Some taxes are based on a proportion of the value of the property being taxes. These are known as “ad valorem” taxes. To arrive at an accurate amount of tax, an appraisal of the taxable subject matter’s value needs to be done periodically. When the property owner’s property value changes, so does their assessed or appraised value. Most property taxes are this ad valorem variety. Ad valorem property taxes are based on ownership of the property. Property owners must pay these taxes whether they actually use the property or not or whether it generates income for them or not.
There are many types of property subject to property tax although the tax is most commonly based on the value of real property (land). Municipal governments use property taxes to collect revenue probably more than any other taxing authority. Municipalities gain their authority to levy property taxes from state law. Property taxes are used to help finance local government services. These include public schools, fire and police protection, roads, parks, streets, sewer and/or water treatment systems, garbage removal, public libraries, and many other local services.
Taxing land and buildings is one of the oldest forms of taxation in the United States. Before income and sales taxes, local governments used property-based taxes to finance most of their activities. Property taxes remain a major source of revenue for local governments. Most local governments collect taxes on both real and personal property, but they have been moving away from taxing intangible property such as bank accounts and corporate stocks and bonds.
Both state and local government agencies are authorized to levy taxes, but the way they conduct assessments, collection, and compliance can differ widely. In some states, a single state agency has primary responsibility for obtaining all appraisals, making assessments, and collecting taxes. In most states, certain agencies assess some or all railroads and utilities properties.
Generally, responsibility for the three phases of property tax—levy, appraisal, and collection—rests almost exclusively on the taxing authorities within local governments. A taxing authority like a county, city, town, hospital, refuse collection, school, or other special district, is a legal entity of the government with elected or appointed officers who serve a distinct geographic area.