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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 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.
Canada Many provinces in Canada levy property tax on real estate based upon the current use and value of the land and this is the major source of revenue for most municipal governments in Canada. While property tax levels vary between municipalities in a province there is usually common property assessment or valuation criteria laid out in provincial legislation. There is a trend to use a market value standard for valuation purposes in most provinces with varying revaluation cycles. A number of provinces have established an annual reassessment cycle where market activity warrants while others have longer periods between valuation periods. United Kingdom There is currently no ad valorem tax on residential property. Two former systems were dropped because of their extreme unpopularity. They were Netherlands Property tax (Dutch: Onroerend goed belasting or Onroerende zaak belasting (OZB) ) is levied on homes on a municipal basis in two parts: for the one who lives in the house and one for the owner of the house. When one has a rental home, he/she should only pay the living part of the tax. The last years lots of concern are because of the annual raise of this tax by more than 10% in some municipalities. As of 2005, there is a Parliament proposal to retain only the owner's part of the property tax and to raise it annually not more than the inflation rate. Hong Kong In Hong Kong, there is a kind of tax named property tax, but it is not an ad valorem tax, it is to be classified into Income tax. According to HK Inland Revenue Ordinance IRO s5B, all property owner shall not be subject to this tax, unless the HK property owner has received a consideration, the example is rental income for the year of assessment. The property tax shall be computed on the net assessable value at the standard rate. Year of Assessment The period of assessment is from April 1st to March 31st of the following year. Net assessable value The formula is: Net assessable value = 80% of Assessable value. HK property tax payable = Net assessment value X Property tax standard rate Assessable value = Rental income + Premium + (Rental bad debt recovered - Irrecoverable rental) - Rates paid by owner. Sprawl 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: 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. Distributional Property tax has been thought to be regressive (that is, to fall disproportionately on those of lower income) 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 *. 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 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. 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. 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. * 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. * * Undeserved homestead exemption credits became so ubiquitous in the state of Maryland that a bill was introduced in the 2006 legislative session to enable validation of principal residence status through the use of a principal residence verification field on the state income tax return. * The bill passed unanimously in the Maryland House of Delegates, but died in committee in the Maryland Senate. 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". The Supreme Court has held that Congress cannot directly tax land ownership, unless the tax is apportioned among the states based upon representation/poulation. 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. 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. 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. Development case study: New Orleans Before the American Civil War, New Orleans was one of the largest cities in the United States, with a population of over 100,000. The federal government was funded by import and export duties and the states and local governments were funded by property taxes. New Orleans was sensitive to property taxes. To make the job of the assessors easier, the assessors adopted a rule that said that property taxes were proportional to the front footage of the lot, that is, the length of the lot along its street. The depth of lots was fairly consistent due to the streets fairly consistent layout. The rule was thus relatively accurate since land, not the structure, represented the value of the property. To minimize property tax, lots were narrow but deep. As a result, houses were similarly narrow but deep. This is a striking difference from the contemporary ranch-style homes. The New Orleans house of that time became known as a shotgun house because it was said that you could stand in the front door and shoot a shotgun all the way through to the rear wall without hitting anything within. Hallways were avoided because they took up valuable room width inside the house. The shotgun double became popular then. A shotgun double was two residences under one roof and the building was two rooms wide, instead of the shotgun’s single room width. The double has two front doors and the two residences share a common set of center chimneys. Each room had a fireplace for heat. This style saved the narrow alleys between each house that lead to the back yard as well as the construction cost of the multiple chimneys. Citizens of New Orleans complained that their neighbor with a two-story house paid the same property tax as that paid by the owner of a one-story house. The assessors changed their rule to one that determined property taxes under a formula: the front footage times the number of stories the house had. As a result of that rule change, the camel back house was born. A camel back house has a hump at the back; it was two stories tall in the back but only one in the front. In response, the assessors made a new rule that determined how far back the hump began before the house was determined to be a two story house. Nevertheless, the property owners complained that the much grander camel back down the street paid the same tax as the single story house. In exasperation, the assessors made an entirely new rule: the tax would be based on the number of rooms within the house. To the extent that anyone considered it previously, closets became totally unrealistic. A closet was counted as a room because a closet is an enclosed space with a door. So instead of closets, home owners used furniture to store clothes - the chiffarobe was born. So, the New Orleans house is narrow and deep. It has no closets or hallways but every room has a fire place. City water and sewerage was added later so all the rooms that require this are at the back of the house at the site of the back porch. See also | ||||||||
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