Property tax is an ad valorem tax that an owner of real estate or other property pays on the value of the thing taxed. The taxing authority performs or requires an appraisal of the value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.
Many provinces in Canada levy property tax on real estate based upon the current use of the land. Property tax levels vary between the Provinces.
There is currently no ad valorem tax on residential property. Two former systems were dropped because of their extreme unpopularity. They were
- Schedule A income tax, a central government tax that was levied on the imputed rent, that is the rent that owner-occupiers of land would have been receiving from a tenant had they not been living in the houses they owned. However, actual (as opposed to imputed) rent is still subject to income tax under Schedule A;
- Rates, a local government tax that was levied in proportion to the assessed value of property. This was replaced under the Thatcher government by a poll tax, which proved even more unpopular than the rates, and was replaced by a mixed council tax which combines elements of property tax and a poll tax. The poll tax debacle was one of the factors that led eventually to Margaret Thatcher losing the office of Prime Minister. Rates are still (2003) levied on business property, though some classes of business are exempt.
In the United States, property tax on real estate is usually assessed by local government, at the municipal or county level. 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.
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.
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.
Rising real estate property taxes were a cause of taxpayer revolt in the west; see California Proposition 13 (1978) and Oregon Ballot Measure 5 (1990) for more details.
The Supreme Court has held that Congress cannot directly tax land ownership. However, "indirect" taxes on the transfer of land are permitted: 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.
In the US, another form of property tax is the personal property tax, which can target
Personal property taxes can be assessed at almost any level of government, though they are perhaps most commonly assessed by states.
Real estate taxes in many locations in the United States are used to fund school systems. Thus, poor areas perforce have disadvantaged school systems. The system of real estate taxes has been sharply criticized as being archaic for this and other reasons. Nevertheless, public opinion has to a large extent prevented any significant change in the system.
Property tax on real estate has been implicated as a factor contributing to urban sprawl. The foundation of this argument is that the market value of undeveloped real estate reflects the property's current use as well as it's development potential. As a city expands, the development potential of outlying property increases thus increasing the property value and tax. Property uses which generate little or no revenue per land area (such as farms, ranches, private conservation parks, etc) become disadvantaged relative to property uses which generate a high revenue per land area (such as retail and industrial).
The effects which property tax has on urban development are ambiguous regarding urban sprawl. A property owner who improves her land must pay tax on the improvements. This tax on improvements has been shown to result in lower density development. As the density of development decreases, the amount of developed land needed for a given population increases. However, this pressure may be counteracted because a property tax tends to decrease dwelling-size of new developments.
Attempts to reduce the ecological impact of property taxes include:
- Current-use valuation - this method assesses the value of a given property based only upon its current use. By removing the development potential as a factor in the property taxes, the effect of city encroachment is removed.
- 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.
Because the first two methods retain some amount of property tax, those remedies still favor land uses which generate revenue although the effect is smaller.
Property tax is sometimes called a regressive tax which particularly affects low-income/high-asset persons (pensioners, farmers in drought years, etc). Because these persons have high-assets accumulated over time, they have a high property tax liability. However, their current income level is low. Therefore, a larger proportion of their income goes to paying the property tax. The regressive nature of the tax was a common argument used by supporters of California Proposition 13. Property tax has also been described as a progressive tax.