Property taxes represent the main source of income for local governments to finance the services they provide. These taxes, as well as similar financial tools (user fees, development charges, etc) also play a key role in shaping of urban metropolitan areas. Ideally, property taxes should support the desired urban planninggoals. But, in practice some of the taxation schemes used in many North American cities actually work against certain urban redevelopment goals.
Urban Structure & Taxation
Currently, cities in the US are suffering from the negative effects of sprawl. Moreover, mitigating the negative effects of sprawl has become a key issue in urban planning. This is partly because of its environmental andsocial impact. However, the urgent need to address sprawl is due its inefficient use of resources (land, money, time, etc).
Research from the past decades shows how the cost of providing services increases relative to location and density. In turn, this means that the proportional cost per inhabitant will be higher in a sprawled city than in a compact one. Since this cost is financed mainlythrough property taxes, the inhabitants of a highly sprawled urban area will pay more for services than those of a compact model city.
Furthermore, urban sprawl exists because of the taxation schemes adopted throughout the US. These schemes have provided incentives for low-density developments located far from the urban core. Specifically, there is an incentive for real estate developers to build onthe fringe of a city. For example, residents who live in the outlying areas of a city are paying less for the services received than the benefit received from these services. In turn, this means that residents of central areas are subsidizing the residents of outlying areas. As a result of this benefit-cost differential, values of land in the outskirts of the city rise making it more attractivefor developers to build houses far in the suburbs thus increasing sprawl.
In addition, property taxes have a significant impact on the location that companies choose within an urban area. In the United States research shows that differentials in property taxes across municipalities are a major factor driving business location. Furthermore, the location of business activity will have a directimpact in the urban structure of a city. Not only will the business itself locate in a certain area but also commercial and residential settlement will follow.
In conclusion, the different property tax models adopted by local governments play an essential role in shaping the urban landscape of a city. Therefore, different types of property taxation have been created and implemented across the US inorder to shape urban areas in such way that a more efficient use of resources is achieved. The following are examples of property taxes that have been adopted in various US jurisdictions.
Site- Value Taxation
In the United Sates each state, at the municipal or country level, levies property taxes on real estate. Site-value taxation is an ad valorem tax assessed on the value of the land.However, this does not include buildings, improvements, or personal property. Currently, some of the western states tax land at a higher percentage of market value compared to improvements. This means that a relatively high level of taxation is assessed to the improvements on the property. In turn, this high level of taxation discourages the intensive use of the building. Therefore, the site-value taxis based on the cash flow (rents) of the building.
Site-value taxation is levied on land in many different forms. First, it can be an annual tax. Second, it can take the form of a levy payable on the sale of the land. Third, it can concern the zoning of land for development. Last, it can concern the decision of planning permission. The tax is paid to a local authority, a parish/city council, or...