REAL PROPERTY TAXATION

1
REAL PROPERTY TAXATION

• LEARNING OBJECTIVES
• Determine a communitys tax rate, given a budget,
  other income, total assessed values, and the
  value of exempt properties.
• Explain why real property cannot be taxed by the
  federal government.
• Determine the property tax liability and the
  effective tax rate for an individual property.

2
REAL PROPERTY TAXATION

• LEARNING OBJECTIVES
• List four reasons why the property tax is
  considered an efficient tax.
• List three criteria for evaluating the fairness
  of property tax.
• Determine the average tax burden by evaluating
  the sale prices of several properties.

3
THE TAX ON REAL PROPERTY

• The largest single source of revenue for most
  local governments.
• Taxes are levied ad valorem (i.e., according to
  value).
• Unlike many countries, the U.S.. Constitution
  prohibits a federal property tax.

4
PROPERTY TAX MECHANICS

• Each parcel is periodically appraised and an
  assessed value placed on it.
• The taxable value is the assessed value, less any
  exemptions.
• The tax base is the aggregate taxable value of
  all properties in a community.
• The tax rate is generally stated as a millage
  rate (tax dollar / 1,000 of value).

5
Basic Formula for Determining the Tax Rate

• RT (EB - IO) / (VT - VX)
• where RT tax rate,
• EB budgeted expeditures,
• IO income from other sources,
• VT total assessed value of all properties,
  and
• VX value of exempt properties.

6
Tax-Exempt Properties

• Government-owned Properties
• Schools
• Hospitals
• Places of Worship

7
Partial Exemptions

• Homestead Exemptions
• Agricultural Property Exemptions
• Senior- and Disabled-owned Property Exemptions

8
Calculating Tax Liability
9
The Effective Tax Rate

• The effective tax rate is the tax paid divided by
  the propertys market value.
• Solution using previous slides data is
• 2,276.45 / 125,550 1.813

10
Tax Burden Analysis
11
Special Assessments

• Special assessments are taxes charged to property
  owners to pay for local improvements that
  directly benefit a parcel.
• not assessed according to the value of the
  property
• generally a one-time charge
• Special taxing districts (i.e., downtown
  redevelopment area).

12
Nonpayment of Property Taxes

• Equity of Redemption
• If taxes are in default, the property may be
  foreclosed and sold at a public auction.
• Statutory Redemption Period
• Tax Certificates

13
TAX EVALUATION CRITERION EFFICIENCY

• Costs and Benefits on Market Operations
• Property Value Effects
• New Construction and Maintenance Effects
• Land Development Effects

14
TAX EVALUATION CRITERION EQUITY

• Horizontal and Vertical Equity
• Regressive Nature
• Relationship to Ability to Pay
• Variation by Location