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What is Property Tax?
Property tax refers to a tax levied on real estate property by the local government authority where the property is domicile. It is an ad-valorem tax that a property owner pays to the local government, this tax is assessed based on the value of the property. Primarily, property tax is imposed on lands and buildings regardless of the structure and type of the building. The federal government, state government or county authority can levy a property tax on properties, the tax or revenue generated from properties is used to fund social projects in the community.
How Does Property Tax Work?
Usually, the government authority within the jurisdiction where a property is located collects property tax on it, this means either the regional (local), state of federal government can impose property tax. Property taxes make up a part of government revenue, though this varies from country to country. OECD countries for instance have property tax as a low portion of government revenue as against value-added taxes (VAT) and income taxes that make up a high portion of government revenue. Property tax rate also differ from country to country. In the United States for instance, property tax is higher compared to other states. Revenue generated from property taxes are used to fund public services such as education, road and highway construction, fire service, water supply, and others.
Determination and Use of Property Tax
The local authority calculates property tax based on the value of the property to be taxed. To calculate property tax for a property, the property tax rate is multiplied by the market value of the property (whether it is a land or building). Property tax rate differ from one region to another as the tax rate is determined by municipal governments. Payment schedule for property taxes is also determined by the local authority whenever the property is located. All property owners are expected to pay property tax for the property they own to avoid penalties.