Summary
This paper analyzes the uniformity of the property appraisal outcome for multifamily apartment complexes in Phoenix, Arizona. Specifically, it investigates vertical and horizontal equity and equity across assessment methods. Apartment transactions and assessed valuations are examined over a five-year period (1998-2002). Once possible bias in model specification is accounted for, no evidence of vertical inequity in the sample is found. However, there is modest evidence of horizontal inequity: the results suggest that complex size and geographic location are more difficult for the assessor to value uniformly. There is also inequity between small and large properties, as represented by two different valuation methods. Thus, the findings indicate that the income approach is superior to the sales comparison approach for valuing multifamily properties for tax purposes.
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Extract
Property Taxation of Multifamily Housing: An Empirical Analysis of Vertical and Horizontal Equity
Introduction
The property tax in the United States suffers from an assortment of administrative, economic and political conflicts. These conflicts arise for four principle reasons. First, the property tax is a significant cost of owning real property. Mills (1980) shows that a 2% property tax, based on the asset value of structures and land, is comparable to a 20% annual sales tax. Second, unlike most business taxes, few legal paths exist to sidestep the property tax, leaving few degrees of freedom for tax planners (McLure, 2002). Third, the property tax is a direct tax, but the public benefits received from the tax are often indirect (Palmon and Smith, 1998). Fourth, the public is suspect about the uniformity of the tax (Fisher, 1996). Perhaps the high burden on property owners, the inability to avoid the tax, the misunderstanding of the benefits received from the tax, and concerns about its uniformity partially explain why voters and legislative bodies have tried to limit the property tax by imposing constraints on appraisals, rates, or revenue growth (Advisory Commission on Intergovernmental Relations, 1995). Despite these perceived problems, the property tax remains a major source of revenue for school districts and local governments in the U.S. (Bruce, 2000). Over thirty-five years ago, Netzer (1966) noted that Americans disliked the property tax but used it heavily. He labeled this conflict the property tax paradox. This paradox continues today.Surprisingly, specialists in public finance see advantages to a property tax because it provides fiscal and political autonomy for local governments. In a survey of 1,309 Canadian and U.S. members of the National Tax Association, 93% with training in economics recommended continued use of the property tax as a major source of revenue for local governments (Slemrod, 1995). The property tax provides the potential for increased economic efficiency, because the property tax establishes a "tax price" that taxpayers can react to (Oates, 19...See the full content of this document
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