A Primer on Property Tax Administration and Policy

'The chapters in this book explore in detail the choices regarding both the structure and administration of the property tax, drawing on the extensive knowledge the authors have acquired in studying property taxes around the world. The chapters provide a wide-ranging treatment of the design choices and administrative tasks, both in terms of the breadth of design options and administrative tasks covered and the depth of the discussion.  The authors describe the range of design choices, discuss the associated issues and the advantages and disadvantages for each, and present the criteria to help choose among the options.?

From the book?s Foreword by David L. Sjoquist, Professor of Economics and Dan E. Sweat Scholar Chair in Educational and Community Policy, Georgia State University

Property taxation is a key element in providing a solid foundation and a stable funding source for basic public services.

Developing and implementing a property tax system is a complex task. This complexity is compounded by the diversity of legal, cultural and historical contexts of policymakers and tax administrators. The World Development Report (1999-2000), Entering the 21st Century puts fiscal decentralization at the top of the development agenda. This makes local taxation - and especially the property tax option - of critical importance to both tax and land policy, as well as the broader development agenda.

A Primer on Property Tax: Administration and Policy provides the reader with an analysis of issues surrounding property tax, including economics, law, public finance, decentralisation, valuation, GIS and property tax reform. A key strength of the book lies in the vast international experience of the authors and the book will provide for the first time material which is topical, cutting-edge and highly relevant to many of the disciplines involved in property taxation.

The authors examine the criteria applied to evaluate the strengths and weaknesses of property tax, discuss the main valuation methods and the economic principles underpinning them and review the legal and administrative aspects of property tax worldwide.

About the Contributors xi

Foreword by David L. Sjoquist xvii

Introduction xxv

1 Property Tax: A Situation Analysis and Overview 1
Harry Kitchen

Introduction 1

Role for property taxes 2

Importance of the property tax 3

Choice of tax base 3

Issues in assessment 6

Issues with property tax rates 15

Incidence of the property tax 26

Politics of the property tax 33

Future for the property tax 35

Summary 35

References 37

2 Value-Based Approaches to Property Taxation 41
Riël Franzsen and William J. McCluskey

Introduction 41

Overview of property tax bases 42

Value-based approaches 45

Concept of market value 54

Traditional valuation methods 59

Conclusions 63

References 64

3 The Politics of the Property Tax 69
Enid Slack

Introduction 69

Unique characteristics of the property tax 70

Principles for designing the property tax 73

Characteristics of the property tax 73

Property tax revolts, tax limitations and tax relief 79

The politics of property tax reform 81

The property tax as a local tax 83

Conclusion 86

References 87

4 Administration of Local Taxes: An International Review of Practices and Issues for Enhancing Fiscal Autonomy 89
John L. Mikesell

Introduction 89

Central administration 91

Independent local administration 98

The special case of property taxes 106

Conclusion 119

References 121

5 Establishing a Tax Rate 125
Kurt Zorn

Introduction 125

What level of government should set the property tax rate? 126

Types of tax rates 131

Determining the tax rate 133

Who sets the rate? 134

Rate setting in practice 135

Conclusions 138

References 138

6 Property Tax Collection and Enforcement 141
Roy Kelly

Introduction 141

Policy and administrative determinants of property tax revenues 142

Definition of model variables 143

Common reasons for low rates of collection and enforcement 149

Designing an effective property tax collection system 153

Enforcing against noncompliance 161

Summary thoughts 168

References 170

7 The Tax Everyone Loves to Hate: Principles of Property Tax Reform 173
Jay K. Rosengard

Introduction 173

Primary rationale for reform 174

Fundamental principles of reform 176

Strategic choices in reform 178

Policy pitfalls of reform 183

Conclusion 184

References 185

8 Legal Issues in Property Tax Administration 187
Frances Plimmer

Introduction 187

Tax policy 188

Property taxation 192

Uniformity/equity/fairness/treatment of taxpayers 198

Conclusions 204

References 205

9 Tax Criteria: The Design and Policy Advantages of a Property Tax 207
Gary C. Cornia

Introduction 207

Independent and autonomous revenues 209

Adequate and stable revenue 211

Hedging the revenue bets 212

How broad is the tax base? 212

Financial support for infrastructure 214

Capturing the increased value resulting from public infrastructure 214

Immobile base 215

Benefit tax 216

Ability to pay taxes 217

Ease of compliance 218

Ease and cost of administration 219

Transparent taxes 219

Political acceptability 221

Subnational tax systems and horizontal inequity 221

Advantages of the property tax 222

Disadvantages of the property tax 225

Conclusion 226

References 226

10 Estimating Property Tax Revenue Potential 229
Lawrence C. Walters

Introduction 229

Fiscal capacity and fiscal effort 231

Fiscal capacity 231

Estimating aggregate property value 232

Property tax capacity and effort in the OECD 235

Adjusting for undeveloped land 238

Estimating local revenue potential 244

Conclusion 246

References 246

11 Taxing Public Leasehold Land in Transition Countries 249
Yu-Hung Hong

Introduction 249

Public leasehold systems 250

Land ownership and taxation 251

Land rent, property tax and tax incidence 256

Valuing public leasehold for tax purposes 260

Conclusions 261

References 263

12 Property Tax and Informal Property: The Challenge of Third World Cities 265
Martim Smolka and Claudia M. De Cesare

Introduction 265

The phenomenon of informal land occupations 266

Property tax performance in cities with

extensive informality 271

The property tax as a tool for reducing informality 278

Conclusion 283

References 284

13 Non-market Value and Hybrid Approaches to Property Taxation 287
William J. McCluskey and Riël Franzsen

Introduction 287

Non-market valuation approaches 287

Other non-value approaches 293

Hybrid alternatives that use a form of value as the basis for the property tax 293

Flat-rate taxes 301

Conclusions 303

References 303

14 Computer Assisted Mass Appraisal and the Property Tax 307
William J. McCluskey, Peadar Davis, Michael McCord, David McIlhatton and Martin Haran

Introduction 307

Concepts of CAMA and quality control issues 309

Mass appraisal techniques 315

Case study: MRA modelling 326

Conclusions 333

References 334

15 Geographic Information Systems and the Importance of Location: Integrating Property and Place for Better Informed Decision Making 339
David McIlhatton, Michael McCord, Peadar Davis and Martin Haran

Introduction 339

Conclusions 355

References 356

Index 359

William J. McCluskey is Reader in Real Estate and Valuation at the University of Ulster, where he received his Ph.D. in Real Estate Valuation in 1999. He has held various international positions including Visiting Professor of Real Estate at the University of Lodz, Poland, Professor of Property Studies at Lincoln University, Christchurch, New Zealand and is currently Visiting Professor in Real Estate at University of Technology, Malaysia. His main professional and academic interests are in the fields of real estate valuation, developing automated valuation methods and property tax policy. In addition, he has been an invited instructor in real estate at the African Tax Institute and the Lincoln Institute of Land Policy: China Programme. He is a faculty member of the Lincoln Institute of Land Policy and founding board member of the International Property Tax Institute.

Gary C. Cornia is the Dean of the Marriott School of Management at Brigham Young University.  He is the past president of the National Tax Association and has served as State Tax Commissioner in Utah. He has been a visiting Fellow at the Lincoln Institute of Land Policy and a visiting Scholar at the Andrew Young School of Policy at Georgia State University.   He has published a variety of articles on state and local tax policy, decentralization, and property tax.  He received his Ph.D. from The Ohio State University.

Lawrence C. Walters is the Stewart Grow Professor of Public Management at the Romney Institute of Public Management, Brigham Young University. His teaching includes courses on land and real estate taxation at the Institute for Housing and Urban Development Studies, Erasmus University Rotterdam. He has over forty publications on public policy and management topics, several of which have received national awards for excellence. He has just completed a property tax policy guide for developing countries sponsored by UN-Habitat and a book on managing “wicked