Valuation and Implementation:

the International Experience

William McCluskey

University of Ulster

What is to be taxed? How is the tax base to be initially “weighted?” To what level should this weighted tax base be taxed? How should the tax be administered? Which level of government should determine the tax

policy, administer the tax, and receive the revenue? What implementation strategy should be followed?

What is to be included? Land only (e.g., Jamaica, Australia, New Zealand) Buildings only (e.g., Albania, Tanzania) Land & Buildings (e.g., United Kingdom, New

Zealand, Poland) What is to be exempted or given relief?

Varies considerably between countries Foreign embassies Government property, agricultural land Religious & educational institutions Highways & harbors, etc.

What is to be taxed: Valuation Basis

VALUE NON-VALUE

CV ARV AREA LOCATION

LV IMP TOTAL MV

Define a sufficiently broad value base to:Minimize economic distortionsMobilize political supportFacilitate administrationEncourage greater taxpayer equity & compliance

Should the property tax burden be allocated based on such criteria as: Property unit (i.e., each property regardless of size or

location would pay an equal proportion of the tax burden): Non-value based e.g. Arnona in Israel

Property size (i.e., each property regardless of location would pay an equal per sq. m. rate). Area based

Property value (i.e., each property would pay the tax based on their relative property value). Ad valorem

Application of differential tax rates (New Zealand)

Split rates (USA, Grenada)

Defensibility of differential rates

Fundamental administrative components: Property identification & registration Property information management Valuation Tax billing Revenue collection Enforcement Appeals/Dispute resolution

VALUATION

DISCOVERY

ASSESSMENT

BILLING

COLLECTION

The Property Tax Process

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

APPEALSStage 6

Google Maps

• “Determining what data on property characteristics to collect and maintain for a CAMA system is a crucial decision with long term consequences.”

“Collecting data that are of little importance in the assessment process should be avoided.”

• “Collecting data that are of little importance in the assessment process should be avoided.”

Valuation Data: A Question of How Much?

Land Value

SizeTopographyLocationShape

Capital Improved Value

Size of land and buildingsQualityAgeAmenities (garage, heating etc)LocationType (Det., SD, Ter, Apart)

Sources of Data!!!!!

Price/Rental Information

Location Information

Property Attribute Information

VALUATION MODEL – Automated or “Hand Crafted”

VALUATIONS

Properties requiring

research & review

Properties requiring

research & review

Locality Definition

(area from which comparables

derived)

Locality Definition

(area from which comparables

derived)

AVM Valuations & Confidences

Valuations & Confidences

Business Decision

To Data Validation for

Correction

To Data Validation for

CorrectionProperty Data

(Group, type, floor area,

age, bedrooms,

rooms, garage)

Property Data

(Group, type, floor area,

age, bedrooms,

rooms, garage)

Models

(MRA, algorithms and

variables)

Models

(MRA, algorithms and

variables)

AVM estimates requiring quick

desk adjustment

AVM estimates requiring quick

desk adjustment

AVM estimates which can be

accepted

AVM estimates which can be

accepted

Several countries have tended to maintain policy within the central government, allocate revenue to the local governments and delegate most of the administration to local governments

Must establish a revenue and administrative correspondence giving the various property tax aspects to local governments while maintaining a higher level of oversight to ensure equity

Strong central government support is CRITICAL for successful implementation of property tax reform

Two basic approachesValuation-pushed: initially focuses on the cadastre

and property valuation. Improves cadastre quality and valuations to increase revenue & equity

Collection-led: initially focuses on the collection and enforcement components. Improves collection & enforcement based on the premise that improved valuations in the absence of improved collection system will not realize short or long-term gain.

International Usage of the Property Tax by Basis

Countries that use Land Value as primary property tax - revenue

sourceAustralia (State Land Tax – Municipal Rates)

QueenslandNew South Wales

Northern Territory

Kenya

Jamaica

Fiji

New Zealand (Choice of 3 bases, ARV, CIV and LV)

Estonia

South Africa abandoned LV in 2004!

Some of the Valuation Issues: On the Plus side

Land value would require much less data

Sales could be extrapolated much further due to homogeneity

Indices are more easily applied again due to homogeneity

Easier administration as fewer recurrent inspections required

Greater equity achievable due to less volatility in land values

Acceptance by taxpayers due to only 30-40% of total value being taxed

Some of the Valuation Issues: On the Negative side

Lack of sales in high value urban areas

Narrow tax base/wealth due to improvements excluded

Explainability/understandability for taxpayers

Identifying the taxpayer and parcel

Database of sales transactions