The Theory of Property
Taxation
LECTURER: JACK WU
Outline
 Topic I: What Are Property Taxes?
 Topic II: Property Tax Incidence
 Topic III: Property Tax Capitalization
 Topic IV: Property Tax Competition and Provision of
Local Public Goods
What are Property Taxes?
 1.What are Properties?
 2.Defining Property Tax
 3.Why levying property tax?
 4.Mechanics of Property Taxation
 5.The Property Tax Process
 6.Economic Issues of Property Tax
1. What are Properties?
 Property v.s. Wealth
 Taxonomy of Property
Property v.s. Wealth
 Property:
 A. something that someone owns
 B. any tangible or intangible possession owned by
someone
 C. real estate (land or building) that someone owns
 Wealth: the money value of property
Taxonomy of Property
 Property can be classified as:
 Personal (Movable) property 動產 v.s. Real property
不動產
 Tangible有形 property v.s. Intangible無形 property
A Taxonomy of Property
2. Defining Property Tax
 Narrowly Defined Property Taxes
 Property Tax in Tax Structure
 Broadly defined property taxes
 Property Tax Revenues
Narrowly Defined Property Tax
 Property tax is the tax on the property holding.
(note: acquiring, holding, transfer)
 Property tax is an ad valorem tax that an owner of
real estate or other property pays on the value of the
thing taxed. (note: it is difficult to levy a tax on
personal or movable property)
Property Tax in Tax Structure
 National Tax/ Central Tax
 Municipal and County Tax/ Local Tax
 In most countries, property tax is the most important
local tax.
Taiwan’s Central and Local Taxes
Broadly Defined Property Tax
 According to OECD classification, taxes on property
include:
1.Recurrent taxes on immovable property
2.Recurrent taxes on net wealth
3.Estate, Inheritance, and gift taxes
4.Taxes on financial and capital transactions
5.Other non-recurrent taxes on property
6.Other recurrent taxes on property
Taiwan’s Property Taxes
Narrowly defined property tax Broadly defined property tax
Agricultural Farmland Tax 田賦(停
徵)
Agricultural Farmland Tax 田賦(停徵)
Land Value Tax 地價稅
Land Value Tax 地價稅
House Tax 房屋稅
House Tax 房屋稅
Estate, Inheritance and Gift Tax遺產贈與稅
(中央)
Deed Tax 契稅
Security Transaction Tax證券交易稅(中央)
Future Transaction Tax 期貨交易稅(中央)
Stamp Tax 印花稅
Land Value Incremental Tax土地增值稅
License Use Tax 使用牌照稅
Distribution Ratios of Current Taxes
14
Table: 現行財產稅目及其稅收分配
資料來源：財政部賦稅署。
說明：
1. 根據1999年1月25日增修訂之
財政收支劃分法。
2. 本表所示資料更新截止日為
2009年5月31日。
附註：
1. “A”係指營業稅收入減除依法
提撥之統一發票給獎獎金之
40%。
2. ※ (1) 18%按人口比例分配直
轄市及台灣省各縣(市) 。
(2) 2%按人口比例分配福建省
金門及連江二縣。
3. ◎台北縣徵起之土地增值稅自
2008年1月1日起準用直轄市規
定，即徵起收入100%均歸該
縣所有。
15
Property Tax Revenue
16
Property Tax Revenue/Total Tax Revenue
Property Tax Revenue in USA
Table 13-1
Property Taxes as a Percentage of General Revenue
By Level of Government, Various Years
Local Government
Year
States
All
Counties Municipalities Townships
65.3
School
Districts
51.0
Special
Districts
25.0
1962
2.1%
48.0
45.7
44.2
1967
1.7
43.2
42.1
38.1
61.8
46.9
21.5
1972
1.3
39.5
36.5
31.3
64.9
47.3
17.3
1977
1.3
33.7
31.0
25.8
56.8
42.1
14.0
1982
1.1
28.1
26.6
21.4
52.1
35.8
9.5
1987
1.1
28.3
27.1
20.9
52.7
36.4
10.4
1992
1.2
29.9
27.8
23.1
56.0
37.5
10.7
1997
1.3
27.9
24.7
20.7
55.9
36.0
11.9
2002
0.9
27.1
24.2
20.4
55.8
34.2
11.0
Sources: U.S. Department of Commerce, Compendium of Government Finance, and Bureau of the Census, Governmental
Finances, various years.
19
Table 13-2
Property Taxes as a Percentage of Taxes
By Level of Government, Various Years
Local Government
Year
States
All
Counties
Municipalities Townships
93.3
School
Districts
98.6
Special
Districts
100.0
1962
3.1%
87.7
93.5
93.5
1967
2.7
88.6
92.1
70.0
92.8
98.4
100.0
1972
2.1
83.7
85.6
64.3
93.5
98.1
94.9
1977
2.2
80.5
81.2
60.0
91.7
97.5
91.2
1982
1.9
76.1
77.2
52.6
93.7
96.8
79.6
1987
1.9
73.6
73.5
49.1
92.3
97.5
70.3
1992
2.2
75.6
74.4
52.9
93.0
97.4
66.8
1997
2.3
73.3
69.4
48.7
92.4
96.9
76.5
2002
1.8
72.9
69.1
48.6
91.6
96.2
69.8
Sources: U.S. Department of Commerce, Compendium of Government Finance, and Bureau of the Census, Governmental
Finances, various years.
20
3.Why Levying Property Tax?
 Canons of Taxation
 Virtues of property tax
Canons of Taxation
 Simple
 Equitable (horizontal, vertical, inter-generational,
and process equity)
 Stable
 Non- or least distortion
 Low administration and compliance costs
Virtues of Property Tax
 An old tax
 A stable tax
 An easy-to-administer tax
 A benefit tax
 A tax that allows local control
 A visible tax
An Old Tax
 An old tax is a good tax.
 Principle of good tax policy: a tax system should
change infrequently.
A Stable Tax
 Stability and reliability are considered two
requirements for creating a sound tax system.
 Few taxes are more reliable than those on real
property. Unlike other local taxes, the property tax
base cannot be moved. The revenue from such a
captive tax base can be relied on to a greater extent
than either wage or sales taxes – both of which have
highly mobile tax bases.
 The steady growth of property tax revenue (real
property values appreciate over time) can meet
future public service needs.
An Easy-To-Administer Tax
 The governments’ administration of property tax and
taxpayers’ compliance with the property tax are
relatively straightforward and inexpensive.
 The tax is easy to administer because the underlying
tax base is immobile and easily identifiable.
Moreover, taxpayers cannot easily hide or move
property. Thus, the property tax is hard for property
owners to evade.
 Most taxpayers (property owners) face minimal
compliance cost because they do not need to fill out
any property tax form.
A Benefit Tax
 Property tax revenue is raised locally to support local
public services. Thus, the connection between the source
of revenue (property) and what is being provided (public
services) has stayed strong. The local public services
provided benefit the owners of property within the
jurisdiction.
 The beneficiary of the public services is the property
owner, and under the benefit principle of taxation, it is
the property owner who should be paying for the services.
 Many economists have recognized property tax is a
benefit tax.
A Tax that Allows Local Control
 The property tax is the best available independent
source of local revenue. The property tax has given
local constituencies control over their financial
matters. Local fiscal autonomy is a direct result of
reliance on property taxes.
 Central government does not levy tax on real
property. Thus, theoretically, local governments
should have greater flexibility with the property tax
system than with other major taxes.
A Visible Tax
 Taxpayers know the amount , the frequency, and the
purpose of the property tax. Unlike sales taxes
(which are paid to vendors) or income taxes (which
are generally withheld by employers), property taxes
are generally paid to the government.
4.Mechanics of Property Taxation
 Major issues of Property Tax
 Property Tax Base
 Valuation Methods
 Property Tax Rates
 Property Tax Relief Measures
Major issues
 Tax base issue: How is the tax base defined and
measured?
 Tax rate issue: What political groups have
responsibility for setting tax rates and how those
rates are measured?
 Economic effect issue: What policies are used to
reduce overall property taxes or to alter the
distribution of tax among different types of
properties and taxpayers?
Property Tax Base
 Market value of property
The tax base of property tax is the market value of
property
 Assessment value of property:
Not all of properties are not transacted in the market
in the given year, so it is necessary to assess the
value of property annually by tax assessors.
Valuation Methods
 Market Value approach 市場價值比較法
 Income capitalization approach 所得還原法
 Replacement cost approach重置成本法
Market Value Approach
Use the observed market prices for properties to
estimate value for a subject property.


Suppose that we want to value a three bedroom, two bath
home in the Dogwood Subdivision.
We could analyze the sales prices for all such comparable
homes over the past year to value the subject property.
Income Capitalization Approach
For income producing properties, we can estimate
value by computing the discounted present value of
the net income stream generated by the properties.

We need information on net income to do this.
Replacement Cost Approach
To estimate the value of property by computing the
replacement cost and subtracting depreciation.

This is the only alternative for unique properties, or properties
for which an active market has not developed, or for which no
net income data is available.
Three approaches to value


In theory, all three approaches to value should lead to the same
conclusion, or very nearly the same conclusion.
In practice, they differ and it is important for the assessor to
understand the strengths and weaknesses of each approach.
Summary
 In most instances, the market value approach is used
to assess single-family homes and land for which
there are often numerous sales, while the
replacement cost and income capitalization
approaches are usually used for commercial and
industrial properties.
Assessment Ratio Rule
 An assessor computes the assessed value of each
piece of property from an estimate of the property’s
market value according to a specific set of
procedures , usually established by law. Given that
estimate of market value, the assessed value is
specified by law or common practice as some specific
percentage of market value, called the assessment
ratio rule, or at least must be within some specified
range of percentage of market value.
Classified Property Taxes
 If different types or classes of property are assessed
according to different assessment ratio rules, the tax
is called classified property tax.
 Residential property are usually assessed at a lower
ratio than commercial and industrial property. In
addition, some types of property may be exempt
from property tax. The assessed value of these
properties is set equal to zero.
Property Tax Rates
 How to set the tax rate?
 Property tax rate and Local Public Services
 Nominal tax rate and effective tax rate
How to set the tax rate?
 Property tax revenue= tax rate*Tax base
 Given the total assessed value of all properties in a
taxing jurisdiction, the local government sets a tax
rate sufficient to generate the desired property tax
revenue. Central laws constrain the local
government in setting the property tax rate by
limiting the tax rate, property tax revenue, or both.
Property Tax Rate and Local Public Services
•
•
Many local governments rely on the Property Tax to fund local
public services. Hence, the Property Tax rate is actually a
combination of many rates.
Each local government unit sets its own rate, taking into account
desired public service levels and the tax base.
A combination of rates
Nominal Property Tax Rates


The nominal tax rate is
t = T/Va
T
 the tax paid
Va
 the assessed value
The assessed value Va is a fraction of the market value. Let a 
the assessment ratio,
Va = aV
 a = Va/V.
Nominal Tax Rate of Land Value Tax in Taiwan
Range of Land Value
Land Value < Starting Threshold (ST)
Marginal Tax
Rate
1%
ST< Land Value < 5*ST
1.5%
5*ST< Land Value < 10*ST
2.5%
10*ST< Land Value < 15*ST
3.5%
15*ST< Land Value < 20*ST
4.5%
20*ST < Land Value
5.5%
Nominal Tax Rate of House Tax in Taiwan
Classification
Max.
Rates
Min.
Rates
Actual Rates Enforced
by the majority of
counties (cities)
Residential Houses
2.0%
1.2%
1.2%
Business Houses
5.0%
3.0%
3.0%
Houses for other
purposes*
2.5%
1.5%
2.0%
Effective Tax Rate
 The effective tax rate, the ratio of tax to market value,
is a usual way to characterize property tax levels on
different properties or in different jurisdictions.
Because tax is compared to market value, the
effective tax rate corrects for any difference in
assessment ratios.
Effective Property Tax Rate

The effective tax rate is the ratio of the tax paid to the market
value of the property:
t = T/V.

Substitution for V gives the relationship
t = at.
Hence, the effective tax rate is a combination of the nominal
tax rate and the assessment ratio.
Evidence from USA
Residential Property Tax Rates in Selected Cities (1998)
Nominal tax rate Assessment Ratio Effective tax rate
(%)
(%)
(%)
City
Milwaukee, Wis.
3.03
99.1
3.00
Detroit, Mich.
5.76
40.7
2.34
Fargo, N. Dak.
47.99
4.2
2.02
Coulumbia, S.C.
36.25
4.0
1.45
Chicago, Ill.
8.84
16.0
1.41
Washington, D.C.
0.96
97.0
0.93
Source: Government of Dthe District of Columbia, Tax Rate and Tax Burden:
A Nationwide Comparison, 1998, Table 4, p.19.
More Evidence from USA
Residential Property Tax Rates in Selected Cities (1995)
City
Bridgeport, CT
Newark, NJ
Milwaukee, WI
Des Moines, IA
Houston,TX
Philadelphia, PA
Jaksonville, FL
Phoenix, AZ
Portland, OR
Chicago, IL
Memphis, TN
Boston, MA
Minneapolis, MN
New York City, NY
Los Angeles, CA
Effective tax rate
(%)
4.75
3.68
3.58
2.98
2.67
2.64
2.20
1.82
1.80
1.79
1.53
1.39
1.34
0.86
0.74
Source: Statistical Abstract of the United States 1997 , Table 497.
Evidence from EU
Country
Tax Base
Austria
Germany
Assessed standard
value
Taxable value
Notional rental
value
Taxable value
Greece
Assessed value
Italy
Imputed rental
income
Public valuation
Valuation code
Cadastral value
Finland
France
Netherlands
Portugal
Spain
Nominal Tax Rate
Estimated Effective
Tax Rate
Basic Federal rate of 0.5%
0.2%
0.22%~0.5%
0.36%
Certain coefficients 0.5%
to half
0.35% federal rate 1.5% on average
Municipal
(0.98%~2.1%)
coefficient:2.8~6
Progressive rate
0.57%
0.3%~0.8% (State)
0.025%~0.035%(loc
al)
0.4%~0.7%
0.5%
0.1%~0.9%
0.7%~1.3%
0.4% urban,
0.3% rural
0.5%
1%
0.4%
Evidence from Taiwan
台灣地區地價稅有效稅率( 1997)
課稅土地
公告地價
推估市價
地價稅收
估價比率
土地面積
總額
總額
縣市
（公頃）
（億元）
（億元）
（億元）
%
A
B
C
T
B/C
4,386
15,583
48,758
137
32.0
台北市
6,263
4,392
18,654
43
23.5
高雄市
14,437
6,929
40,556
70
17.1
台北縣
3,303
445
4,122
4
10.8
宜蘭縣
13,150
2,893
23,312
33
12.4
桃園縣
5,168
660
4,462
7
14.8
新竹縣
5,567
574
4,858
6
11.8
苗栗縣
9,027
1,596
14,012
16
11.4
台中縣
8,299
1,172
15,492
12
7.6
彰化縣
3,429
495
5,343
5
9.3
南投縣
4,424
752
4,706
7
16.0
雲林縣
4,181
414
3,430
4
12.1
嘉義縣
8,941
1,048
8,331
10
12.6
台南縣
8,761
1,539
10,406
16
14.8
高雄縣
5,450
739
7,306
8
10.1
屏東縣
1,757
120
1,120
1
10.7
台東縣
2,959
314
3,185
3
9.9
花蓮縣
779
65
721
1
9.0
澎湖縣
2,626
627
4,167
7
15.0
基隆市
1,736
980
3,922
10
25.0
新竹市
4,056
1,572
8,076
17
19.5
台中市
1,286
717
5,407
6
13.3
嘉義市
3,190
1,768
8,421
19
21.0
台南市
123,175
45,394
248,767
442
18.2
合 計
資料來源：華昌宜(1999)，「土地持有課稅之研究」，表45。
平均有效
稅率
%
T/C
0.28
0.23
0.17
0.10
0.14
0.16
0.12
0.11
0.08
0.09
0.15
0.12
0.12
0.15
0.11
0.09
0.09
0.14
0.17
0.25
0.21
0.11
0.23
0.18
Taipei’s Effective Tax Rates I
District
Mean tax rate
Median tax rate
Standard deviation
Datong
Wanhua
Zhongzheng
Zhongshan
Daan
Xinyi
Songshan
Nangang
Neihu
Shilin
Beitou
Weshan
Whole Taipei
0.1142%
0.1105%
0.0930%
0.1105%
0.0911%
0.0867%
0.0924%
0.1069%
0.0836%
0.0779%
0.0828%
0.0860%
0.0912%
0.1026%
0.1074%
0.0844%
0.1040%
0.0824%
0.0789%
0.0821%
0.0895%
0.0805%
0.0726%
0.0774%
0.0804%
0.0829%
0.0444%
0.0367%
0.0471%
0.0419%
0.0382%
0.0331%
0.0412%
0.0471%
0.0246%
0.0281%
0.0280%
0.0282%
0.0364%
Taipei’s Effective Tax Rates II
Zone
Old West
New West
Central
East
North
South
Transaction Year
2002
2003
2004
2005
2006
House Type
Tall building
Low apartment
Single house
Mean tax rate
0.1118%
0.1059%
0.0901%
0.0887%
0.0802%
0.0860%
Median tax rate
0.1050%
0.0979%
0.0813%
0.0818%
0.0743%
0.0804%
Standard deviation
0.0397%
0.0439%
0.0377%
0.0324%
0.0282%
0.0282%
0.1099%
0.1140%
0.0904%
0.0828%
0.0781%
0.1003%
0.1018%
0.0818%
0.0760%
0.0712%
0.0377%
0.0446%
0.0353%
0.0302%
0.0286%
0.1099%
0.0737%
0.0661%
0.1023%
0.0702%
0.0654%
0.0389%
0.0222%
0.0217%
Equalized Tax Rate
 the equalized property tax rate can be measured
based on either of the following two ratio definitions:
the ratio of assessment value to market sale value
and the ratio of assessment value to taxable value.
公告地價佔市價百分比
年期
台北市
連江縣
高雄市
嘉義市
台南市
雲林縣
新竹市
基隆市
台北縣
新竹縣
屏東縣
嘉義縣
桃園縣
高雄縣
台南縣
彰化縣
台中市
苗栗縣
花蓮縣
台東縣
南投縣
台中縣
澎湖縣
宜蘭縣
金門縣
總計
2000
29.6
17.9
20
19
18.75
14.12
17.96
16.85
19.8
15.34
14.3
15
12.16
12.55
15.1
11.18
11.5
15.1
7.37
11.54
11.62
11.9
5.97
9
4.41
資料來源：內政部, 2007.1.10修正
57
2004
34.4
25.6
28
24
26.25
20.8
23.8
19.38
20.9
16.86
19.52
17.45
16.61
15.35
14.52
12.97
15.6
14.82
15.3
12.98
12.95
13.21
11
12
6.56
17.35
2007
34.48
30.89
29.51
26.42
24.83
24.58
24.25
23.95
21.75
20.82
20.60
20.00
18.72
18.43
17.11
16.91
16.88
16.72
15.24
14.70
14.18
13.28
10.79
10.61
8.11
19.04
Taipei’s equalized tax rate
equalization rate
Max
Min
Average
Median
Standard Deviation
Shilin
0.959163
0.072766
0.227145
0.208128
0.094281159
Datong
0.982054
0.085654
0.285919
0.261333
0.123517493
Daan
0.865928
0.078071
0.245173
0.224139
0.097422656
Zhongshan
0.945537
0.06431
0.266169
0.247347
0.104440393
Zhongcheng
0.93837
0.115859
0.268209
0.241919
0.117056327
0.640307
0.071391
0.205071
0.195097
0.061785022
0.91505
0.030581
0.225689
0.21134
0.075738607
Beitou
0.655623
0.028608
0.22725
0.209418
0.08756853
Songshan
0.587363
0.022534
0.238232
0.223447
0.080671151
Xinyi
0.809658
0.062274
0.25648
0.236767
0.103844435
Nangong
0.536957
0.108182
0.211149
0.195289
0.069300413
Wanhua
0.985836
0.017567
0.292225
0.273433
0.1138614
Neihu
Wenshan
2002
0.9858
0.0623
0.2777
0.2590
0.1039
2003
0.9592
0.0706
0.2827
0.2587
0.1087
2004
0.9821
0.0378
0.2371
0.2171
0.0912
2005
0.8878
0.0225
0.2250
0.2082
0.0838
2006
0.9455
0.0176
0.2091
0.1933
0.0785
Tall building
0.9455
0.0643
0.2198
0.2037
0.0791
Low apartment
0.9858
0.0225
0.2560
0.2360
0.1025
Single house
0.6554
0.0176
0.2875
0.2763
0.1156
Property Tax Relief Measures
 Local government uses a variety of measures to





reduce property taxes for specific classes of property
or specific types of taxpayers. These measures
include:
Limits on assessed value
Exemptions of assessed value for homesteads
state government credits or rebates for local
residential property taxes
Individual income tax deduction for property taxes
Special assessment methods for farmland
5. Property Tax Process

Rule
Tax
variable
Agent
Actual or true market
Value of property
Assessment ration rule
Exempt property
Assessor
Assessed or taxable
Value of property
Ruling elected body
Of taxing government
Actual or true market
Value of property
Referendum
(required or optional)
Property tax levy
Tax collector
Property tax revenue
Fisher (2007, 3e), Figure 13.1, p. 321.
Source: Florida Department of Revenue.
http://dor.myflorida.com/dor/property/infographic07.pdf
61
62
63
64
65
Source: Michigan Department of Treasury,
http://www.michigan.gov/documents/868f_2682_7.pdf
Fisher (2007, 3e), Figure 13.2, p. 325.
66
67
Source: The County of Isabella,
http://www.isabellacounty.org/news/hearing061907.pdf
68
69
70
71
72
73
6: Economic Issues of Property Tax System
 The Property tax system for the nation as a whole
depresses the return on capital and changes the cost
of capital to higher-tax communities and decreases
the cost of capital to low-tax communities.
Issues
 Efficiency Issue




The effects of the Property Tax on the amount, type, and
location of property.
Equity Issue
The effect of the Property Tax on the distribution of the tax
burden.
Policy Implications
 The design of the tax system
 Proposals of tax reform
The Extent of Property Tax Capitalization
The Property Tax Competition