Property taxes are a form of taxation imposed on real property, such as land, as opposed to personal property such as goods (which are often taxed under a sales tax or gift tax). Unlike many other forms of taxes, property taxes are largely administered at the municipal or local level, as opposed to the federal government level. This is because property taxation is a major source of revenue for municipalities and is traditionally used to fund all types of local services, including schools, roads, fire and police departments, water treatment, garbage removal, public libraries and all of the other services that local governments provide. Without property taxes, many municipalities would lose one of their primary sources of revenue.
Failing to pay property taxes may result in a tax lien on the property, and the property could be taken and sold if the debt is not paid.
Calculating Property Tax
Because property taxes are administered at the local government level they vary widely. One cannot assume that simply because they own a piece of property similar to property in another state, or similar to property owned by a friend, that their taxes will be the same. Instead, taxes vary based on the rates imposed by different governments and also based on the ways in which property tax is calculated in the municipality where you reside.
Property taxes are typically calculated as ad valorem taxes. This means that they are administered as a proportion of the value of the land and building being taxed. This is in contrast to other taxes, which may be of a fixed amount. Because property taxes are tied to the value of the real property being taxed, they require more effort to ascertain than other taxes. Typically, to determine property taxes, an appraiser must be sent out to evaluate the value of your land and any buildings, such as a home, that are on it. This may be done on a yearly basis, or less frequently, such as every five years, because homes and land may change in value as improvements are made or as neighborhood appeal changes.
Property owners may be able to appeal their property appraisals, which could then alter their property tax obligations.
It is not uncommon for property owners to be shocked or surprised by the valuation of their land and home, and property owners may sometimes feel that their appraisal has led to inflated tax rates. For this reason, most municipalities allow property owners the opportunity to appeal their property appraisals and provide evidence of why their property may have been overvalued or undervalued. If you feel that your appraisal, or property tax bill, is inaccurate, this can be a good place to start.
Property Tax Based on Ownership, Not Use
One important principal of property tax administration is that it is based on ownership, not use. This means that the individual who owns the land is the one who will receive the property tax bill, regardless of whether they actively use the land or not. Thus, if you own a hundred acres of vacant land that you rarely visit, you must still pay property taxes on such land, even though you may derive little value from it. Conversely, a renter who uses land and property quite often is not required to pay property taxes because these taxes are imposed upon the owner alone.