Property Taxes
| Author | Jeffrey Wilson |
| Pages | 1305-1310 |
Page 1305
Some taxes are based on a proportion of the value of the property being taxes. These are known as "ad valorem" taxes. To arrive at an accurate amount of tax, an appraisal of the taxable subject matter's value needs to be done periodically. When the property owner's property value changes, so does their assessed or appraised value. Most property taxes are this ad valorem variety. Ad valorem property taxes are based on ownership of the property. Property owners must pay these taxes whether they actually use the property or not or whether it generates income for them or not.
There are many types of property subject to property tax although the tax is most commonly based on the value of real property (land). Municipal governments use property taxes to collect revenue probably more than any other taxing authority. Municipalities gain their authority to levy property taxes from state law. Property taxes are used to help finance local government services. These include public schools, fire and police protection, roads, parks, streets, sewer and/or water treatment systems, garbage removal, public libraries, and many other local services.
Taxing land and buildings is one of the oldest forms of taxation in the United States. Before income and sales taxes, local governments used property-based taxes to finance most of their activities. Property taxes remain a major source of revenue for local governments. Most local governments collect taxes on both real and personal property, but they have been moving away from taxing intangible property such as bank accounts and corporate stocks and bonds.
Both state and local government agencies are authorized to levy taxes, but the way they conduct assessments, collection, and compliance can differ widely. In some states, a single state agency has primary responsibility for obtaining all appraisals, making assessments, and collecting taxes. In most states, certain agencies assess some or all railroads and utilities properties.
Generally, responsibility for the three phases of property tax—levy, appraisal, and collection—rests almost exclusively on the taxing authorities within local governments. A taxing authority like a county, city, town, hospital, refuse collection, school, or other special district, is a legal entity of the government with elected or appointed officers who serve a distinct geographic area.
Page 1306
There are two basic categories of property: real and personal. The assessment procedures and the tax rate will vary between these two categories. Real property, in general, is land and anything permanently affixed to land (e.g. wells or buildings). Structures such as homes, apartments, offices, and commercial buildings (and the land to which they are attached) are typical examples of real property.
Basically, personal property is any property that is not real property. Personal property is not permanently attached to land. In most cases, it is moveable and does not last as long as real property. It comprises nearly everything that is perceptible to the senses. Personal property includes vehicles, farm equipment, jewelry, household goods, stocks, and bonds.
Personal property is divided into "tangible" and "intangible" forms. Tangible personal property is just that: it has a physical form. It can be seen, touched, and moved. Examples of tangible personal property include clothing, books, and computers. On the other hand, the notion of intangible personal property is an abstraction. They do not have physical forms. These include assets such as patents, trademarks, stocks, and bonds.
In addition to the basic types of property, property is grouped into various classes and subclasses for purposes of tax assessment. These classes are based on the use of the property. These schedules of classes vary considerably from state to state. For example, a state may have the following classes of property:
Class 1. Agriculture, grazing, livestock, notes, bonds, stocks, accounts receivable
Class 2: Commercial properties
Class 3: Motor vehicles
Class 4: Personal property, except motor vehicles
Class 5: Residential, farm homes
Class 6: Swamp and waste
Property classification according to various uses or types serves as a basis for adjusting the rate of tax.
Tax dollars help support the functions and services of specific local organizations. The local taxing authority (e.g. the county or municipal government) uses one of two methods to calculate the tax rate:
In the first method, the taxing authority estimates its total expenditures over a given time period. Then, it divides that figure by the taxable or assessed value of all property within its jurisdiction. The result is the tax rate. This rate is sometimes expressed using mills or percentages; sometimes it is expressed as a dollar amount ($1 per $100).
In the second method, the taxing authority estimates the amount of taxes available from property tax levied at a specific rate. The taxing authority will either increase or decrease its budget based on increases or decreases in the total value of the property's taxable or...
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