The Origin and Function of Ad Valorem Taxes Research Paper


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The Origin and Function of Ad Valorem Taxes Research Paper

  1. 1. Hayenga 1Nathan HayengaSenior Project Research PaperMrs. Corbett11/14/2011 Appealing Property Taxes` In life, two things are said to be certain: death, and taxes. Everybody dies and everybodygives up a little bit of their hard earned wealth to the government. People have paid taxes formillennia, ever since the first organized civilizations, and the earliest and most prevalent of allthe diverse forms of taxes humanity has paid is the property tax. This is a tax paid on propertyand in the modern world is paid mainly on the value of a home. Property taxes are not bad thingsbecause taxes fund governments which provide a large number of needed services to taxpayers.Property taxes are a part of life which has been refined over thousands of years and now servesan important and specific role within modern governments. But, nobody likes to pay taxes. So ifa property is being taxed too heavily, it is possible to lower the taxes by appealing the assessedhome value of the property Property taxes have been around for thousands of years and have been evolving andchanging the entire time. “The earliest known tax records, dating from approximately sixthousand years B.C., are in the form of clay tablets found in the city-state of Lagash in modernday Iraq, just northwest of the Tigris and Euphrates Rivers” (Carlson 3). These first taxes existedclose to eight thousand years ago, and have set many precedents over taxes in the modern world.Lagash’s taxes were paid to the King in the form of one tenth of the crops grown by a farmer.Also, in these early tax systems it was interesting to note that the farmers would often pay moretaxes if the city-state was in a time of war or if the King was dealing with an emergency. This is
  2. 2. Hayenga 2interesting because it directly correlates with how millage rates on property taxes function today.These tax systems evolved over thousands of years and finally grew into the basic Americansystem that has been modified little even to this day. Typically in the American system oftaxation, “the state divided itself into counties, which were given many responsibilities foradministering state laws. Citizens were free to organize municipalities, school districts, andmany kinds of special districts to perform additional functions” (Whaples). In the Americansystem, every county in each state has its own way of administering and deducting a propertytax, and has since the Revolutionary War. The effect of initially differing property tax systems inthe beginning of the United States has been the evolution of a variety of methods for computingproperty taxes all having very similar rates nationwide. The United States has a property taxsystem which has been in use since the birth of America. Taxes are also very important throughout the course of history. Julius Caesar once said,“My friend, taxes are the chief business of a conqueror of the world” (Carlson 4). By theadmission of Rome’s greatest emperor that taxes are what allowed the Empire to become thepower that it was. It is also evident in history books that during times of wise taxation the RomanEmpire was at its strongest, and the introduction of lax taxation policies marked the beginning ofRome’s fall from power. Taxes also helped the United States to become independent. “When theRevolutionary War began, the colonies had well-developed tax systems that made a war againstthe world’s leading military power thinkable” (Whaples 1). It was the colonies’ ability toorganize and pay for the weapons, tools, and supplies that go into the functioning of an army thatallowed a group of farmers to defeat the strongest military of the age. While no one can say theyenjoy paying taxes, it is undeniable that taxes have an impact on the world.
  3. 3. Hayenga 3 In the modern world taxes are still present and serve many important functions, even ifthe processes grown far more complicated than the forms of taxation used in the past.“Ad Valorem tax, more commonly known as property tax, is a large source of revenue for localgovernments in Georgia. The basis for ad valorem taxation is the fair market value of theproperty which is established as of January 1st of each year. The tax is levied on the assessedvalue of the property which, by law, is established at 40% of fair market value. The amount oftax is determined by the tax rate levied by the various entities (one mill is equal to $1.00 for each$1,000 of assessed value)” (Fields 2).While this description is applicable to Cherokee County, Georgia, alone, it is apparent that thesystems of property taxation have grown more challenging. Every county in every state has adifferent method for taxing private property. The most common way of measuring property taxis, however, pretty consistently known as a millage rate. In Cherokee County the millage rate is$29.235. Millage rates are also fairly consistent, with most United States governing bodies onlyable to change them in four ways.“1. if the voters approve a millage increase, 2. if the legislature approves the creation of a specialdistrict and grants authority to levy a millage, 3. if the Board of Liquidation/City Debt adjusts themillage rate to collect the amount required to service its general obligation bonds; When newbonds are issued, this millage rate increases, and as older bonds mature, this millage ratedecreases., and 4. re-assessment” (Matheu).Millage rates are fairly challenging to change and only change under certain conditions. Forexample, they will change if the assessed values of houses depreciate enough that the propertytaxes are not providing enough funds for the services they render. Situations like this will forcethe millage rate to increase. It is interesting to note that even though millage rates will go up ifthey cannot pay for the services provided by the government, they hardly ever come down ifthere is a surplus of funds being collected. Property taxes fund a number of programs which modern societies deem necessary. InCherokee County, Georgia the millage rate is $29.235 per every $1000 dollars of assessed value.
  4. 4. Hayenga 4Out of the total millage rate, $19.45 goes directly to the funding of public schools while $3.129goes to the fire department (Cherokee County Tax Commissioners Office). Property taxes almostexclusively provide the funds necessary to run these services, both of which most peoplegenerally regard as important to any society. Most of the services provided for by property taxesdo not become cheaper or easier to provide when home values are down, so in these types ofsituations the millage rates will go up to continue to fund the services. An example of the rise inmillage rates is seen between the years 2010 and 2011. During these years, the housing marketcrashed and home values dropped. Also during these years, the millage rate rose from $28.398 to$29.235, an increase of $.837 for every $1000 dollars of valued taxable property (CherokeeCounty Tax Commissioners Office). Taxes are an unpopular part of life but property taxesactually help make life better by funding services like fire departments, schools, and parks. There is a way to lower the property taxes set by the government. It is called appealingproperty taxes and is a process attempting to lower the assessed value of a house in the eyes ofthe government. “The National Taxpayers Union, a Washington, D.C., advocacy group whosegoal is to lower taxes, estimates that as much as 60 percent of taxable property in the UnitedStates is over-assessed” (McCune). Due to the outdated systems and processes, the governmenttends to charge homeowners more in property taxes than the market value warrants. It is for thisreason that we attempt to lower the assessed value of a home. The first thing to do is to assess thevalue of your home. Several factors that should be compared with other local homes are,“number of bathrooms and bedrooms, square footage, year of construction, heating source, air-conditioning and updated electric” (Rubenstein). By comparing these factors against otherhouses in the area near the property in question, it is possible to gauge a fairly accurate value ofthe house. In order to lower the assessed value of a property, an official appeal must be filed with
  5. 5. Hayenga 5the local County Board of Equalization (Georgia Department of Revenue). This appeal is basedon the value of the home, its uniformity, its taxability and the exemptions claimed by thehomeowner filing the appeal. These appeals are examined by a board of assessors and, moreoften than not, succeed in lowering the assessed value of the house reducing the property taxesfor years after the appeal was filed. Unfortunately, no process is perfect, and property taxes in America are often flawed orincorrect. As previously stated, sometimes property values go down. A problem that can arise isthe assessed value of a home not going down with the fair market value. With this decrease inhome values, the government will increase the millage rate and the property taxes paid will endup rising uncontrollably. With a higher millage rate, a too-high assessed home value becomeseven more painful to a homeowner (Quintilian). Recently, home values fell with a fallingeconomy. So not only did millage rates go up, but the income of the homeowners went down.The only saving grace in this situation is that the house values will also go down. If the assessedvalue does not decline then the situation becomes unbearable with higher taxes on an inaccurateestimation of value. Another issue with the property tax system is it punishes based onimprovements to a property. A well done home renovation can increase a property’s assessedvalue which in turn raises the taxes expected to be paid on it. Well done renovations cansignificantly increase the property taxes to be paid each year (Gibbs). A problem many peopleface when they perform a home renovation is a lack of foresight considering the increase in taxesthat comes with many renovations. Thankfully, the government is not perfect and many areasonly require government property assessments every couple of years. This means it is possible toincrease the value of a home while paying the same property taxes as before. This shows,however, it is sometimes better to stick with the assessment that a house has rather than appeal to
  6. 6. Hayenga 6get it lowered, because it is possible for the assessed value to rise. The property tax system, whileflawed, provides an opportunity to correct errors and injustices through an appeal process. Taxes are a part of life and an inescapable fact. However, taxes are not entirely badbecause they fund services the government would not otherwise be able to provide. With theright skills and diligence it is possible to ensure that all properties are taxed fairly. It is theresponsibility of each tax payer to use the appeals process to be certain their property isappropriately taxed.
  7. 7. Hayenga 7 Works CitedCarlson, Richard Henry. “A Brief History of Property Tax.” Fair & Equitable (Feb. 2005): 3-10. PDF file.Cherokee County. Tax Commissioner. A GUIDE TO HOW PROPERTY IS ASSESSED, HOW TAXES ARE DETERMINEDAND CURRENT EXEMPTIONS. By David Fields. Microsoft Word file.- - -. Tax Commissioner’s Office. Millage Rates. Cherokee County, n.d. Web. 13 Nov. 2011. < department.cfm?displaySection=Millage%20Rates.txt&departmentid=31>.Gibbs, Lisa. “Remodeling’s Hidden Cost: Higher Taxes.” EBSCO Host. Galileo, Dec. 2003. Web. 14 Nov. 2011. < detail?vid=3&hid=10&sid=730a41d4-1ec0-4ab3-9cda- a9e9a194d473%40sessionmgr11&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=a9 h&AN=11491735>.“How To Appeal a Property Tax Assessment.” Georgia Department of Revenue. Georgia Department of Revenue, n.d. Web. 13 Nov. 2011. < taxguide/appeals.aspx>.Matheu, Joaquin, JR. “FAQ’s about Assessments.” Tangipahoa Parrish Assessor. Tangipahoa Parish Assessor, n.d. Web. 13 Nov. 2011. < assessments.html>.
  8. 8. Hayenga 8McCune, Jenny C. “Protesting your Property Assessment.” Editorial. N.p., 25 Mar. 2008. Web. 17 Oct. 2011. < 20030806a1.asp>.Quintilian, Patricia. “Talking Down Your House.” EBSCO Host. Galileo, n.d. Web. 14 Nov. 2011. < 9cda- a9e9a194d473%40sessionmgr11&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=a9 h&AN=61214195>.Rubenstein, Micah. “Assessing Property Values.” Editorial. SF Gate. San Francisco Chronicle, n.d. Web. 13 Nov. 2011. < 7928.html>.Whaples, Robert, ed. “History of Property Taxes in the United States.” Economic History Association, 1 Feb. 2010. Web. 13 Nov. 2011. < article/>.