CHAPTER 1 What Is “Property Tax?”
A property tax is a tax levied by local or municipal governments on real estate. In legalese, a property tax is an ad valorem tax, which means it’s a tax based on the market value of a property or transaction. For example, a sales tax is an ad valorem tax, as it’s based on the value of the car you just bought, or the new couch, or a gallon of gasoline, and so on. A property tax is also an ad valorem tax, but differs from a sales tax collected once at the time of sale in that it is collected on the value of the property each year. That is the topic of this book— problems that homeowners run into regarding the advalorem tax known as your “real property tax.” There are four broad types of property taxes: 1) tax on land; 2) tax on improvements to land (e.g., man-made structures, such as buildings); 3) tax on personal property (movable man-made objects, such as an annual personal property tax on the value of your automobile, as in Kentucky); 4) and intangible property tax. Real property, also called real estate or realty, is the combination of land and improvements and is the property tax with which we are concerned here. A property tax is differentiated from a “rent tax,” which is a tax based on rental income or imputed rent (what the property should be earning in rental income), and a land value tax, which is a tax levied on land value, excluding buildings and other improvements. A homeowner’s property tax is generally calculated based on the 1
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