Most local governments in the United States impose a property tax, also known as a millage rate, as a principal source of revenue.Hellerstein, Jerome H., and Hellerstein, Walter, State and Local Taxation, Cases and Materials, Eighth Edition, 2001 (hereafter "Hellerstein"), page 97 This tax may be imposed on real estate or personal property. The tax is nearly always computed as the fair market value of the property, multiplied by an assessment ratio, multiplied by a tax rate. It is generally an obligation of the owner of the property. Local officials determine values and may be disputed by property owners. For the taxing authority, one advantage of the property tax over the sales tax or income tax is that the revenue always equals the tax levy, unlike the other types of taxes. Property tax typically generates the revenue required to fund municipalities' tax levies. One disadvantage to the taxpayer is that the tax liability is fixed, while the taxpayer's income is not.

The tax is administered by the states, which delegate the task to their local governments. Many states impose limits on how local jurisdictions may tax property. Because many properties are subject to tax by more than one local jurisdiction, some states provide a method by which values are made uniform among such jurisdictions.

Property tax is rarely self-computed by the owner. The tax becomes a legally enforceable obligation that attaches to the property on a specific date. Most states impose taxes resembling property taxes, and some also tax other types of business property.

Basics

Most jurisdictions below the state level in the United States impose a tax on interests in real property (land, buildings, and permanent improvements) that are considered under state law to be ownership interests.Hellerstein, page 96. Rules vary widely by jurisdiction.Compare The Illinois Property Tax System (hereafter "IL System"), Louisiana Property Tax Basics (hereafter "La. Basics"), New York pamphlet How Property Tax Works (hereafter "NY Taxworks"), and Texas Property Tax Basics (hereafter "Texas Basics). However, certain features are nearly universal. Some jurisdictions also tax some types of business personal property, particularly inventory and equipment.Texas Basics, page __. By contrast, the Illinois Constitution prohibits taxation of personal property; see IL System, page 5. States generally do not impose property taxes.IL System, page 5; however, see IL System, page 10, for exceptions.

Many overlapping jurisdictions may have the authority to tax the same property.Fisher, Glen, History of Property Taxes in the United States , 2002. These include counties or parishes, cities and/or towns, school districts, utility districts, and special taxing authorities which vary by state. Few states impose a tax on the value of property. The tax is based on fair market value of the subject property, and generally attaches to the property on a specific date. The owner of the property on that date is liable for the tax.See IL System, page 23; La. Basics, page 16; and Texas Basics, page 33.

The amount of tax is determined annually based on the market value of each property on a particular date,Such date varies by jurisdiction, and may be referred to as the assessment date, valuation date, lien date, or other term. and most jurisdictions require redeterminations of value periodically. The tax is computed as the determined market value multiplied by the assessment ratio and the tax rate.See La. Basics, Example 13. Assessment ratios and tax rates vary among jurisdictions, and may vary by type of property within a jurisdiction.See, e.g., IL System, page 11. Most jurisdictions' legislative bodies determine their assessment ratios and tax rates, though some states impose constraints on such determinations.

Tax assessors for taxing jurisdictions determine property values in various ways, but are generally required to base their determinations on fair market value.IL System, page 10. Fair market value is that price that a willing and informed seller would sell the property to a willing and informed buyer, neither being under any compulsion to act. Where a property has recently been sold between unrelated sellers, such a sale establishes fair market value. In other (i.e., most) cases, the value must be estimated. Common estimation techniques include the comparable sales method, the depreciated cost method, and the income method. Property owners may also declare a value, which is subject to change by the tax assessor.

Once the value is determined, the assessor typically notifies the last known property owner. Such notices may include the calculated tax amount. The property owner may then contest the value.Texas Basics, pages 13 and 21-27. IL System, pages 14-15; La. Basics, page 16. Property values are generally subject to review by a board of review or similar body, before which a property owner may contest determinations.IL System, pages 13-15.

After values are settled, property tax bills or notices are sent to property owners.Generally, tax assessors send the bills. In Louisiana, however, the parish sheriff is responsible for billing and collection of property taxes. See La. Basics, page 2. Payment times and terms vary widely. If a property owner fails to pay the tax, the taxing jurisdiction has various collection remedies, including seizure and sale of the property. Property taxes constitute a lien on the property to which transferees are also subject.

Property subject to tax Nearly all property tax-imposing jurisdictions tax real property.Hellerstein, page 90. This includes land, buildings, and all improvements (often called fixtures) that cannot be removed without damage to the property.IL System, page 5. Taxed property includes homes, farms, business premises, and most other real property. Many jurisdictions also tax certain types of other property used in a business. Property existing and located in the jurisdiction on a particular date is subject to this tax. This date is often January 1 of each year, but varies among jurisdictions. Property owned by educational, charitable, and religious organizations is usually exempt.

Tax rates Tax rates vary widely among jurisdictions.See the Tax Foundation study Property Taxes on Owner-Occupied Housing by State, 2004 – 2009. They are generally set by the taxing jurisdiction's governing body.Texas Basics, page 29. The method of determining the rate varies widely, but may be constrained under laws of particular states. Property tax is likely the first or second highest tax burden on a capital-intensive business, so hundreds of thousands of dollars may be at stake. In some jurisdictions, property is taxed based on its classification. Classification is the grouping of properties based on similar use. Examples of classification are residential, commercial, industrial, vacant, and blighted real property. Property classifications are used to tax properties at different rates and for different public policy purposes. In Washington, D.C., for instance, property occupancy is incentivized by taxing residential property at 0.85 percent of assessed value, but vacant residential property at 5 percent.

Rate or millage The rate of tax is a percentage of the assessed value of the property subject to tax. This, in some cases, is expressed as a "millage" or dollars of tax per thousand dollars of assessed value.See Louisiana Property Tax Basics, page 1.

Assessment ratio Most jurisdictions impose the tax on a stated portion of the fair market value, known as the assessment ratio.See La. Basics, page 4. This ratio may vary depending on the type or use of the property. In many jurisdictions, the assessment ratio can be changed from year to year by the governing body of the taxing jurisdiction. Changes in tax rate or assessment ratio may have the same practical effect as changing the net tax due on a particular property.

Valuation

Determining the value of property is a critical aspect of property taxation, as such value determines the amount of tax due. Various techniques may be used to determine value. Except in the case of recently sold property, valuation has inherently subjective aspects. Values may change over time, and many states require taxing jurisdictions to redetermine values every three or four years. The value of a property is often determined by its current use rather than its potential uses.Texas Basics, page 12. Property values are determined at a particular valuation date for each jurisdiction, which varies widely.

Who determines value Property owners may declare the value of their property to a taxing authority. This is often referred to as rendition.See Texas Basics, page 11. Some jurisdictions require property owners to file an annual rendition for certain types of property; see Texas Basics, page 12, and IL System, pages 10-11. The taxing authority may accept this value or make its own determination of value. The value determinations are generally made by a tax assessor for the taxing authority. Some states require uniform values to be determined for each particular property.

Market value Property values are generally based on the fair market value of the property on the valuation date. Fair market value has been defined as the price a willing and informed purchaser would pay to a willing and informed seller, where neither party is under compulsion to act. The sale of the particular property between unrelated persons generally conclusively establishes fair market value on the date of sale. Thus, a recent sale of the same property provides good evidence of market value. Where there has been no recent sale, other techniques must be used to determine market value.

Assessed value Many jurisdictions impose tax on a value that is only a portion of the market value. This assessed value is the market value times an assessment ratio.IL System, page 11. Local taxing jurisdictions often set assessment ratios. However, some states impose constraints on the assessment ratios used by taxing jurisdictions within the state. Some such restrictions vary by type or use of property, and may vary by jurisdiction within the state. Some states impose restrictions on the rate at which assessed value may increase.See, e.g., California Constitution Article 13A (adopted in Proposition 13.

Equalization among jurisdictions

Many states require that multiple jurisdictions taxing the same property must use the same market value.IL System, page 16. Generally, such a state provides a board of equalization or similar body to determine values in cases of disputes between jurisdictions.See, e.g., California State Board of Equalization; IL System, page 17.

Valuation techniques Tax assessors may use a variety of techniques for determining the value of property that was not recently sold. Determining which technique to use and how to apply it inherently involves judgment.

Comparable sales Values may be determined based on recent sales of comparable properties.Texas basics, page 12. Texas requires that sales more than 24 months before a valuation date not be considered in determining values. The value of most homes is usually determined based on sales of comparable homes in the immediate area. Valuation adjustments may be necessary to achieve comparability. Among the factors considered in determining if a property is comparable are: Nature of the property (house, office building, bare land, etc.) Location Size Use of the property (residential, commercial, farm, etc.) Nature of improvements Types and uses of buildings Features of the buildings (number of bedrooms, level of amenities, etc.) Age of improvements Desirability of the property (view, proximity to schools, type of access, nearby detracting features, etc.) Restrictions on the property (easements, building code restrictions, physical restrictions, etc.)