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REAL PROPERTY TAXATION

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.

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REAL PROPERTY TAXATION

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  1. 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.

  2. 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.

  3. 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.

  4. 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).

  5. Basic Formula for Determining the Tax Rate RT = (EB - IO) / (VT - VX) where RT = tax rate, EB = budgeted expeditures, IO = income from other sources, VT = total assessed value of all properties, and VX = value of exempt properties.

  6. Tax-Exempt Properties • Government-owned Properties • Schools • Hospitals • Places of Worship

  7. Partial Exemptions • Homestead Exemptions • Agricultural Property Exemptions • Senior- and Disabled-owned Property Exemptions

  8. Calculating Tax Liability

  9. 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: $2,276.45 / 125,550 = 1.813%

  10. Tax Burden Analysis

  11. 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).

  12. 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

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

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

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