Reducing Property Taxes – Part I

This is the first in a series I promised to write about reducing property taxes.  Dozens of my clients over the years have asked me to do this.  They knew of my long term interest and involvement in property tax abatement.  Many are aware that it started with my experience with miscalculated property taxes in the late 1980′s.

After years of ‘Why don’t you…” and “You know so much, you should…” I ended up writing a “How to” guide about reducing property taxes.  You can read more about it at my site.  It’s been well received, but people are always suggesting new ideas or asking specific questions regarding their particular experiences.  Therefore – a blog!

This first entry is: Why Do We Pay Property Taxes Anyway?

There are two parts to this question.  First, How did the property tax system evolve?, and second, What are they used for?  This article answers both.

Property taxes have been around for a long, long time.  They were probably established when mankind evolved from hunters & gatherers to community dwellers.  Our modern form of property taxes are based upon the obligations English Royalty imposed upon its subjects to fund its royal lifestyle.  Initially the tax was based upon a subject’s ability to pay.  Eventually the British Monarchy and  European entities evolved a system of what were referred to as ‘rates’ on the value of a subject’s property, both real (land) and personal property.

In colonial times a number of forms of taxation were employed.  In addition to property taxes, there were taxes on people (poll) taxes, taxes on a person’s ability to work or produce goods (faculty taxes), import & export taxes and taxes on certain goods (excise taxes).   But none seemed to make everyone happy – they did not seem to be very fair or uniform.  Remember the Boston Tea Party?

Is was not too long after the revolutionary war that the colonial states all came to agree that taxing real property seemed to fit the bill.  Real property ownership tied us to a location and represented our interest in the future success and development of the community.  Why not tax a person’s land?

Our modern US system of property taxes came about as questions were raised among the states as to how taxes could be raised from the populace in an equal and uniform way.  This went on for many years. A lot of systems were proposed and implemented, but the goal of equality and uniformity took time to percolate through the country.    Fortunately, by 1900, most states had established some form of uniformity clauses in their constitutions to ensure that property taxes were based upon value (ad valorem), and that taxes were applied uniformly throughout each state.  Today, 43 of 50 states charge personal income taxes, but ALL states have a property tax.

What do your property taxes pay for?  Municipal entities, such as city governments, public hospitals, school districts, must have funds to operate.  In fact cities use property taxes to fund their operations more than any other taxing format.  Some examples:

• Public Schools are built and maintained using your property taxes.
• Teachers salaries are tax dollar supported.
• Local road building is done with property taxes.
• Police and firefighters depend on your tax payments for both their livelihoods and the construction and maintenance of the facilities they use.
• Sewer systems and fresh water systems are built and maintained with property taxes.
• Public health services rely on them.

These are just a few of the main users of your property tax dollars.  Almost every local and state office, facility or program is supported in part by property tax dollars.

Every municipality is different.  Different public entities take cuts of the tax funds raised.   In north Texas where I live we pay what seems to be a disproportionately large part of our property taxes to support a public hospital system.   In some areas the bulk of the tax assessment is for schools.  In some areas it’s for capital and road improvements.

All in all, property taxes are (in comparison to federal income taxes and state sales taxes) probably the best and most direct use of your tax dollars.  They are a pretty good investment, and as long as you only paying your fair share – a good deal.

My next property tax article will cover how the taxes on your home are assessed.  From what people say when I’ve told this story in the past, I suspect you are going to be surprised.