Property Tax Administration Government Finance

Why is the property tax reviled? Assessment Subjectivity Lack of Uniformity Incidence is on the landowner which means that agricultural landowners bear the burden of the tax Lack of a direct link between income and property value Incidence of tax on capital borne by capital owners throughout the economy, causing capital to flee to low tax communities Inequality in the distribution of property value across communities resulting in high tax rates in poor communities and low tax rates in wealth communities Property tax liabilities sensitive to the rate of inflation, rising at a fast pace during periods of general price inflation.

Equalization Geographical differences in property tax rates Assessments depends on the level of government doing the assessment Property values also affect rates Need to compare effective tax rates Assessment ratio Statutory rate State complications Equalization plans lend themselves to strategic maneuvering Incentive to undervalue property

Discontent and relief mechanisms Reduce expenditures Homestead exemptions Preferential assessment Use value Agricultural land Land bank Property tax limitations California’s Proposition 13 transforms the property tax into a acquisition value tax Proposition Two and a Half in Massachusetts Truth in Taxation Circuit Breaker Mechanism

Business cycle and housing crisis influence on local tax revenues Five channels that the housing market affects state and local tax revenues Decline in property tax revenues Reduction in real estate transfer taxes Reduction in sales tax revenues because of lower construction Negative effect on sales tax revenues because of decrease in household wealth Reduction in personal income tax revenues Property taxes are more stable than Sales taxes Income taxes