REAL PROPERTY TAXATION LEARNING OBJECTIVES Determine a community’s 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.

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.

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.

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).

Basic Formula for Determining the Tax Rate R T = (E B - I O ) / (V T - V X ) where R T = tax rate, E B = budgeted expeditures, I O = income from other sources, V T = total assessed value of all properties, and V X = value of exempt properties.

Tax-Exempt Properties Government-owned Properties Schools Hospitals Places of Worship

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

Calculating Tax Liability

The Effective Tax Rate The effective tax rate is the tax paid divided by the property’s market value. Solution using previous slide’s data is: $2, / 125,550 = 1.813%

Tax Burden Analysis

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).

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

TAX EVALUATION CRITERION: EFFICIENCY Costs and Benefits on Market Operations Property Value Effects New Construction and Maintenance Effects Land Development Effects

TAX EVALUATION CRITERION: EQUITY Horizontal and Vertical Equity Regressive Nature Relationship to “Ability to Pay” Variation by Location