Property taxes of one form or another have existed as long as civilized man. The nomenclature is accurately suggestive of the basis for the tax: ownership of property. As with most things, calculation of these taxes is fallible. The training received by a tax assessor, as well as his or her willingness to enforce prescribed standards, frequently has served to determine the accuracy of property tax assessments. Over the years there have been various efforts to reform the property tax. Today, as a result, uniformity in assessment has greatly improved. Usage of the property tax as a means to generate revenue, however, has generally drastically decreased.
Ad valorem taxes (or property taxes) can be traced back to ancient times. These taxes are based upon the ownership of property. In the 14th and 15th centuries, tax assessors calculated a taxpayer’s ability to pay based upon ownership or occupancy of property. At some point, the tax came to be to be identified as a tax on the property itself. Economic, as well as political, conditions on the early frontier contributed to the growth of the property tax in America.
During the Colonial Period, taxation became a subject of heated debate and violence (Becker 21). The majority of settlers felt that it was unfair to tax land on a per acre basis. These settlers felt property taxation should be based upon value. The Southern colonies imposed heavy poll taxes and light land taxes. This obviously favored wealthy land owners. Some situations, however, caused the wealthy to complain. In New York, for example, the wealthy saw “the excess profits tax, which had been levied on war profits, as a dangerous example of leveling tendencies” (Fisher 9). Settlers subjected to the intangible property tax in New Jersey felt similarly about that tax. Leaders, as well as the average citizen, began to consider the implication of equality as applicable to taxation.
It wasn’t until the nineteenth century that states began to include uniformity clauses in newly written constitutions. Old constitutions were amended with the requirement that all property be taxed equally by value. The idea of uniformity had strong political appeal, especially in the western states. Citizens were content with the idea of paying for the government services he or she enjoyed in exact proportion to his or her own personal wealth.
Due to the nature of rural settlements, the property tax was the best means to yield income. Income taxes simply were not feasible. More often than not, these communities had no business establishment, therefore sales tax was not a viable option either. Property tax, however, was an ideal solution. Real estate was in fixed locations with a value that was generally well known. Revenue could therefore be allocated to the governmental entity in which the property was situated.
By the start of the twentieth century, criticism and failure of the general property tax was widespread. Multiple reasons contributed to the tax’s failure. The primary problem was the failure to handle problems which arose due to differences between property as a legal term and wealth as an economic concept.
In a simple rural economic system, the wealth is primarily composed of real and tangible personal property- machinery, livestock, land and buildings. In this type of economy, property and wealth are synonymous. Subsequently, income and the ability to pay taxes are closely tied to property ownership. Ownership and control of wealth in a modern commercial economy, however, is evidenced more through instruments. Such as mortgages, stocks, notes and bonds. “Local property tax administrators lack the legal authority, skills and resources to assess and collect taxes on these complex systems of property ownership” (Becker 34).
Another issue stemmed from the inability or unwillingness of tax assessors at the local level to value properties at full value. Assessors hoping to maintain job security often engaged in this practice. Tax assessors who valued property well below market value were often quite popular and generally reelected. Additionally, with the increasing number of wage earners who possessed substantial incomes but little property, property ownership continued to decline as a suitable gauge of the ability to pay taxes. As a result, the National Tax Association called for reform of the property tax. Proposals were made that called for the enactment of state income taxes. It was also demanded that intangible property, as well as certain kinds of tangible property, be eliminated from the property tax base. It was proposed that only professionally trained tax assessors assess the value of real property. Advocacy was seen for the classified property tax, in which taxation was applied at different rates to various classes of real property.
Reformation efforts varied from state to state. Most states did, however, begin to divide property into classes. Better assessment methods were developed. Assessors were better trained. Certification methods became commonplace. After the Depression years, in addition to homestead exemptions, circuit breakers were seen more commonly. Circuit breakers, just like homestead exemptions, provided relief for owner occupied properties. Circuit breakers were more far reaching, however. The circuit breakers didn’t just benefit the wealthy whose families lived generation after generation in a home. Circuit breakers benefited the disabled, elderly and lower to middle income families.
Modern assessment techniques have greatly improved. CAMA, or computer assisted mass appraisal combines statistical methods, valve theory and computer technology to provide more accurate property assessments. Despite this fact, there has been a gradual decline in the importance of property taxes. If current trends continue, the property tax will decline in importance and states and the federal government will take over more local function, or expand the system of grants to local governments. Either way, the government will become more centralized (Fisher 261).
PROPERTY TAXES AS A PERCENTAGE OF OWN SOURCE GENERAL REVENUE, SLECTED YEARS
YEAR STATE LOCAL
1902 45.3 78.2
1913 38.9 77.4
1922 30.9 83.9
1932 15.2 85.2
1942 6.2 80.8
1952 3.4 71.0
1962 2.7 69.0
1972 1.8 63.5
1982 1.5 48.0
1992 1.7 48.1
1999 1.8 44.6
U S Census Bureau
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