Property tax in the United States

Most local governments in the United States impose a property tax as a principal source of revenue. This tax may be imposed on real estate or personal property. The tax is nearly always computed as the fair market value of the property times an assessment ratio times a tax rate. Values are determined by local officials, and may be disputed by property owners. The tax is administered at the local government level. Many states impose limits on how local jurisdictions may tax property. Since many properties are subject to tax by more than one local jurisdiction, some states provide a method by which values are made uniform among such jurisdictions. Property tax is rarely self assessed. The tax becomes a legally enforceable obligation attaching to the property at a specific date. Most states impose taxes resembling property tax on vehicles registered in the state, and some states tax some other types of business property.

Most jurisdictions below the state level in the United States impose a tax on interests in real property (land, buildings, and permanent improvements) that are considered under state law to be ownership interests. Rules vary widely by jurisdiction. However, certain features are nearly universal. Some jurisdictions also tax some types of business personal property, particularly inventory and equipment. States generally do not impose property taxes.

Many overlapping jurisdictions may have authority to tax the same property. These include counties or parishes, cities and/or towns, school districts, utility districts, and special taxing authorities, and vary by state. Few states impose a tax on the value of property. The tax is based on fair market value of the subject property, and generally attaches to the property on a specific date. The owner of the property on that date is liable for the tax.

The amount of tax is determined annually based on market value of each property on a particular date, and most jurisdictions require redeterminations of value periodically. The tax is computed as the determined market value times an assessment ratio times the tax rate. Assessment ratios and tax rates vary among jurisdictions, and may vary by type of property within a jurisdiction. Most jurisdictions' legislative bodies determine their assessment ratios and tax rates, though some states impose constraints on such determinations.

Tax assessors for taxing jurisdictions determine property values in a variety of ways, but are generally required to base such determinations on fair market value. Fair market value is that price for a willing and informed seller would sell the property to a willing and informed buyer, neither being under any compulsion to act. Where a property has recently been sold between unrelated sellers, such sale establishes fair market value. In other (i.e., most) cases, the value must be estimated. Common estimation techniques include comparable sales, depreciated cost, and an income approach. Property owners may also declare a value, which is subject to change by the tax assessor.

Once value is determined, the assessor typically notifies the last known property owner of the value determination. Such notices may include the calculated amount of tax. The property owner may then contest the value. Property values are generally subject to review by a board of review or similar body, before which a property owner may contest determinations.

After values are settled, property tax bills or notices are sent to property owners. Payment times and terms vary widely. If a property owner fails to pay the tax, the taxing jurisdiction has various remedies for collection, in many cases including seizure and sale of the property. Property taxes constitute a lien on the property to which transferes are also subject.

Opinions on property tax

Sprawl: In the absence of urban planning policies, property tax on real estate changes the incentives for developing land, which in turn affects land use patterns. One of the main concerns is whether or not it encourages urban sprawl.

The market value of undeveloped real estate reflects a property's current use as well as its development potential. As a city expands, relatively cheap and undeveloped lands (such as farms, ranches, private conservation parks, etc.) increase in value as neighboring areas are developed into retail, industrial, or residential units. This raises the land value, which increases the property tax that must be paid on agricultural land, but does not increase the amount of revenue per land area available to the owner. This, along with a higher sale price, increases the incentive to rent or sell agricultural land to developers. On the other hand, a property owner who develops a parcel must thereafter pay a higher tax, based on the value of the improvements. This makes the development less attractive than it would otherwise be. Overall, these effects result in lower density development, which tends to increase sprawl.

Attempts to reduce the impact of property taxes on sprawl include:

• Land value taxation - This method separates the value of a given property into its actual components — land value and improvement value. A gradually lower and lower tax is levied on the improvement value and a higher tax is levied on the land value to insure revenue-neutrality. This method is also known as two-tiered or split-rate taxation.

• Current-use valuation - This method assesses the value of a given property based only upon its current use. Much like land value taxation, this reduces the effect of city encroachment.

• Conservation easements - The property owner adds a restriction to the property prohibiting future development. This effectively removes the development potential as a factor in the property taxes.

• Exemptions - Exempting favored classes of real estate (such as farms, ranches, cemeteries or private conservation parks) from the property tax altogether or assessing their value at a minimal amount (for example, $1 per acre).

• Forcing higher density housing - In the Portland, Oregon area (for example), local municipalities are often forced to accept higher density housing with small lot sizes. This is governed by a multi-county development control board, in Portland's case Metro.

• Urban growth boundary or Green belt - Government declares some land undevelopable until a date in the future. This forces regional development back into the urban core, increasing density but also land and housing prices. It may also cause development to skip over the restricted-use zone, to occur in more distant areas, or to move to other cities.

Distributional: Property tax has been thought, by some, to be regressive (that is, to fall disproportionately on those of lower income) when not correctly implemented because of its impact on particular low-income/high-asset groups such as pensioners and farmers in drought years. Because these persons have high-assets accumulated over time, they have a high property tax liability, although their realized income is low. Therefore, a larger proportion of their income goes to paying the tax. In areas with speculative land appreciation (such as California in the 1970s and 2000s), there may be little or no relationship between property taxes and a homeowner's ability to pay them short of selling the property. For information on first time home buyer questions please check first time home buyer questions. This issue was a common argument used by supporters of such measures as California Proposition 13 or Oregon Ballot Measure 5; some economists have even called for the abolition of property taxes altogether, to be replaced by income taxes, consumption taxes such as Europe's VAT, or a combination of both. Others, however, have argued that property taxes are broadly progressive, since people of higher incomes are disproportionately likely to own more valuable property. In addition, while nearly all households have some income, nearly a third of households own no real estate. For more information on real estate please check real estate.Moreover, the most valuable properties are owned by corporations not individuals. Hence, property is more maldistributed than income.

It has been suggested that these two beliefs are not incompatible — it is possible for a tax to be progressive in general but to be regressive in relation to minority groups. However, although not direct, and not likely one-to-one, property renters can be subject to property taxes as well. If the tax reduces the supply of housing units, then it will increase the rental price. In this way, the owner's cost of taxation is passed on to the renter (occupant).