities, and school districts, where the millage rate is usually determined by county commissioners, city council members, and school board members, respectively. The taxes fund budgets for schools, police, fire stations, hospitals, garbage disposal, sewers, road and sidewalk maintenance, parks, libraries, and miscellaneous expenditures.

Relatively recently, US property tax rates increased well above similar rates in other countries^{[citation needed]}, and exceeded 5% in some US states, thus becoming the main dwelling expense after construction.

Property taxes were once a major source of revenue at the state level, particularly prior to 1900, which was before states switched to relying upon income tax and sales tax as their main sources of revenue [1].

After determining a budget at the municipal level, a legislative appropriation determines how the monies will be collected and distributed. After that, a tax authority levies the tax. An appeal is permitted. Equalization is then considered by a board of equalizers to assure fair treatment. Then a tax rate is determined by dividing the municipal budget by the assessment role of that municipality. Multiplying tax rate by the assessed value of one's property determines one's tax rate.

Some jurisdictions have both ad valorem and non-ad valorem property taxes (better known as special assessments). The latter come in the form of a fixed charge (regardless of the value of the underlying property) for items such as street lighting and storm sewer control.

In the United States, another form of property tax is the personal property tax, which can target

• automobiles, boats, aircraft and other vehicles;
• other valuable durable goods such as works of art (most household goods and personal effects are usually exempt);
• business inventory;
• intangible assets such as stocks and bonds.

Summary

From the above text it is apparent that the most efficient, uniform, accountable and transparent property tax systems around the world exist where the following conditions are met (Kitchen 2003):

• All taxable properties are identified, described and recorded on the assessment roll.
• The property tax base, whether assessed value or area value, is determined in a uniform and consistent manner across a region (as opposed to local) if not across an entire country.
• Assessment is updated as frequently as possible, ideally on an annual basis, so that the tax base is current, uniform, consistent and fair.
• Property assessment (determination of property values or property area) is the responsibility of an arms-length regional assessment authority in order to avoid local distortions created by local pressure groups.
• Each level of government using property tax revenues to fund expenditures is responsible for setting its own property tax rate(s).
• Variable tax rates are used when the cost of providing municipal services varies by property type and location.
• Variable rates, as opposed to a uniform rate, are more likely to discourage urban sprawl and to minimize the extent to which the local property tax is exported to other jurisdictions.
• Business properties (commercial and industrial) are not over taxed vis-à-vis residential properties.
• Limits (by a senior level of government) are not imposed on tax rates set by local governments unless it is to prevent local taxing authorities from imposing unnecessarily high rates on commercial and industrial properties vis-à-vis residential properties.
• The existence of a large number of municipalities in a region or country creates a competitive environment (where municipalities know what the tax rates are in neighboring communities) that provides an incentive for all competing municipalities to set their tax rate at the lowest possible level.
• Tax billing and collection is an administrative function that benefits from economies of scale and should, therefore, be administered on a regional basis.
• Caution should be exercised in creating specific property tax relief schemes – a better approach comes from implementing a comprehensive tax relief scheme administered by the regional or central government.

References

ISBN links support NWE through referral fees

• Bahl, Roy, “Land Taxes Versus Property Taxes in Developing and Transition Countries,” in: Dick Netzer, Land Value Taxation: Can it and will it work today?,.: Lincoln Institute of Land Policy, Cambridge, Mass.,1998, p. 144.
• Bentick, Brian L., “The Impact of Taxation and Valuation Practices on the Timing and Efficiency of Land Use,” Journal of Political Economy, vol. 87, no. 4, 1979, pp.859-68;
• Bird, Richard and Enid Slack, Urban Public Finance in Canada, 2nd edition, Wiley, Toronto,1993
• de Tocqueville, Alexis, The Old Regime and the French Revolution, Doubleday Anchor, Garden City, 1955, p. 159
• Einaudi, Luigi “The Physiocratic Theory of Taxation,” in: Economic Essays in Honour of Gustav Cassel, George Allen & Unwin, London, 1933, pp. 131-35
• George, H., Progress and Poverty, D. Appleton & Co., New York, 1879
• Kitchen, Harry “Local Taxation in Selected Countries: A Comparative Examination,” a paper prepared for CEPRA II, part C, 2003
• Marchand, Claude and Janine Charland, “The Rural Urban Fringe: A Review of Patterns and Development Costs,” Intergovernmental Committee on Urban and Rural Research, Toronto, 1992
• McLean, Iain, “Land tax: options for reform, Nuffield College Politics Working Paper 2004-W7

University of Oxford Press, 2004

• Netzer, Dick, "Property Taxes: Their Past, Present, and Future Place in Government Finance," in: Urban Finance Under Siege, (ed. Thomas R. Swartz and Frank J. Bonello) , M.E. Sharpe, New
• Netzer, Dick, American Journal of Economics and Sociology, Dec, 2001
• Oates, Wallace E., and Robert M. Schwab, “The impact of Urban Land Taxation: The Pittsburgh Experience” The National Tax Journal, vol.L, no. 1, 1997, pp. 1-21.
• Oncken, Auguste (ed.), Oeuvres Economiques et Philosophiques de F. Quesnay , Joseph Baer, Paris, 1888, p. 331
• Samuels, Warren J., The Physiocratic Theory of Property and State, Quarterly Journal of Economics, 75, Feb. 1961, pp. 96-111
• Stephens, Walker, (ed.), The Life and Writings of Turgot, Longmans Green, New York, 1895, pp. 227—28

York, 1993, pp. 51-78

• Schiatter, Richard, Private Property: The History of an Idea, Rutgers University Press, New Brunswick, 1951, p. 217.
• Shepherd, R. P., Turgot and the Six Edicts, Columbia University, Series in History, Economics and Public Law, New York, 1903, XVIII, p. 131.
• Tawney, R.. H., The Acquisitive Society, Harcourt Brace, New York: 1920, Chaps. II and III.

External links

• Urban Sprawl and the Property Tax
• Neutral Property Taxation
• The Property Tax as a Tax on Value: Deadweight Loss
• The Local Property Tax Literature: 100 Years of Disagreement
• Property Tax Section of Taxation World
• IPT Programs
• History of Property Taxes in the United States
• HindSite provides a historical overview of state and local fiscal politics in the U.S., with a focus on property taxation.
• [2] Guardian Newspaper article on property taxes with example from Denmark.
• [3] Provides good information re the taxation of real estate in Illinois
• CAP 112 Inland Revenue Ordinance Section 5B - Charge of property tax
• HK Inland Revenue Department: Departmental Interpretation and Practice Notes, DIPN 14

• Council Tax, from the Valuations Office Agency
• Pay your Council Tax online, from Directgov
• Council Tax payments, discounts and appeals, from Directgov
• IsItFair - the UK Council Tax Protest Group
• Axe The Tax - Liberal Democrat anti-Council Tax website
• Ministerial correspondence relating to council tax in the financial year 1991-1992 HM Treasury disclosure under the Freedom of Information Act
• Check if you're in the right council tax band
• Office of Deputy Prime Minister Released Council Tax Figures

Council Tax: The Facts Council Tax in Scotland Council Tax a guide

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