PROPERTY TAXES AND ZONING
Zoning cannot be fully understood without some understanding of property taxes. Property tax collections by local governments and school districts were $484 billion in 2014 and account for approximately three-fourths of all local tax collections. Given the size of that number, few significant zoning decisions are made without considering the property tax implications. Here, very briefly, is how property taxes are levied. The municipality maintains a ledger (either on paper or electronically), referred to as the property tax roll. Each property in the municipality appears on this roll. Generally speaking, the roll will have one column for "land" and another column for "improvements," the latter essentially meaning structures. In each column is recorded the assessed value of the land or structure. The value, determined by the municipality's assessor, presents his or her estimate of what the property would bring if sold in an "arm's-length" transaction.12 Some municipalities have "full value assessment." Others use "fractional assessment." Where fractional assessment is used, all properties should be assessed at the same fraction of market value.13 The municipality and other taxing jurisdictions each have a property tax rate that is applied to the assessed value of the property to determine how much tax is owed. For example, if the tax rate is $2.50 per 100 of assessed value and the property is assessed at $50,000, the tax owed is $50,000 X 2.50/100 = $1,250.
For the municipality as a whole, the equation is tax base X tax rate = tax yield. Tax base in this equation is the sum of all of the assessed values on land and improvements subject to tax.14
If a given development will bring in more in taxes than it will cost in additional municipal expenses, either (1) the same level of municipal services can be maintained for a lower tax rate, or (2) a higher level of services can be maintained at the same tax rate. If the costs of servicing the new development exceed the tax revenues that it will yield at the current tax rate, those relationships are reversed.
Although this discussion is cast in terms of a municipal tax rate, there may actually be several property taxes within a given community. For example, properties in a town located within a county and having an independent school district may be subject to a town tax, a county tax, and a school tax. In some suburban areas, where the structure and responsibilities of government are not as large as in a city and where a large percentage of all households have school-age children, the school tax constitutes the majority share of the total tax burden.
The property tax has been subject to a barrage of criticisms over the years. However, it remains in universal use. For one thing it is easy to administer and enforce. The Assessor assesses, and the Receiver of Taxes sends the bill. If the property owner fails to pay the bill, the municipality can foreclose the property and sell it at auction to recover the back taxes. It is probably the hardest tax to evade. An individual or business may be able to conceal some income, but no one has yet figured out how to hide a house or a factory.
The physical immobility of land and structures is also an important reason why local governments place major reliance on the property tax relative to other taxes. Where jurisdictions are small, the heavy use of income, sales, or business taxes can readily chase economic activity and wealthy residents out of town. Thus the property tax is the safest tax, and perhaps the only tax, upon which a local government can place very much weight.
housing, the municipality might say no to a low-income housing proposal but yes to a structurally similar development intended for small, affluent families—a form of discrimination that few if any courts would sustain were it written into the zoning ordinance.