President’s Message

President’s Message – October 2022

I thought it might be interesting to include a bit of colour in this month’s newsletter and I am indebted to the US Tax Foundation for kindly providing some suitably interesting material with colourful maps to illustrate their data.

The Tax Foundation’s article about property taxes in the USA is titled “Where Do People Pay the Most in Property Taxes?”. The article states: “Property taxes are the primary tool for financing local government and generating state-level revenue in some states as well. In fiscal year 2020, property taxes comprised 32.2 percent of total state and local tax collections in the United States, more than any other source of tax revenue. Local governments rely heavily on property taxes to fund schools, roads, police departments, fire and emergency medical services, as well as other services associated with residency or property ownership. Property taxes accounted for 72.2 percent of local tax collections in fiscal year 2020.

Because property taxes are locally levied, providing a useful state-level comparison can be difficult. So, in an effort to present a multifaceted view, the Tax Foundation features two maps focused on the property tax. The first looks at median property tax bills in each county in the United States, and the second compares effective property tax rates across states.

Median property taxes paid vary widely across (and within) the 50 states. The lowest bills in the country are in six counties or county equivalents with median property taxes of less than $200 a year:

• Northwest Arctic Borough and the Kusivlak Census Area (Alaska)*

• Avoyelles, East Carroll, and Madison (Louisiana)

• Choctaw (Alabama)

(*Significant parts of Alaska have no property taxes, though most of these areas have such small populations that they are excluded from federal surveys.)

The next-lowest median property tax of $201 is found in Allen Parish, near the middle of Louisiana, followed by $218 in McDowell County, West Virginia, in the southernmost part of the state.

The eight counties with the highest median property tax payments all have bills exceeding $10,000:

• Bergen, Essex, and Union (New Jersey)

• Nassau, New York, Rockland, and Westchester (New York)

• Falls Church (Virginia)

All but Falls Church are near New York City, as is the next highest, Passaic County, New Jersey ($9,999).

Median property taxes by state compare state property tax rankings and property tax bills.

Property tax payments also vary within states. In Georgia, for example, where the median property tax bill is relatively low, median taxes range from $413 in Quitman County (near the Alabama border in the southern part of the state) to $3,185 in Fulton County (a suburb of Atlanta). This is typical among states; higher median payments tend to be concentrated in urban areas. This is partially explained by the prevalence of above-average home prices in urban cities. Because property taxes are assessed as a percentage of home values, it follows that higher property taxes are paid in places with higher housing prices. However, because millages - the amount of tax per thousand dollars of value - can be adjusted to generate the necessary revenue from a given property tax base, the higher payments also reflect an overall higher cost of government - and commensurately higher taxes - in these areas.

While no taxpayers in high-tax jurisdictions will be celebrating their yearly payments, it’s worth noting that property taxes are largely rooted in the “benefit principle” of government finance: the people paying the property tax bills are most often the ones benefiting from the services.

Because the dollar value of property tax bills often tracks with housing prices, it can be difficult to use this measure to compare between states. Further complicating matters, rates don’t mean the same thing from state to state, or even county to county, because the millage is often imposed only on a percentage of actual property value, as is discussed below. However, one way to compare is to look at effective tax rates on owner-occupied housing - the average amount of residential property taxes actually paid, expressed as a percentage of home value.

In calendar year 2020 (the most recent data available), New Jersey had the highest effective rate on owner-occupied property at 2.21 percent, followed by Illinois (2.05 percent) and New Hampshire (1.96 percent). Hawaii was at the other end of the spectrum with the lowest effective rate of 0.31 percent, followed closely by Alabama (0.39 percent) and Louisiana (0.54 percent).

Governments tax real property in a variety of ways: some impose a millage on the fair market value of the property, while others impose it on a percentage (the assessment ratio) of the market value. While values are often determined by comparable sales, jurisdictions also vary in how they calculate assessed values.

While property taxes tend to be imposed at the local level, their basic framework is typically set by state law.

Some states have equalization requirements, ensuring uniformity across the state. Sometimes property tax limitations restrict the degree to which one’s property taxes can rise in a given year, and sometimes rate adjustments are mandated after assessments to ensure uniformity or revenue stability. Abatements (i.e., reductions or exemptions) are often available to certain taxpayers, like veterans or senior citizens. And, of course, property tax rates are set not only by cities and counties, but also by school boards, fire departments, and utility commissions.

Some states with high property taxes, like New Hampshire and Texas, rely heavily on them in lieu of other major tax categories. This often involves greater devolution of authority to local governments, which are responsible for more government services than they are in states with greater reliance on state-level revenues. Other states, like New Jersey and Illinois, impose high property taxes alongside high rates in the other major tax categories.”

I hope you found the foregoing information and colour-coded maps interesting.

Moving on to IPTI activities, I am pleased to say that I have attended a number of in-person events over the last few weeks and it was great to be “back in the room” with people. Whilst I am very appreciative of the fact that IPTI, along with many similar organisations, was able to switch to holding online events during the COVID-19 pandemic lockdowns, it is refreshing to be able to make presentations face-to-face and network with colleagues in and around conferences again.

I started with the IAAO’s Annual Conference in Boston, Massachusetts. The President, CEO and other IAAO colleagues made both my wife and I feel very welcome during their event at which I was speaking about comparing US property tax systems with those in other countries. The conference, in the Hynes Convention Center, Boston was very successful at a professional level and very enjoyable at a social level.

Then I moved on to Toronto in Canada where IPTI was holding another in its series of “Ontario Property Tax Summits” (OPTS) which was held at the Faculty Club, University of Toronto. The OPTS looked at a range of the current challenges that stakeholders are facing in the province and explored ideas for strengthening and improving the current property tax system. Sadly, during the OPTS, we heard that Her Majesty Queen Elizabeth II died and all at IPTI send their best wishes to the Royal Family on their sad loss.

I then flew on to Denver, Colorado where the annual COST-IPTI Property Tax Workshop was being held. We had not been able to hold this workshop in person for two years so, again, it was great to meet up with colleagues from the Council on State Taxation (COST) and all those property tax professionals who attended the event. It was a very informative and enjoyable workshop where, with an IPTI colleague, I updated attendees with developments in property tax systems in Canada and elsewhere in the world. Among the many other sessions, I was involved in a “staged drama” in which several people acted out the various steps in dealing with a property tax appeal. This involved initial consideration of the issues with the taxpayer/client; negotiations between the taxpayers, agents and assessors; and finally, a mock hearing before the appellate body in which I played the judge! Good fun, but also some useful learning shared.

Looking ahead, we will shortly be in Montego Bay, Jamaica where, along with colleagues from the Royal Institution of Chartered Surveyors (RICS), on 13-14 October, we will be holding our annual in-person RICS-IPTI Caribbean Valuation & Construction Conference. Following shortly on from that event, we will be facilitating the next “Conference of Valuation Agencies” (CoVA 2022) which will be held, as an in-person event, on 8-9 December at an Oxford college in the UK. This will be an important, and very enjoyable, opportunity to reinforce the CoVA network.

In addition, we have now finalised details of the next series of webinars we deliver jointly with the Institute of Municipal Assessors (IMA) on various aspects of property taxation. We have also confirmed details of the future webinars and workshops that IPTI will be delivering on mass appraisal. As usual, for full details of all forthcoming IPTI events, please visit our website: www.ipti.org.

Now it’s time for a quick look at what is making headlines concerning property taxes in selected jurisdictions and countries around the world. For more information, please look at Xtracts on our website.

In Tasmania, Australia, the debate over stamp duty or land tax continues; economists say the one that makes the most sense, i.e. land tax, is politically toxic! This seems to be borne out by the reaction to recent comments by the Premier in which he refused to rule out extending land tax to family homes. He said that he planned to have a “sensible conversation” with the Tasmanian community about the issue. A recent article states “… with most economists, the productivity commission and the Henry Tax Review recommending a broad-based land tax, why not?” In every state, the article continues, some landowners must pay a yearly tax, based on the value of their land, to the state government. The tax is calculated based on the value of the land - not the value of the dwelling on it - and is assessed by the state's valuer general. In Tasmania, you only have to pay tax on land you own which is not your “principal residence land”, so you don't pay tax on the land the home you usually live in is built on. Tasmanians also don't have to pay tax on land which is used mostly for a primary production (or farming) business. Tasmanians do have to pay the tax on general land - this includes land which has a shack or holiday home on it, a rental investment property, vacant land and land with commercial businesses on it. Because most land in Tasmania is exempt from being taxed, the state government instead relies on property transfer duty (usually called "stamp duty") to get more revenue. This usually means homebuyers have to pay a sizeable stamp duty bill on top of the sale price of the home. Most economists argue that instead of taxing only the sale price of land and dwelling, state governments should scrap stamp duty and extend, or “broaden”, land tax so all landowners pay a comparatively small annual tax on the value of the land. This is what's meant by a "broad-based land tax" - it wouldn't exclude the family home, or principal residence land. One local economist says, “Stamp duty is one of the worst and least efficient taxes from an economic perspective because it’s hard to predict how much revenue it’ll generate for governments and it distorts people’s behaviour by discouraging them from buying and selling houses when it would suit them to.” He continued, “Broad-based land taxes are highly efficient and one of the least worst taxes ever invented. It's highly predictable, it’s easy to collect, it’s difficult to avoid, and it doesn’t distort decisions in how land is used, in the way that stamp duties will” he said. But, of course, there's likely to be a big backlash from homeowners, who won't be happy about paying a new tax. The economist said it would take a great deal of courage for a state government to make the change. Governments would also have to find a way to avoid hitting people who had recently paid stamp duty with the new land tax. The debate continues!

A worrying recent report from the USA indicates that $35 billion worth of real estate could be underwater by 2050. Local governments in coastal states, it continues, will lose billions of dollars in local tax revenue as rising seas claim developed land. Research non-profit Climate Central conducted a unique study of sea-level rise, projecting the amount of real estate, buildings and tax revenue that hundreds of coastal counties will lose as tides encroach on developed areas. It found that an estimated 4.3 million acres - an area nearly the size of Connecticut - will be underwater by 2050, including $35 billion worth of real estate. “Higher flood waters are reaching further inland, flooding properties and buildings that have never flooded before,” Climate Central researchers wrote. Louisiana could be particularly hard hit, according to the report, with 2.4 million acres underwater by 2050. On the Louisiana coast, Terrebonne Parish could see 77 percent of its acreage flood, potentially submerging 5,700 buildings. Florida, North Carolina and Texas could also face substantial losses. In Dare County on North Carolina’s Outer Banks, for example, 27 percent of the acreage will be at risk of flooding by 2050, potentially submerging $875 million worth of real estate and buildings. Monroe County in the Florida Keys could see 19 percent of its acreage flood, representing $700 million in real estate and buildings. “There are about 30 counties that are going to lose more than 10 percent of their land area by 2050,” a Climate Central senior adviser said.

The losses will magnify by 2100. Climate Central researchers focused on 2050 because global warming patterns are unlikely to change significantly in the next few decades. Such patterns, however, could change by the end of the century, depending on the decrease (or increase) in global emissions. The analysis, which looked at 328 counties in 25 coastal states, including Alaska and Hawaii, aims to alert state and local officials about the threat that climate change poses to tax revenue that pays for public schools, emergency protection and municipal services. It says that smaller tax bases can lead to lower tax revenues, reduced public services, and “a potential downward spiral of disinvestment and population decline.” “If a town has no other income source but property taxes and those property taxes can’t be saved, that town is not sustainable,” said a climate resilience expert at the University of Delaware. An adaptation program director at the Georgetown Climate Center, said local property tax bases are “being washed away” by rising tides, which will force local officials to take steps such as relocating residents away from coasts and elevating roadways above flood levels. By 2100, nearly 9 million acres - an area nearly the size of New Hampshire - will be underwater, including 3.2 million acres in Louisiana, or about 3 percent of its land area, according to the report. The 9 million acres includes 300,000 buildings and $109 billion worth of real estate. Overall, states in New England and on the Pacific Coast face the least potential land loss. Climate Central researchers combined the latest sea-level rise models released last year by the Intergovernmental Panel on Climate Change with NOAA data showing coastal tide levels. They combined their analysis with property tax records to determine which parcels face a future flood threat and the value of the threatened real estate. This is clearly a worrying report that people will have to take seriously and respond to it.

And finally, staying with the watery theme, news reaches us from France about a new approach the authorities are using to detect swimming pools. Using AI software, the tax office (or le fisc as it is known) has found thousands of undeclared private swimming pools, landing the owners with additional property tax bills totalling about €10m. I imagine the authorities consider the scheme is going swimmingly!

Paul Sanderson JP LLB (Hons) FRICS FIRRV

President, International Property Tax Institute

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