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Real estate taxes in USA: many complaints about high leviesAn international survey of taxes on land and buildings shows that Americans are justified in their frequent complaints about high real estate taxes. As a percentage of total government revenues, the yield from real estate property taxes is the highest in the United States at 14.2 percent. By comparison, real property taxes account for only 1.8 percent of government revenues in South Korea, 2.0 percent in Indonesia, and about 2.1 percent in Denmark, France and The Netherlands. These are some of the findings of a study of real estates taxes in 14 countries published in the book, "An International Survey of Taxes on Land and Buildings," by Joan M. Youngman and Jane H. Malme of the Lincoln Institute of Land Policy in Boston. In the United States, property tax is the single most important source of revenue for most local governments, and has been since the time of colonial America. Unlike many other countries, property taxes in the United States are a function of state and local governments. The federal government neither taxes real estate nor participates in the revenue. But, the federal constitution specifically guarantees equal protection under federal, state and local laws, including taxation on real estate. Although the state governments establish the legal framework for real estate taxes, local governing bodies are primarily responsible for valuation, assessment and tax collection. Throughout the United States this is mostly at the county level, but some cities and special districts also may impose taxes on real estate. In the United States, property taxes are also the highest as a percentage of the gross domestic product at nearly 3.0 percent. Other countries range from a low of 0.4 percent in Indonesia to 2.8 percent in Canada. These percentages have been fairly constant for decades in the United States and 13 other countries in the survey. Taxes on real estate account for about 75 percent of local tax revenues in the United States, and statistics show an upward trend in local reliance on property taxes. Local option sales and income taxes had reduced the reliance on real estate taxes in the early 1980s, but this trend began showing signs of a reversal in the early 1990s. There are large differences among the various states in the level of taxation. The U. S. average per capita or state and local revenues from property taxes was $626 in 1990, but this ranged from a high of $1,426 in Alaska to a low of $163 in Alabama. As a percentage of personal income, real estate taxes average 3.6 percent nationally with a low of 1.2 percent in Alabama to a high of 6.1 percent in Alaska. In the United States there are roughly 16,000 local jurisdictions responsible for carrying out the tax assessment on real estate. The number of tax assessing agencies varies from state to state, but Minnesota is well above average with a 2,713 government units collecting taxes on real estate. In the United States, the basic principle for taxing real estate is that the property is appraised at its fair market value according to its highest and best use. Most states, however, permit some classes of real estate, such as agricultural land and vacant property, to be valued according to its current use. Throughout the United States, legal descriptions of property and ownership are usually recorded in a county court or registry of deeds. But, not all states require transfers of ownership and sales prices to be recorded or made public. Generally, a county assessor obtains legal descriptions, changes of ownership and sales data in paper form, although electronic transfers have been established in some urban areas. Tax maps, also called cadastral assessment maps, are maintained by the county assessor, and are generally a complete inventory of all property in a county. Aerial base maps may provided by the state to local assessors. Paper maps are most common, but in the larger counties paper is being replaced with digital computerized mapping. Property taxes are collected on annual cycle in all states, with 27 states allowing for payment in two installments. A single payment of annual real estate taxes is required in 13 states, and the remaining states permit three or four payments. All states have established requirements for notifying property owners of their assessments and taxes. Notification is required prior to taxation or as part of the tax bill in some states, while other states require a notice only when there has been a reassessment. Throughout the United States, taxpayers are generally aware of their right to appeal assessments on real estate. Most states have at least four tiers of appeal beginning with the local assessor, then to a local board of review or equalization, then to the state, and finally to the courts. The frequency of appeals concerning real estate taxes varies from state to state and from year to year, based on many economic, governmental and political issues. On the average, fewer than 10 percent of property owners appeal. In addition to the annual taxes on real estate, many states and some local governments have other taxes on real estate. Real estate transfer taxes are imposed in 36 states. These transfer taxes are often levied as a percentage of value (from 1 percent to 5 percent) or at a specified rate (55 cents per $500 of valuation is common). Inheritance and gift taxes are imposed on real estate by the federal government and by 24 states. Capital gains taxes on real estate are also subject to federal taxes and to state taxes in 22 states. Deficit reduction efforts by the federal government in the past decade have increased financial pressures on state and local government to absorb the cost of previously federally funded programs. There are many indications that the trend to increase real estate taxes will continue in the United States for the next several years. Other articles in this series: Real estate taxes in Chile |
By Kenneth V. Smith