Taxing properties

 

[house*]

As the old joke goes, the only certainties are death and taxes. Regarding the first, none of us, as far as I know, have any personal experience to speak of but most adults are quite familiar with the second. For example, property owners and sometimes renters have to pay a property tax to their local authority to finance its services. This tax exists almost worldwide but how this tax is calculated varies from country to country. In theory the tax is the product of the base amount and the tax rate. Each country defines the first variable differently and has distinct mechanisms for setting the second as I will show in by comparing the property tax calculation methods in the United States, France and Israel.

In the United States, the base amount is highly variable while the rate is relatively stable. The local authority, usually the city, establishes the rate by vote with the increase in any given year limited by state law, thus protecting the taxpayer from sudden jumps. The city can apply discounts and exemptions for certain areas, building types and income levels at its discretion, On the other hand, the value of a property is based on its current assessed value, i.e., if former neighbors made a killing in selling their houses during a given year, everybody still living in the neighborhood must pay higher taxes as the value has risen according to the latest assessment. The constant increase in property value in California forced people to sell their houses because they could no longer afford the property taxes even if they had paid a modest price for it several decades previously. As a reaction to that, California voters in 1978 passed Proposition 13, which rolled back property taxes, which predictably significantly reduced local services. Thus, US property taxes vary greatly from place to place primarily due to property values.

By contrast, the French taxe fonciére is based on the rental value multiplied by a value local authority. The base amount is 50% of the annual rental value, an amount changing on a yearly basis. The tax rate increase is set by the government but a city can vote a supplementary amount as Paris did this year, raising the tax to 50%, yes fifty percent. Thus, not only do French landowners have to keep on eye on rental values but they also must watch their local councils.

Israel has the arnona, which, typically in Israel, is named after a special tax from centuries ago. The base value for this property tax is the size of the property with the  tax rate set by square meter. One would think that the base amount would remain constant but the local authorities have a nasty tendency to periodically remeasure houses and flats and discover previously unknown meters, such as outside walls and covered garages, thus adding sometimes 10% to the previous measurement. The local authority set the rate with the government determining the minimum and maximum amount. As usual, there is a catch in that a local authority may make an application to the Interior Minister for an exception to these limits. As elsewhere, the local authority can apply this rate uniformly or create partial or complete exemptions, an important matter in a country with a large number of religious institutions of various kinds. Israel property tax bills are relatively stable aside from those re-assessments.

It is almost certain that, if you are a property owner, you complain about property tax bills regardless of which country you live. To be fair, most people are not happy about the level of local services either but that is human, right? Curiously, each country has chosen its particular manner of calculating its pound (or dollar, shekel or euro) of flesh. Is one fairer than the other? That issue taxes my understanding of property.

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