Real Estate Tax
Real estate tax, also known as property tax, is a tax levied on real property, usually in an ad valorem manner (i.e. in proportion to the value of something). Generally, real property refers to land, buildings and their structural components.
Historically, the American real estate tax has its origins in old England where funds were raised for the purpose of supporting military expeditions. The tax known as Danegeld was equivalent to 2 shillings per each 100 acres. It was first imposed during the year 868. From that time on, it was imposed whenever someone needed to be conquered. The property tax became so important that the concept was addressed in the Magna Carta. From England to the Colonies, the concept eventually came to be looked upon favorably as a stable and predictable source of revenue. The property tax has been referred to as the price of civilization.
Examples of real estate which is taxed are:
- Manufacturing facilities
- Shopping centers
- Leaseholds
- Mineral rights
- Air rights
- Pipelines
- Single family houses
- Apartment buildings and Condominium developments
Valuation Methods
Listed below are the most common methods used by assessing officials in determining the market value of property.
Cost Approach:
The cost to duplicate less depreciation plus land value.
Income Approach:
A capitalization rate is applied to the stabilized net income that is generated by the property.
Market Approach:
A parameter is premised upon what other nearby comparable properties sold for (i.e. regression analysis when a very large sampling is analyzed).
Most assessing officials rely on a combination of these 3 methods. The key to successfully challenging an assessment is to do a better job than the assessor while applying these methods.
Appraisals
By far the most powerful and persuasive form of evidence that can be used to prove market value. A high quality appraisal is performed by a state certified 153 General Appraiser and is expensive. For that reason, I only order appraisals when it appears that it will be cost-effective for the client.
The major advantage of an appraisal is that it gives the assessing official something tangible to base their assessment on. Without an appraisal, the assessing official is forced to rely on homemade data which is often overly conservative and tends to value the subject
property at a higher-than-realistic value.
Economic Development
For more information regarding tax incentives and economic development, please go to our Rapid Reference Index.
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