Electronic Filing Services

(Continued from previous article) Unfortunately, state and local revenue cannot fall back on income taxation the way the federal government has come to use income taxation as a windfall. This, of course, is one of the reasons why the rates of property taxes have begun to rise as of late in reaction to the national economic situation, and in order to be able to prevent further hikes – at least, in order to prevent the rates from hiking up to a ridiculous percentage – the state and local governments have to now scramble to find ways of off-setting the possible losses to their budget. The other taxes, mentioned before, will be discussed in better detail later.

To be clear, the government (state, local or otherwise) determines their budget based on what projects and expenditures are required to keep the scope of their governance running smoothly. The budgets naturally have to be balanced – that is to say, the budget needs to be fair not only to the parties involved, but also fair in terms of project focus – one cannot unfairly favor road construction, for example, over public schooling. Often, the budget is based on a municipal level (that is to say, every city or township is required to have its own budget plans).

The reason why the budget has been brought up is because the rate of taxes and the methods of property taxation are inextricably bound to the very concept. The municipal budget must be determined before the legislation could figure out how the money is to be collected and used. Tax authorities also review the budget in order to levy the tax, review the appeals, and determine the appropriate balance. Only then will the appropriate tax rate be put into effect by means of dividing the budget of the city or township by that same municipality’s assessment role. Again, what an individual pays for property taxes is the assessed value of his or her property multiplied by the determined tax rate.

It must be pointed out that in the United States of America, there are some areas have special assessments on top of the regular assessments of property tax value. These special assessments deal with certain areas (called Special Assessment Districts) that have received perks from a public project, thus allowing that particular piece of real estate to be levied with a special tax. The property tax here serves to pay back whatever money had been spent for the purpose of the public improvement that has increased the value of the real estate being taxed under special assessment. Some of the favorite examples involve the sudden hike in real estate value due to the building of better roads, the installment of drinking water lines, or even the inclusion of improved sanitary systems. But special assessments also include areas whose market value has improved with much thanks to the addition of street lights, storm control, public security services and the like. By law in America, it’s more common that the citizens involved are taxed for the FUNDING of said projects (instead of being taxed AFTER THE FACT) by the government, and the court often rules on the side of the government demanding the levy. The special assessment property taxes are not subject to rates, however: they are under a fixed charge, meaning that the actual assessed value of your property has no bearing on the amount you have to pay – everyone paying the special assessment property taxes pays the same price.

Yet another kind of property tax, as was mentioned before, is the personal property tax, which pretty much taxes personal property that could be considered luxury or fluid. The more popular examples of personal property subject to taxes in America include cars, boats, airplanes and other types of vehicles. Furniture, displays (such as pieces of artwork) and electronics may also be subject to American property taxes as much as business inventories (lists of goods associated with one’s business) and intangible assets (that is, stocks and bonds) are.

Another thing that must again be pointed out is the fact that in some states, the real estate tax can be separated into two different taxes – the first tax being levied on the value actual land and the other being levied on the value of the structure or “improvement” made on the land. Remember, in most cases the value of the land and the building are combined to determine the overall value of the real estate property. But in states where the two elements are separated (which may be because some land owners own land but don’t build anything on it or do anything with it), the rates of either are separated and/or differentiated. The tax levied on the land is called land value taxation.

One should remember that despite the apparent preference to combine the value of the land and the “improvement” in order to determine a “full real estate tax” (more commonly known as a single rate real estate tax), land value taxation has nevertheless been around for a very long time – since around the beginning of agriculture, in fact. As one of the oldest forms of taxation, the land value tax could be seen as one that has very practical aspects attached to it, as it is a “location-based tax”. In modern United States of America, one can no longer say that we keep up the “pure form” of the land value tax.

Like what has been mentioned, only some states and cities separate the land value tax and the improvement tax, opting to go with a full real estate tax. The most notable examples of these places are thought to be subject to “two-rate real estate taxation”, which is, of course, where the tax rate for the land and for the improvement are different. Often, the tax rate levied on the land is much higher than the tax rate levied on the improvement or the structure. Pennsylvania, among all the states in the United States of America, is said to be the one with the most number of cities that implement this two-rate real estate tax.

There are, of course, advantages and disadvantages to using the two-rate real estate tax system – this is, as was mentioned before, true for a lot of tax systems all over the world; no tax system is perfect. Even though some believe that the regular tax system is more convenient in terms of calculating the amount one must pay to the government (that is, it would be less confusing to pay just one tax for your real estate property than paying for two separate taxes for that one location) it must be said that some believe the valuation of the real estate tends to be more accurate under the land value tax system. (To be continued in next article)