Property Tax
Property Tax - answer The property tax is a tax on the market value of privately owned
property, including land, cars, business inventory, etc. is a levy on property that the
owner is required to pay. The tax is levied by the governing authority of the jurisdiction
in which the property is located; it may be paid to a national government, a federated
state, a county or geographical region, or a municipality.
Tax base; types of property - answer Real property
Land, improvements (house)
Personal property
Tangible ; owned for their own intrinsic value (cars)
Intangible; held as a claim to something else (bonds, stocks)
Issues with property tax - answer How to identify changes (e.g., to buildings)?
Personal property is easy to hide
Must identify owner and use of property
Real property generally exempted - answerPublic property, burial grounds, places of
religious worship
Education institutions, public charities, nonprofit hospitals
Must be owned and used for intended purpose to be exempted
Personal property generally exempted - answerMotor vehicles (~31 states)
Household property; TV set etc. ~33 states
Agricultural personal property; ~18 states
Business inventory; ~35 states
Determine Market value: - answerGenerally done at the local level but done at the state
level in some states
Not an easy task; value must be legally defensible if subject to appeal
Value is usually based on market value, which assumes
non-forced sale between willing buyer and willing seller
markets have adequate time to function
Full information about parcel of property that is for sale
Generally defensible since there are actual transactions available for comparison
Current-use assessment assumes property will be used for existing purpose if bought
by another buyer.
This is not always the case.
Method for tax base in property tax - answerAssessment on sale: reassessment takes
place when property is sold
Deedless sales to avoid adjustment in tax liability
, Leads to significant inequities
horizontal
Vertical
Cost approach
Starts with historic cost and adjusts for depreciation
Reproduction cost?
Cost of constructing an exact replica at current prices
Replacements cost?
Cost of constructing a similar unit using current technology
Discounted income
Administration: Tax base - answerMass cyclical (2-10 yr intervals)
All properties assessed in assessment year
Value remains fixed until next schedule assessment
May change if significant changes made to the property
Segmental
Fraction of all properties reassessed each year.
Usually works on a cycle (example 3 year cycle)
Annual
Possible with improvements in technology
Assigns value to each characteristic of property
Adjusts for these values and market trends for the jurisdiction
Assessment Cycle
Administration: Tax base
Determine Assessed Value - answerApply assessment ratio rule
Rule varies by type and class of property
Personal property generally exempted
Residential property may be assessed a lower rate than commercial and industrial
property
States with such classification systems are said to have a Classified property tax
Alters the burden of the property tax among different classes of property
This presents a unique feature of the property tax
The government gets to set both the rate and the base
There is usually a trade off between the two
Makes comparison across states difficult
Fractional assessment - answerProperty assessed at less than 100%
how do Fractional assessment
creates inequities that increase as the assessed rate decreases - answerBecause tax
payer may be unaware of the difference between his/her assessment and that of other
parcels
Inequity is especially serious when parcels within a given taxing area have different
assessment ratios
Implies similarly situated properties have different ETR
Property Tax - answer The property tax is a tax on the market value of privately owned
property, including land, cars, business inventory, etc. is a levy on property that the
owner is required to pay. The tax is levied by the governing authority of the jurisdiction
in which the property is located; it may be paid to a national government, a federated
state, a county or geographical region, or a municipality.
Tax base; types of property - answer Real property
Land, improvements (house)
Personal property
Tangible ; owned for their own intrinsic value (cars)
Intangible; held as a claim to something else (bonds, stocks)
Issues with property tax - answer How to identify changes (e.g., to buildings)?
Personal property is easy to hide
Must identify owner and use of property
Real property generally exempted - answerPublic property, burial grounds, places of
religious worship
Education institutions, public charities, nonprofit hospitals
Must be owned and used for intended purpose to be exempted
Personal property generally exempted - answerMotor vehicles (~31 states)
Household property; TV set etc. ~33 states
Agricultural personal property; ~18 states
Business inventory; ~35 states
Determine Market value: - answerGenerally done at the local level but done at the state
level in some states
Not an easy task; value must be legally defensible if subject to appeal
Value is usually based on market value, which assumes
non-forced sale between willing buyer and willing seller
markets have adequate time to function
Full information about parcel of property that is for sale
Generally defensible since there are actual transactions available for comparison
Current-use assessment assumes property will be used for existing purpose if bought
by another buyer.
This is not always the case.
Method for tax base in property tax - answerAssessment on sale: reassessment takes
place when property is sold
Deedless sales to avoid adjustment in tax liability
, Leads to significant inequities
horizontal
Vertical
Cost approach
Starts with historic cost and adjusts for depreciation
Reproduction cost?
Cost of constructing an exact replica at current prices
Replacements cost?
Cost of constructing a similar unit using current technology
Discounted income
Administration: Tax base - answerMass cyclical (2-10 yr intervals)
All properties assessed in assessment year
Value remains fixed until next schedule assessment
May change if significant changes made to the property
Segmental
Fraction of all properties reassessed each year.
Usually works on a cycle (example 3 year cycle)
Annual
Possible with improvements in technology
Assigns value to each characteristic of property
Adjusts for these values and market trends for the jurisdiction
Assessment Cycle
Administration: Tax base
Determine Assessed Value - answerApply assessment ratio rule
Rule varies by type and class of property
Personal property generally exempted
Residential property may be assessed a lower rate than commercial and industrial
property
States with such classification systems are said to have a Classified property tax
Alters the burden of the property tax among different classes of property
This presents a unique feature of the property tax
The government gets to set both the rate and the base
There is usually a trade off between the two
Makes comparison across states difficult
Fractional assessment - answerProperty assessed at less than 100%
how do Fractional assessment
creates inequities that increase as the assessed rate decreases - answerBecause tax
payer may be unaware of the difference between his/her assessment and that of other
parcels
Inequity is especially serious when parcels within a given taxing area have different
assessment ratios
Implies similarly situated properties have different ETR
