Difference between revisions of "Property tax"

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{{TOCnestright}}'''Property tax''' or '''millage tax''' is an [[Ad valorem tax|ad valorem tax]] that an owner of real estate or other property pays on the value of the property being taxed. There are three species or types of property: Land, Improvements to Land (immovable man made things), and Personalty (movable man made things). Real estate, real property or realty are all terms for the combination of land and improvements.   The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.
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{{Tax policy gen nav box}}{{tnr}}Most often, '''property tax''' applies to real estate, although some states impose property taxes on other kinds of personal property, such as automobiles. Property taxes comprise the lion's share of local government revenues. In 2010, property taxes accounted for 75 percent of the tax revenues collected by local governments (such as cities, counties, school districts, etc.). Conversely, states generate very little revenue from property taxes (2 percent in 2010). States that do not levy sales or personal income taxes, however, may collect greater revenues from property taxes.<ref name=taxpolicycenter>[http://www.taxpolicycenter.org/briefing-book/state-local/specific/property.cfm ''Tax Policy Center'', "State and Local Tax Policy: How do property taxes work?" updated May 9, 2013]</ref><ref name=itep>[http://www.itepnet.org/pdf/pb46proptax.pdf ''Institute on Taxation and Economic Policy'', "How Property Taxes Work," August 2011]</ref><ref name=bankrate>[http://www.bankrate.com/finance/taxes/property-taxes-explained.aspx ''Bankrate'', "Property taxes explained," February 3, 2000]</ref><ref name=property>[http://www.taxpolicycenter.org/UploadedPDF/412959-Residential-Property-Taxes.pdf ''Tax Policy Center'', "Residential Property Taxes in the United States," November 18, 2013]</ref><ref>[http://www.investopedia.com/terms/p/propertytax.asp ''Investopedia'', "Property Tax," accessed September 26, 2014]</ref>
  
There is a form of tax which is often confused with the property tax. This is the special assessment tax.  These are two distinct forms of taxation: one ([[Ad valorem tax|ad valorem]] tax) relying upon the fair market value of the property being taxed for justification, and the other, (special assessment) relying upon a special enhancement called a "benefit" for its justification.
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==How property tax works==
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In order to determine property tax liability, a property's value must first be determined. Two values are taken into consideration: the property's market value and the property's assessed value. Assessed value is used for tax purposes and is calculated by applying an assessment ratio to the market value. Some states use a property's market value in calculating its tax, in which case a 100 percent assessment ratio is used. Other states, such as New Mexico and Arkansas, "assess property at only a fraction of its actual value."<ref name=taxpolicycenter>[http://www.taxpolicycenter.org/briefing-book/state-local/specific/property.cfm ''Tax Policy Center'', "State and Local Tax Policy: How do property taxes work?" updated May 9, 2013]</ref><ref name=itep>[http://www.itepnet.org/pdf/pb46proptax.pdf ''Institute on Taxation and Economic Policy'', "How Property Taxes Work," August 2011]</ref><ref name=bankrate>[http://www.bankrate.com/finance/taxes/property-taxes-explained.aspx ''Bankrate'', "Property taxes explained," February 3, 2000]</ref>
  
The '''property tax rate''' is often given as a percentage (amount of tax per hundred currency units of property value).  It may also be expressed as a permille (amount of tax per thousand currency units of property value), which is also known as a '''millage rate''' or '''mill levy'''. (A mill is also one-thousandth of a dollar.)  To calculate the property tax, the authority will multiply the assessed value of the property by the mill rate and then divide by 1,000. For example, a property with an assessed value of US$ 50,000 located in a municipality with a mill rate of 20 mills would have a property tax bill of US$ 1,000.00 per year.[http://www.opm.state.ct.us/igp/DATARESC/mill9798.htm]
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Once the assessed value of a property has been calculated, the amount may be further reduced by exemptions. A common exemption in many states is the "homestead exemption," which allows for a certain, predetermined amount to be subtracted from the assessed value of primary residences. The taxable value of a property is the assessed value minus any exemptions.<ref name=taxpolicycenter>[http://www.taxpolicycenter.org/briefing-book/state-local/specific/property.cfm ''Tax Policy Center'', "State and Local Tax Policy: How do property taxes work?" updated May 9, 2013]</ref><ref name=itep>[http://www.itepnet.org/pdf/pb46proptax.pdf ''Institute on Taxation and Economic Policy'', "How Property Taxes Work," August 2011]</ref><ref name=bankrate>[http://www.bankrate.com/finance/taxes/property-taxes-explained.aspx ''Bankrate'', "Property taxes explained," February 3, 2000]</ref>
  
=== United States ===
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The property tax rate is applied to the property's taxable value. The property tax rate is also known as the millage rate and is often "the sum of several tax rates applied by several different jurisdictions." Any given property could be subject to city taxes, county taxes, school district taxes and more. Millage rates are rendered in "mills." A mill is one-tenth of 1 percent. For example, a 27 mill property tax rate would be equivalent to 2.7 percent. Property tax liability is determined by applying the millage rate to the taxable value of the property. Additional credits may be available to property owners, which can further reduce an owner's tax liability.<ref name=taxpolicycenter>[http://www.taxpolicycenter.org/briefing-book/state-local/specific/property.cfm ''Tax Policy Center'', "State and Local Tax Policy: How do property taxes work?" updated May 9, 2013]</ref><ref name=itep>[http://www.itepnet.org/pdf/pb46proptax.pdf ''Institute on Taxation and Economic Policy'', "How Property Taxes Work," August 2011]</ref><ref name=bankrate>[http://www.bankrate.com/finance/taxes/property-taxes-explained.aspx ''Bankrate'', "Property taxes explained," February 3, 2000]</ref>
In the United States, '''property tax''' on real estate is usually assessed by local government, at the municipal or county level. A very important benefit of a tax on property over a tax on income is that the revenue always equals the tax levy, unlike income or [[sales tax]]es, which can result in shortfalls producing deficits. The property tax always produces the required revenue for municipalities' tax levies. On the other hand property taxes can have a negative impact on individuals with fixed incomes such as the elderly and those who have lost their jobs. Gentrification in low income areas of a city can drive property taxes to the point where long time residents of an area are forced to leave.
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The assessment is made up of two components -- the improvement or building value and the land or site value. In some states, personal property is also taxed. A tax assessor is a public official who determines the value of real property for the purpose of apportioning the tax levy. An appraiser may work for government or private industry and may determine the value of real property for any purpose.
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This scenario further illustrates the process. Assume that a property's market value is determined to be $100,000. An assessment ratio of 100 percent is applied to the market value, resulting in an assessed value of $100,000. Assuming that the property is a primary residence and the state in which it is located offers a homestead exemption of $20,000, the property's taxable value would be reduced to $80,000. A millage rate of 27 mills (or 2.7 percent) is applied to the taxable value, which results in a final property tax liability of $2,160.  
  
Tax assessor offices maintain inventory information about improvements to real estate.  They also create and maintain tax maps.  This is accomplished with the help of surveyors.  On tax maps, individual properties are shown and given unique parcel identifiers. The tax maps help to ensure that no properties are omitted from the tax rolls and that no properties are taxed more than once.  Real property taxes are usually collected by an official other than the assessor. Duplicate examples of a proposed alternate to ad valorum assessments is provided at the following sites as sponsored by the Henry George Foundation. [http://www.marylandlandtax.org Maryland], [http://www.washingtonlandvaluetax.org King County, Washington], [http://www.indianalandvaluetax.org Indiana], [http://www.newjerseylandvaluetax.org New Jersey], [http://www.newyorklandvaluetax.org New York]. In fact many localities have gone "online".
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==Property taxes by state==
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===Amounts paid===
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The table below provides the mean amount of property taxes paid, as well as property tax as a mean percentage of home value, for the United States for 2012. According to the Tax Policy Center, which compiled the below data, New Jersey's mean property tax as a percentage of home value ranked highest in the nation in 2012 at 2.32 percent. By contrast, Hawaii ranked lowest in the nation at 0.27 percent. In terms of the mean amount paid in property tax, New Jersey again ranked the highest at $7,318 while Alabama ranked lowest at $631.<ref name=property/>
  
The assessment of an individual piece of real estate may be according to one or more of the normally accepted methods of valuation (ie income approach, market value or replacement cost).  Assessments may be given at 100 percent of value or at some lesser  percentage. In most if not all assessment jurisdictions, the determination of value made by the assessor is subject to some sort of administrative or judicial review, if the appeal is instituted by the property owner.
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{| class="wikitable sortable" style="text-align:center; width:600px;"
 +
! colspan="3" align="center" style="background-color:#2b3773; color: white;" | Mean property taxes paid per state, 2012
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|-
 +
! rowspan="2" valign="bottom" style="background-color:#444; color: white;" | State
 +
! rowspan="2" valign="bottom" style="background-color:#444; color: white;" | Mean amount paid
 +
! rowspan="2" valign="bottom" style="background-color:#444; color: white;" | Mean property tax as a percent of home value
 +
|-
 +
| '''[[Tax policy in Alabama|Alabama]]'''||$631||0.46%
 +
|-
 +
| '''[[Tax policy in Alaska|Alaska]]'''||$3,290||1.28%
 +
|-
 +
| '''[[Tax policy in Arizona|Arizona]]'''||$1,330||0.88%
 +
|-
 +
| '''[[Tax policy in Arkansas|Arkansas]]'''||$901||0.68%
 +
|-
 +
| '''[[Tax policy in California|California]]'''||$3,164||0.88%
 +
|-
 +
| '''[[Tax policy in Colorado|Colorado]]'''||$1,581||0.66%
 +
|-
 +
| '''[[Tax policy in Connecticut|Connecticut]]'''||$5,200||1.88%
 +
|-
 +
| '''[[Tax policy in Delaware|Delaware]]'''||$1,206||0.53%
 +
|-
 +
| '''District of Columbia'''||$2,635||0.57%
 +
|-
 +
| '''[[Tax policy in Florida|Florida]]'''||$1,779||1.16%
 +
|-
 +
| '''[[Tax policy in Georgia|Georgia]]'''||$1,698||1.06%
 +
|-
 +
| '''[[Tax policy in Hawaii|Hawaii]]'''||$1,351||0.27%
 +
|-
 +
| '''[[Tax policy in Idaho|Idaho]]'''||$1,273||0.84%
 +
|-
 +
| '''[[Tax policy in Illinois|Illinois]]'''||$4,469||2.28%
 +
|-
 +
| '''[[Tax policy in Indiana|Indiana]]'''||$1,200||0.93%
 +
|-
 +
| '''[[Tax policy in Iowa|Iowa]]'''||$2,398||1.6%
 +
|-
 +
| '''[[Tax policy in Kansas|Kansas]]'''||$2,129||1.4%
 +
|-
 +
| '''[[Tax policy in Kentucky|Kentucky]]'''||$1,339||0.92%
 +
|-
 +
| '''[[Tax policy in Louisiana|Louisiana]]'''||$823||0.52%
 +
|-
 +
| '''[[Tax policy in Maine|Maine]]'''||$2,401||1.29%
 +
|-
 +
| '''[[Tax policy in Maryland|Maryland]]'''||$3,149||1.15%
 +
|-
 +
| '''[[Tax policy in Massachusetts|Massachusetts]]'''||$3,805||1.19%
 +
|-
 +
| '''[[Tax policy in Michigan|Michigan]]'''||$2,347||2.06%
 +
|-
 +
| '''[[Tax policy in Minnesota|Minnesota]]'''||$2,565||1.28%
 +
|-
 +
| '''[[Tax policy in Mississippi|Mississippi]]'''||$1,004||0.8%
 +
|-
 +
| '''[[Tax policy in Missouri|Missouri]]'''||$1,767||1.19%
 +
|-
 +
| '''[[Tax policy in Montana|Montana]]'''||$1,932||0.92%
 +
|-
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| '''[[Tax policy in Nebraska|Nebraska]]'''||$2,959||2.01%
 +
|-
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| '''[[Tax policy in Nevada|Nevada]]'''||$1,518||1.01%
 +
|-
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| '''[[Tax policy in New Hampshire|New Hampshire]]'''||$5,230||2.18%
 +
|-
 +
| '''[[Tax policy in New Jersey|New Jersey]]'''||$7,318||2.32%
 +
|-
 +
| '''[[Tax policy in New Mexico|New Mexico]]'''||$1,325||0.8%
 +
|-
 +
| '''[[Tax policy in New York|New York]]'''||$5,040||1.68%
 +
|-
 +
| '''[[Tax policy in North Carolina|North Carolina]]'''||$1,464||0.9%
 +
|-
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| '''[[Tax policy in North Dakota|North Dakota]]'''||$2,530||1.54%
 +
|-
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| '''[[Tax policy in Ohio|Ohio]]'''||$2,327||1.77%
 +
|-
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| '''[[Tax policy in Oklahoma|Oklahoma]]'''||$1,320||1.02%
 +
|-
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| '''[[Tax policy in Oregon|Oregon]]'''||$2,594||1.12%
 +
|-
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| '''[[Tax policy in Pennsylvania|Pennsylvania]]'''||$2,638||1.55%
 +
|-
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| '''[[Tax policy in Rhode Island|Rhode Island]]'''||$3,820||1.67%
 +
|-
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| '''[[Tax policy in South Carolina|South Carolina]]'''||$858||0.57%
 +
|-
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| '''[[Tax policy in South Dakota|South Dakota]]'''||$2,190||1.43%
 +
|-
 +
| '''[[Tax policy in Tennessee|Tennessee]]'''||$1,372||0.91%
 +
|-
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| '''[[Tax policy in Texas|Texas]]'''||$2,790||2.02%
 +
|-
 +
| '''[[Tax policy in Utah|Utah]]'''||$1,514||0.73%
 +
|-
 +
| '''[[Tax policy in Vermont|Vermont]]'''||$4,328||1.62%
 +
|-
 +
| '''[[Tax policy in Virginia|Virginia]]'''||$2,860||0.92%
 +
|-
 +
| '''[[Tax policy in Washington|Washington]]'''||$2,914||1.12%
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|-
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| '''[[Tax policy in West Virginia|West Virginia]]'''||$718||0.62%
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|-
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| '''[[Tax policy in Wisconsin|Wisconsin]]'''||$3,530||2.07%
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|-
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| '''[[Tax policy in Wyoming|Wyoming]]'''||$1,141||0.63%
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|-class="sortbottom"
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|align="left" colspan="3" | <small>'''Source:''' [http://www.taxpolicycenter.org/UploadedPDF/412959-Residential-Property-Taxes.pdf ''Tax Policy Center'', "Residential Property Taxes in the United States," November 18, 2013]</small>
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|}
  
Ad valorem (Latin for ''of value'') property taxes are based on fair market property values of individual estates. A local tax assessor then applies an established assessment rate to the fair market value. By multiplying the tax rate x the assessed value of the property, a tax due is calculated. These taxes are collected by municipalities such as cities, counties, and districts in many locations in the United States. They fund municipal budgets for school systems, sewers, parks, libraries, fire stations, hospitals, etc.
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===Collections per capita===
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The table below summarizes per capita state and local property tax collections for fiscal year 2011. According to the [[Tax Foundation]], which compiled the data below, New Jersey's property tax collections per capita ranked highest in the nation at $2,893. Conversely, Alabama's collections per capita ranked lowest at $540.<ref>[http://taxfoundation.org/article/facts-figures-2014-how-does-your-state-compare ''Tax Foundation'', "Facts and Figures 2014: How Does Your State Compare?" March 18, 2014]</ref>
  
After determining a budget at the municipal level, a legislative appropriation determines how the monies will be collected and distributed. After that, a tax authority levies the tax. An appeal is permitted. Equalization is then considered by a board of equalizers to assure fair treatment. Then a tax rate is determined by dividing the municipal budget by the assessment role of that municipality. Your tax rate x the assessed value of your property determines the tax you owe.
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{| class="wikitable sortable" style="text-align:center; width:600px;"
 +
! colspan="3" align="center" style="background-color:#2b3773; color: white;" | State and local property tax collections per capita, 2011
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|-
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! rowspan="2" valign="bottom" style="background-color:#444; color: white;" | State
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! rowspan="2" valign="bottom" style="background-color:#444; color: white;" | Collections per capita
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! rowspan="2" valign="bottom" style="background-color:#444; color: white;" | Ranking
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|-
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| '''Alabama'''||$540||51
 +
|-
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| '''Alaska'''||$2,076||9
 +
|-
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| '''Arizona'''||$1,103||32
 +
|-
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| '''Arkansas'''||$619||49
 +
|-
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| '''California'''||$1,426||20
 +
|-
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| '''Colorado'''||$1,637||14
 +
|-
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| '''Connecticut'''||$2,577||3
 +
|-
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| '''Delaware'''||$737||46
 +
|-
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| '''District of Columbia'''||$2,871||2
 +
|-
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| '''Florida'''||$1,368||23
 +
|-
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| '''Georgia'''||$1,060||34
 +
|-
 +
| '''Hawaii'''||$966||38
 +
|-
 +
| '''Idaho'''||$867||41
 +
|-
 +
| '''Illinois'''||$1,881||11
 +
|-
 +
| '''Indiana'''||$971||37
 +
|-
 +
| '''Iowa'''||$1,429||19
 +
|-
 +
| '''Kansas'''||$1,367||24
 +
|-
 +
| '''Kentucky'''||$689||47
 +
|-
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| '''Louisiana'''||$776||44
 +
|-
 +
| '''Maine'''||$1,808||12
 +
|-
 +
| '''Maryland'''||$1,449||18
 +
|-
 +
| '''Massachusetts'''||$2,018||10
 +
|-
 +
| '''Michigan'''||$1,374||22
 +
|-
 +
| '''Minnesota'''||$1,535||17
 +
|-
 +
| '''Mississippi'''||$856||42
 +
|-
 +
| '''Missouri'''||$979||36
 +
|-
 +
| '''Montana'''||$1,347||25
 +
|-
 +
| '''Nebraska'''||$1,566||15
 +
|-
 +
| '''Nevada'''||$1,110||31
 +
|-
 +
| '''New Hampshire'''||$2,518||4
 +
|-
 +
| '''New Jersey'''||$2,893||1
 +
|-
 +
| '''New Mexico'''||$659||48
 +
|-
 +
| '''New York'''||$2,335||5
 +
|-
 +
| '''North Carolina'''||$900||40
 +
|-
 +
| '''North Dakota'''||$1,074||33
 +
|-
 +
| '''Ohio'''||$1,140||30
 +
|-
 +
| '''Oklahoma'''||$590||50
 +
|-
 +
| '''Oregon'''||$1,312||26
 +
|-
 +
| '''Pennsylvania'''||$1,305||27
 +
|-
 +
| '''Rhode Island'''||$2,162||8
 +
|-
 +
| '''South Carolina'''||$1,032||35
 +
|-
 +
| '''South Dakota'''||$1,196||29
 +
|-
 +
| '''Tennessee'''||$800||43
 +
|-
 +
| '''Texas'''||$1,557||16
 +
|-
 +
| '''Utah'''||$913||39
 +
|-
 +
| '''Vermont'''||$2,197||6
 +
|-
 +
| '''Virginia'''||$1,377||21
 +
|-
 +
| '''Washington'''||$1,279||28
 +
|-
 +
| '''West Virginia'''||$770||45
 +
|-
 +
| '''Wisconsin'''||$1,724||13
 +
|-
 +
| '''Wyoming'''||$2,175||7
 +
|-class="sortbottom"
 +
|align="left" colspan="3" | <small>'''Source:''' [http://taxfoundation.org/article/facts-figures-2014-how-does-your-state-compare ''Tax Foundation'', "Facts and Figures 2014: How Does Your State Compare?" March 18, 2014]</small>
 +
|}
  
Some jurisdictions have both ad valorem and non-ad valorem property taxes, the latter representing a fixed charge (regardless of value) for items such as street lighting and storm sewer control.
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==Recent news==
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This section displays the most recent stories in a Google news search for the term "'''Property + tax'''"
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:''All stories may not be relevant to this page due to the nature of the search engine.''
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{{RSS|feed=http://news.google.com/news?hl=en&gl=us&q=Property+tax&um=1&ie=UTF-8&output=rss|template=slpfeed|max=10|title=Property tax policy news feed}}
  
In the US, another form of ''property tax'' is the ''personal property tax'', which can target
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==See also==
*automobiles, boats, aircraft and other vehicles;
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* [[Taxes on the ballot]]
*other durable goods (though typically household goods and personal effects are exempt);
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* [[Sales tax]]
*inventory;
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*intangible assets such as stocks and bonds. 
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In some states, it is permissible to separate the real estate tax, into two separate taxes -- one the land value and one on the building value.
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==External links==
 +
* [http://www.taxpolicycenter.org/ Tax Policy Center]
 +
* [http://www.taxadmin.org/fta/default.html Federation of Tax Administrators]
 +
* [http://taxfoundation.org/about-us Tax Foundation]
  
Personal property taxes can be assessed at almost any level of government, though they are perhaps most commonly assessed by states.
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==References==
 +
{{reflist}}
  
== Effects ==
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{{State budgets}}
=== Sprawl ===
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{{policypedia hnt}}
  
'''In the absence of comprehensive 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.
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[[Category:Budget policy terms]]
 
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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.
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Attempts to reduce the impact of property taxes on sprawl include:
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* '''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.
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:Most cities have a higher building tax than surrounding suburban and rural areas. By removing improvements as a factor in the property taxes, the penalty against construction and renovation in already urbanized areas is removed.  Increasing the tax on land value discourages land speculation - which forces development further away from central cities - and encourages efficient land use.
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* '''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.
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* '''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.
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* '''Exemptions''' - Exempting favored classes of real estate (such as farms, ranches, cemeteries or private conservation parks) from the property tax altogether or assesing their value at a very minimal amount (for example,  $1 per acre).
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* '''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.
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* '''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.
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=== Distributional ===
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Property tax has been thought 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.[http://www.washingtonpost.com/wp-dyn/content/article/2006/01/28/AR2006012800933.html]  This issue was a common argument used by supporters of such measures as [[California Proposition 13 (1978)|California Proposition 13]] or [[Oregon Ballot Measure 5 (1990)|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 property.  These two points of view 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 are subject to property taxes as well.  The owner's cost of taxation is passed on to the renter (occupant).
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+
====Progressive policies====
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As property increases in value the possibility exists that new buyers might pay taxes on outdated values thus placing an unfair burden on the rest of the property owners.  To correct this imbalance municipalities periodically revalue property. Revaluation produces an up to date value to be used in determination of the tax rate necessary to produce the required tax levy.
+
 
+
A consequence of this is that existing owners are reassesed as well as new owners and thus are required to pay taxes on property the value of which is determined by market forces.  In an effort to relieve the frequently large tax burdens on existing owners communities have introduced exemptions.
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In some states, laws provide for exemptions (typically called homestead exemptions) and/or limits on the percentage increase in tax, which limit the yearly increase in property tax so that owner-occupants are not "taxed out of their homes." Generally, these exemptions and ceilings are available only to property owners who use their property as their principal residence.  Homestead exemptions generally cannot be claimed on investment properties and second homes.  When a homesteaded property changes ownership, the property tax often rises sharply and the property's sale price may become the basis for new exemptions and limits available to the new owner-occupant.
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Homestead exemptions increase the complexity of property tax collection and sometimes provide an easy opportunity for people who own several properties to benefit from tax credits to which they are not entitled. Since there is no national database that links home ownership with Social Security numbers, landlords sometimes gain homestead tax credits by claiming multiple properties in different states, and even their own state, as their "principal residence", while only one property is truly their residence.[http://www.washingtonpost.com/wp-dyn/content/article/2005/07/03/AR2005070300889.html]  In 2005, several US Senators and Congressmen were found to have erroneously claimed "second homes" in the greater Washington, D.C. area as their "principal residences", giving them property tax credits to which they were not entitled.[http://www.thehill.com/thehill/export/TheHill/News/Frontpage/102605/news1.html][http://the.honoluluadvertiser.com/article/2005/Oct/26/bz/FP510260323.html]
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Undeserved homestead exemption credits became so ubiquitous in the state of [[Maryland]] that a law was passed in the 2007 legislative session to require validation of principal residence status through the use of a social security number matching system.[http://mlis.state.md.us/2007RS/billfile/hb0436.htm] The bill passed unanimously in the [[Maryland House of Delegates]] and Senate and was signed into law by the [[Governor of Maryland]]. 
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The fairness of property tax collection and distribution is a hotly-debated topic. Some people feel school systems would be more uniform if the taxes were collected and distributed at a state level, thereby equalising the funding of school districts. Others are reluctant to have a higher level of government determine the rates and allocations, preferring to leave the decisions to government levels "closer to the people."
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In [[Rhode Island]] efforts are being made to modify revaluation practices to preserve the major benefit of property taxation, the reliability of tax revenue, while providing for what some view as a correction of the unfair distribution of tax burdens on existing owners of property.[http://pqasb.pqarchiver.com/projo/access/869216281.html?dids=869216281:869216281&FMT=ABS&FMTS=ABS:FT&date=Jul+18%2C+2005&author=&pub=The+Providence+Journal&edition=&startpage=A.08&desc=EDITORIAL+-+Fix+the+property+tax]
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The Supreme Court has held that Congress cannot directly tax land ownership, unless the tax is apportioned among the states based upon representation/population. In an apportioned land tax, each state would have its own rate of taxation sufficient to raise it pro-rata share of the total revenue to be financed by a land tax.  Such an apportioned tax on land had been used on many occasions up through the Civil War. 
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Indirect taxes on the transfer of land are permitted without apportionment: in the past, this has taken the form of requiring revenue stamps to be affixed to deeds and mortgages, but these are no longer required by federal law. Under the Internal Revenue Code, the government realizes a substantial amount of revenue from income taxes on capital gains from the sale of land, and in estate taxes from the passage of property (including land) upon the death of its owner.
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The Supreme Court has not directly ruled on the question of whether Congress may impose an unapportioned tax on the "privilege" of owning land with the "measure" of the tax being the value of the land.
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<small>''Portions of this article were adapted from [http://www.wikipedia.org Wikipedia]''.</small>
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[[Category:Taxes]]
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[[Category:Terms and definitions]]
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Latest revision as of 15:49, 25 February 2015

Policypedia
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State tax policy

Personal income tax

Sales tax

Excise taxes

Corporate income tax

Tax policy in the states
AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareFloridaGeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode IslandSouth CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming
Most often, property tax applies to real estate, although some states impose property taxes on other kinds of personal property, such as automobiles. Property taxes comprise the lion's share of local government revenues. In 2010, property taxes accounted for 75 percent of the tax revenues collected by local governments (such as cities, counties, school districts, etc.). Conversely, states generate very little revenue from property taxes (2 percent in 2010). States that do not levy sales or personal income taxes, however, may collect greater revenues from property taxes.[1][2][3][4][5]

How property tax works

In order to determine property tax liability, a property's value must first be determined. Two values are taken into consideration: the property's market value and the property's assessed value. Assessed value is used for tax purposes and is calculated by applying an assessment ratio to the market value. Some states use a property's market value in calculating its tax, in which case a 100 percent assessment ratio is used. Other states, such as New Mexico and Arkansas, "assess property at only a fraction of its actual value."[1][2][3]

Once the assessed value of a property has been calculated, the amount may be further reduced by exemptions. A common exemption in many states is the "homestead exemption," which allows for a certain, predetermined amount to be subtracted from the assessed value of primary residences. The taxable value of a property is the assessed value minus any exemptions.[1][2][3]

The property tax rate is applied to the property's taxable value. The property tax rate is also known as the millage rate and is often "the sum of several tax rates applied by several different jurisdictions." Any given property could be subject to city taxes, county taxes, school district taxes and more. Millage rates are rendered in "mills." A mill is one-tenth of 1 percent. For example, a 27 mill property tax rate would be equivalent to 2.7 percent. Property tax liability is determined by applying the millage rate to the taxable value of the property. Additional credits may be available to property owners, which can further reduce an owner's tax liability.[1][2][3]

This scenario further illustrates the process. Assume that a property's market value is determined to be $100,000. An assessment ratio of 100 percent is applied to the market value, resulting in an assessed value of $100,000. Assuming that the property is a primary residence and the state in which it is located offers a homestead exemption of $20,000, the property's taxable value would be reduced to $80,000. A millage rate of 27 mills (or 2.7 percent) is applied to the taxable value, which results in a final property tax liability of $2,160.

Property taxes by state

Amounts paid

The table below provides the mean amount of property taxes paid, as well as property tax as a mean percentage of home value, for the United States for 2012. According to the Tax Policy Center, which compiled the below data, New Jersey's mean property tax as a percentage of home value ranked highest in the nation in 2012 at 2.32 percent. By contrast, Hawaii ranked lowest in the nation at 0.27 percent. In terms of the mean amount paid in property tax, New Jersey again ranked the highest at $7,318 while Alabama ranked lowest at $631.[4]

Mean property taxes paid per state, 2012
State Mean amount paid Mean property tax as a percent of home value
Alabama $631 0.46%
Alaska $3,290 1.28%
Arizona $1,330 0.88%
Arkansas $901 0.68%
California $3,164 0.88%
Colorado $1,581 0.66%
Connecticut $5,200 1.88%
Delaware $1,206 0.53%
District of Columbia $2,635 0.57%
Florida $1,779 1.16%
Georgia $1,698 1.06%
Hawaii $1,351 0.27%
Idaho $1,273 0.84%
Illinois $4,469 2.28%
Indiana $1,200 0.93%
Iowa $2,398 1.6%
Kansas $2,129 1.4%
Kentucky $1,339 0.92%
Louisiana $823 0.52%
Maine $2,401 1.29%
Maryland $3,149 1.15%
Massachusetts $3,805 1.19%
Michigan $2,347 2.06%
Minnesota $2,565 1.28%
Mississippi $1,004 0.8%
Missouri $1,767 1.19%
Montana $1,932 0.92%
Nebraska $2,959 2.01%
Nevada $1,518 1.01%
New Hampshire $5,230 2.18%
New Jersey $7,318 2.32%
New Mexico $1,325 0.8%
New York $5,040 1.68%
North Carolina $1,464 0.9%
North Dakota $2,530 1.54%
Ohio $2,327 1.77%
Oklahoma $1,320 1.02%
Oregon $2,594 1.12%
Pennsylvania $2,638 1.55%
Rhode Island $3,820 1.67%
South Carolina $858 0.57%
South Dakota $2,190 1.43%
Tennessee $1,372 0.91%
Texas $2,790 2.02%
Utah $1,514 0.73%
Vermont $4,328 1.62%
Virginia $2,860 0.92%
Washington $2,914 1.12%
West Virginia $718 0.62%
Wisconsin $3,530 2.07%
Wyoming $1,141 0.63%
Source: Tax Policy Center, "Residential Property Taxes in the United States," November 18, 2013

Collections per capita

The table below summarizes per capita state and local property tax collections for fiscal year 2011. According to the Tax Foundation, which compiled the data below, New Jersey's property tax collections per capita ranked highest in the nation at $2,893. Conversely, Alabama's collections per capita ranked lowest at $540.[6]

State and local property tax collections per capita, 2011
State Collections per capita Ranking
Alabama $540 51
Alaska $2,076 9
Arizona $1,103 32
Arkansas $619 49
California $1,426 20
Colorado $1,637 14
Connecticut $2,577 3
Delaware $737 46
District of Columbia $2,871 2
Florida $1,368 23
Georgia $1,060 34
Hawaii $966 38
Idaho $867 41
Illinois $1,881 11
Indiana $971 37
Iowa $1,429 19
Kansas $1,367 24
Kentucky $689 47
Louisiana $776 44
Maine $1,808 12
Maryland $1,449 18
Massachusetts $2,018 10
Michigan $1,374 22
Minnesota $1,535 17
Mississippi $856 42
Missouri $979 36
Montana $1,347 25
Nebraska $1,566 15
Nevada $1,110 31
New Hampshire $2,518 4
New Jersey $2,893 1
New Mexico $659 48
New York $2,335 5
North Carolina $900 40
North Dakota $1,074 33
Ohio $1,140 30
Oklahoma $590 50
Oregon $1,312 26
Pennsylvania $1,305 27
Rhode Island $2,162 8
South Carolina $1,032 35
South Dakota $1,196 29
Tennessee $800 43
Texas $1,557 16
Utah $913 39
Vermont $2,197 6
Virginia $1,377 21
Washington $1,279 28
West Virginia $770 45
Wisconsin $1,724 13
Wyoming $2,175 7
Source: Tax Foundation, "Facts and Figures 2014: How Does Your State Compare?" March 18, 2014

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See also

External links

References