How Land Value Taxation Works
The property tax is actually two separate and distinct taxes with very different impacts.
The first tax is a tax on buildings and improvements. Most economists and most people would agree that a tax on buildings has a corroding effect on our urban areas. For example, it is considered good policy to exempt or abate a new building or big economic development project. Why not, then, exempt all buildings from some or all of the property tax?
The second tax is a tax on land. At present land is woefully under-taxed which leads to speculation, private land banking and suburban sprawl. Land can be highly taxed and the supply remains fixed. Since government and community effort create land value, it is the right and duty of government to collect that which it creates.
Our research demonstrates that the program works where it has been tried and has led to increased development and - more importantly - private re-development where it is appropriate. Below is a demonstration of the impact of a land tax on a typical Rochester, New York property: 71 Lemoyn Ave.
Currently, the city of Rochester charges a tax rate equivalent to $4.079 per $100 of total assessed value (assessed land and improvement values are combined). That means this well-maintained property pays $3,100 a year in taxes.
If Rochester enacted a land value tax, a 20% cut in the building portion of the property tax rate would result in a $166 annual reduction in taxes. Here how it works:
| Building Value | Land Value | Total Value |
|---|---|---|
| $68,600 | $7,400 | $76,000 |
| Tax Paid @ $4.079 | Tax Paid @ $4.079 | Total Tax |
| $2,798 | $302 | $3,100 |
| Tax Paid @ $3.2632 | Tax Paid @ $9.3948 | Total |
| $2,239 | $695 | $2,934 |
The tax savings could then be used for renovations or other improvements. We think owners of properties like 71 Lemoyn Av should not be taxed as heavily for the work they put into maintaining and improving their properties.
