Property Tax Background • Property Tax is THE major source of local government taxes. Approximately 75% in 1991. (48% of all Own-Source Revenues) • Over time, property tax revenues are down as a percent of all local government revenues. • Types of Property: Real and Personal • Property Tax rate setting: Rate = Expenditures - Non Property Tax Revenues Total Assessed Value Note: Typically established as part of the Budgetary Process! • Usually expressed in “mills” (like 8 mills), or dollars per thousand in property. For example at a millage rate of .008, a $200,000 home would owe .008 * $200,000 or $1,600.
Property Tax Administration • Property Tax Administration covers six distinct stages: • Discovery of the tax base • Preparation of the inventory to tax • Appraisal and Assessment of property. Methods include: - Comparable Sales Data - Regression Analysis - Replacement Cost - Capitalized Value • Recognition of Exemptions • Determination of the tax levy (rate) • Collection • Assessment Schemes include: - Annual assessment - Mass cyclical assessment - Segmental assessment
Property Tax Errata • Property Tax ReliefExemptions: Schools, churches, parks, etc. Circuit Breakers: Low income families, elderly, etc. Abatements: New businesses, new developments, etc. Deferrals: Farms in growing areas • Property Tax Classifications: Some states have different tax levels for different land uses. • Major Issues: - Fractional Assessment - Assessment Uniformity - Property Tax Revolt - Economic Development
Non-Property Tax Background • Non-property tax revenues a growing source of income for local governments. These revenues accounted for approximately 52% of total general revenues. Increasingly important revenue sources, up from 30% in 1950s. • Sales Taxes: Thirty-one states have local sales taxes. Approximately forty have state sales taxes. Rates from .25% to 5% and can be combined with states sales tax rates. (6.5% of all revenues, 9.5% of own-source (OS)) • Income Taxes: Approximately 3,800 jurisdictions have a LOCAL income tax (most in PA: 2,800). (3.5 % of OS rev’s) • Other Revenue Sources: (40% of OS Rev’s) Excise (“Sin”) Taxes: cigarettes, alcohol Licenses: Business taxes, Occupation taxes User Charges: Parking, Parks, Sewer, Other utilities Special Assessments: Sale of property, Tickets
Sales Taxes: Major Issues • Administrative Concerns • Significant costs • Lack of coordination • Collection site: Delivery site vs Purchase site • Revenue Allocation • How are revenues returned to jurisdiction where collected. ($1 to $1, Population-based formulas, Redistribution) • Incidence and Equity • Cost passed on to consumers • Poor horizontal and vertical equity • Locational Effects • Tiebout’s “vote with their feet”
Income Taxes: Major Issues • Defining Taxable Income • Usually gross income, minus property income • Widen the tax base? • Incidence • Regressive • Taxation of Non-Residents • Should non-residents be taxed? If so, at what rate? • Should taxes in one jurisdiction be credited in another? • Revenue Allocation • How much redistribution? • Locational Effects • Effects upon business location decisions?
Other Revenues: Major Issues • These revenues have grown in popularity in large part because of the “Property Tax Revolution” of the 1970s. • Cover a very broad range of revenue sources, including User Fees, Tickets, Land Sales, Special Assessments, etc. • These revenue sources provide flexibility for local government in tailoring the tax structure to local conditions. • A largely unnoticed set of “taxes”, these revenues generally are more acceptable to local voters and available as a growing revenue source. • Most of these streams are “seriously flawed when judged by the traditional canons of taxation”. Equity, efficiency, administrative problems abound. • BUT, these other revenue sources are politically acceptable!
User Fees Background • User Fee revenues increased 112% between 1973-1991. Property tax revenues increased 12% in the same period. Why? -Federal spending cutbacks -Tax limitation movement -Recommendations to increase -Government efficiency • Purposes: 1) to ration government supplied goods 2) to provide cost signals to consumers and to government • Advantages 1) Similar to market pricing (familiar); 2) Based upon “benefits-received” principal (a “good” tax); 3) Relies upon direct pricing and not general taxes (politically popular) 4) Promote efficiency in provision and use of service
User Fees Pricing Types/Cost Factors Pricing Types Marginal Cost: Charges full cost of each unit of service produced. Takes into account factors like distance and timing of service provided. Average Cost: Charges the same price per unit, regardless of volume of service or location of demand. Factors Affecting Cost of Service Output: Related to “economies of scale”; Services generally decrease in cost per unit up to a certain amount. Density of Development: Long run costs of services decline with denser development (A Planning Mantra!) Location: Distance to service a major factor in cost. Demand: The demand on a facility greatly affects cost! Peak load
Criteria to Evaluate Taxes Fairness: A) Tax should reflect the ability to pay of those who bear the burden, or B) The tax burden should match the benefits received. Certainty: The rules of taxation should be clearly stated and evenly applied. Convenience: A tax should be convenient to pay, with billing dates that coincide with income streams. Efficiency: Administration should be feasible and efficient, and administration costs should not be out of proportion to revenue. Productivity: A tax should produce sufficient, stable revenue to meet locally desired levels of expenditures. Neutrality: A tax should not distort the way a community would otherwise use its resources (unless socially desirable).