Property Taxation

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Property taxes in the U.S. are typically imposed by state and/or local governments on the fair market value of real estate subject to various adjustments in a particular system. It is not uncommon for residential and/or farm property, for example, to receive favorable valuation for tax purposes, and some states have a "homestead exemption" that excludes part of the value of a home for at least some taxpayers from property taxes. Property owned by non-profits and governments is typically not taxed either, although governments sometimes make payments in lieu of property taxes to make up for lost revenue in areas with high percentages of exempt property.

Because property taxes typically have priority over mortgages and other liens on property, and because property taxes are typically only a small percentage of the total value of the property each year, they are comparatively easy to collect. Also, the tax is usually calculated by county government officials, and the only issue to dispute is the value of the property, which is typically done every three to ten years (with only a small percentage of property owners contesting valuation changes which are based on real estate appraisals conducted en masse based on property sale records kept at the county level) so they are quite cheap to administer. Property taxes also have the virtue of being very stable sources of revenue that don't vary much with good and bad economic times except in the extreme situation where a whole neighborhood collapses economically (e.g. after a major business closing that creates mass unemployment).

Property taxes are mildly regressive without a homestead exemption and mildly progressive with a homestead exemption. But, property tax bases (i.e. the total value of taxable property per capita) varies widely from area to area. Since property taxes are typically a large part of K-12 education funding, this means that some districts in high property tax base areas can often easily fund schools, while other districts with low property tax bases struggle to fund schools. This leads to great inequities between school districts which has lead to a number of lawsuits questioning the constitutionality of funding K-12 education primarily based upon property taxes on equal protection grounds. Lawsuits of this kind in Ohio and several other states has been succesful in the courts, although political resistance has made implementing changes by imposing other kinds of taxes difficult.

Critics of property taxes note that everyone must have a home, that economic impact of property taxes when property is rented is borne largely by renters rather than property owners, even though renters don't directly pay the tax, and that in residential communities where houses are fairly similar in value that property taxes are very similar to Poll Taxes. Critics also note that a property tax often does not reflect an ability to pay, especially when the property owners are retirees on fixed incomes.

In many areas, local governments prefer Sales Taxation to property taxation, because this more obviously shifts the tax burden partially to individuals and businesses who do not reside in the locality.

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