There are many unique characteristics attached to real estate or ad valorem law which greatly affect the value of land and the subsequent tax levied. The general characteristics for an individual's annual ad valorem tax can be split into two basic groups:economic characteristics and physical characteristics.
Each variable within these two groups will shift the assessed value of land and the amount of tax levied on a property owner. Real Estate, like most products have a value attached that fluctuates greatly based on physical and economic factors. The value of land is calculated based on a detailed formula; the assessment calculation will encompass such variables or characteristics on a piece of land or property.
The economic and physical characteristics that influence the assessment value of land and the subsequent ad valorem tax levied are scarcity, improvements made to the land, area preference, and permanence. Like all products, the value of a good will shift depending on its availability. The economic factors that go into the ad valorem tax are all dramatically connected.
The supply of land, like all things has a ceiling; more land cannot be magically produced or manufactured. The scarcity of land varies greatly based on geographic region or neighborhood. Less densely populated states will offer a prospective buyer more land than congested urban areas or states. The more densely populated a state is the more scarce the land becomes, thus making it more valuable and prone to higher ad valorem taxes.
The term scarcity as it pertains to the ad valorem tax can also be synonymous with demand. Pieces of property in desired neighborhoods will often times have a high demand. The perpetual demand is a result of factors like good schooling, wealthy area low crime etc. When the demand is constantly high, the supply of property is generally scarce. The high demand mixed in with a limited supply will generate higher ad valorem taxes; the same is also true when the variables are flipped, a low demand in a less densely populated market will yield lower ad valorem taxes.
Directly attached to scarcity is improvements or renovation made on the land. Dilapidated or run down areas are less likely to have renovated property than those areas which are highly sought after. Improvements made on one house of a neighborhood will not only effect the value of the refurbished home in question, but also of the surrounding homes, and the community as a whole. Renovations will increase a property's assessed value which will consequently increase the ad valorem tax.
That being said, improvements made to one's property are beneficial; they offer a landowner a substantial tax exemption, which in essence should more than offset the increased rate of taxes. Improvements also pertain to businesses entering a neighborhood-if a large corporation builds an office in a community the value of the neighborhood and the ad valorem tax will increase due to an influx of jobs or increased attraction.
Similar to renovations or appearance, permanence is also an economic characteristic that effects the ad valorem tax. The infrastructure of a building or piece of land is reviewed thoroughly during the assessment process. Homes or land in areas with limited utilities such as sewers, drainage, water, and electricity will be greatly devalued and decreasingly taxed. Areas that do offer these utilities, and are built from good materials will have a higher value and thus an increased ad valorem tax.
These above economic factors are all appropriately tied into area preference. The common cliche attached to real estate is "location, location, location." The value of a home will fluctuate greatly based on the location of the land, and how strongly it is desired. If you need legal advice and assistance, contact real estate lawyers.
tax system in America is organized extensively between jurisdiction. This
individuality allows each community to appropriately implement a cap on real
property taxes based on necessity. For instance, if a localities real property
taxes are soaring as a result of rising property values, a community has the
freedom to institute a specific tax cap based on individual need. Due to the
increased real property taxes in the aforementioned situation, citizens of
the particular community may experience a significant financial strain.
Individuals who pay property tax without a cap are susceptible to drastic rate
increases. These increases are not minor considering real property taxes are
the main source of revenue for a local government. The rate at which
individuals pay property tax is based on the assessment value of the land, the
jurisdiction’s budget, and economic factors which fluctuate the previous
variables. The tax system in the United States extends freedom to towns,
counties, and states to implement appropriate caps on real property taxes.
Land owners who are forced to pay property tax do so in congruence to the local
communities budget. Local governments must levy real property taxes to provide
a community with necessary public goods such as:public education, law
enforcement agencies, parks, and infrastructure construction. The revenue obtained
through the issuing of real property taxes pays for such goods. The locality’s
budget is vulnerable to market shifts. A budget deficit will occur, if an
economic disaster hit a community, whether it be in the form of numerous
foreclosures, high unemployment rates, or a macro-economic recession. Costs
associated with public services are constant-schools, parks, roads, and law
enforcement agencies need to be maintained properly. When a community is forced
to operate under budget they have one of two options to balance the
deficit:they can cut out specific public services i.e. eliminate school
programs, or they can raise real property taxes. The issue is a double-edged
sword; when the latter is chosen, the individuals within the community lose
disposable income necessary for driving the consumer market. Real property
taxes can also raise proportionately to rising property or assessment values.
When demand for a community’s land increases or becomes more desirable the
local government is able to drive up real property taxes. Without the
implementation of a tax cap landowners will suffer from increased rates.
Given the circumstances, the implementation of a property tax cap can be
essential for struggling corporations or small businesses. Mounting real
property taxes also puts a strain on businesses. When a corporation is
experiencing mounting costs they invariably attempt to curb the effect by
limiting production or firing employees. The effects of these cost-cutting
procedures can be crippling to a community. To stabilize employment rates and
production a community can implement a real property tax cap.
The freedom that communities possess in regards to the levying of real property
taxes is necessary to balance the relationship between the rate and the
landowner. Local government’s have varying needs; the implementation of a real
property tax cap may be necessary for one community while superfluous for
another. If landowners are pinched by rising rates, if their disposable incomes
fall to unsustainable levels, a community will implement a real property tax
cap. The tax cap will ensure those landowners who pay property tax that their
rates will not increase based on inflation, wages, or a fixed percentage. The
effects of a tax cap will not be immediately tangible, however over the long
run, the institution of a property tax cap will positively affect income,
investment in the state, employment, consumption, and production.