U.S. Property Tax Law

Unlike income tax which is imposed on U.S. citizens by the federal, state and local governments, property tax is imposed by most of the local governments. However, the respective state governments can fix the tax guidelines and limits. Also, according to the property tax law, the same property can be taxed by different jurisdictions. Land, buildings as well as permanent improvements, that is, those fixtures that cannot be removed, attract property tax. Houses, farms, business buildings all constitute property that can be taxed.

Fair Market Value

This tax is calculated at a particular rate on the fair market value of the property. This value has to be determined on a periodic basis, generally annually. The rate of tax will vary with the jurisdiction as well as the type of property. The price at which an informed seller is willing to sell his property to an informed buyer is called fair market value. According to the property tax law, if such a sale has not taken place recently, then the fair market value may have to be estimated by following any of these three approaches: comparable sales, income approach or depreciated cost.

Comparable Sales Approach

This approach determines the fair market value of a property on the basis of the recent sale of a comparable property. The location, nature of the property, its size, how the property is being used, the kind of improvements made, the level of attractiveness of the property and restrictions on use are some of the factors which will decide the suitability of the property for comparison.

Cost Approach

According to the property tax law, this approach is adopted when there has been no recent sale of comparable property. Either the original or the replacement cost is taken and depreciation is deducted. Under the original cost approach, factors like inflation have to be taken into consideration. Under the replacement cost approach, current construction costs have to be estimated.

Income Approach

Under this approach, the likely income that can be got from the property is taken into consideration for determining fair market value.

Payment of Property Tax

After such value is arrived at, the last owner of the property is notified of the same. He has the right to contest this value. Once the issue is settled, the government body will dispatch the tax notice to him. In the case of failure to pay tax, the property tax law provides for remedial measures whereby the government agency can even seize the property and sell it to recover the dues.


Law Article Archive