Real Estate - Taxes And Assessments
( Originally Published 1911 )
Definition of taxes.—Taxes are an enforced and regular proportional contribution to the support of government. The first characteristic of this lien is that it is an enforced lien. It does not depend upon the will of the owner of the property affected by it, but is enforced against him by public authority.
One of the incidents of the ownership of all property is that it or its owner must contribute to the expenses of conducting civilized government, and in all civilized governments the money to meet these expenses is collected by tax upon property, in one form or another. The head tax is not a civilized method of collecting money.
The tax on real property differs from an assessment in that it is a regular contribution. It comes at fixed times, whenever the treasury of the government requires,, replenishing for the purpose of carrying on the continuous function of government.
Taxes a general lien.—The lien of taxes is a general lien. It is a contribution to the support of government for no special purpose, but, while it may be levied to meet a budget which may contain many items, it is for the general budget. Persons are not taxed so much for a city's paving and so much for salaries, but, after the budget has been ascertained, the tax is spread out over and apportioned in accordance with the value of the property upon which it is laid, the proportion being according to the needs of the government in general.
Taxes are laid both upon real and personal property The taxation upon real property is direct taxation because it is laid not upon transactions nor upon transfers, nor upon acts of persons, but it is excised directly out of and taken from the subject of taxation. Taxes may be of various sorts while still remaining regular contributions to the support of government.
Various state and county levies Taxation may consist of a single annual levy for all purposes, such as the levy in New York City, which covers the budget for all governmental purposes of the state and city. Or taxation may be such as it is known in the districts which are outside of incorporated cities where there may be levies in the order of their importance :
(a) STATE TAX. This is a contribution for the sup-port of the state government and is apportioned among the counties each year.
(b) COUNTY TAX. In addition to the state tax, the counties raise a sum which is necessary for the conduct of those functions which are committed to counties, i. e., the maintenance of roads, the support of the poor, the repair of bridges, the keeping of hospitals and local corrective institutions and all functions of local government. This is known as the county tax.
(c) TOWN AND COUNTY TAX. The subdivisions of counties have smaller functions given to them under the direction of the county supervisor, for which taxes are levied.
(d) SCHOOL TAX. In localities outside of incorporated cities a separate annual tax may be voted each year by the voters of the school district for the support of common schools. This tax is known as the school tax, and is voted by the tax-paying residents of the school district, often without regard to sex. Women frequently attend the school meetings and participate in the deliberations.
(e) HIGHWAY TAX. A tax is laid by the local high-way commissioner, known as the highway tax, specific-ally for the general support of the highways—not for their improvement, but for their up-keep and repair.
(f) CITY OR VILLAGE TAX. This is another recurrent tax. In some localities there may be a city or village within a county and then there will be an annual city or village tax for the conduct of the functions of government which are committed to the city or village government.
There may be all of the above subdivisions of general taxation, or, the tax for all or some of these objects may be put together in one levy; but-in either case they will be found to be regularly enforced, and recurrent at specific periods, usually the same time of each year.
Budget.—The budget is the general way to group the objects for which taxation is laid; it is ascertained either by appropriations and estimates which are made in advance of the time when the money is to be spent, and cover the total amount of the allowance for expenses for the following year, or the amount to be raised may be ascertained after it has been incurred, and the tax levy be made to cover specific obligations.
It is almost the invariable rule in American cities, especially with respect to local taxation, that although the money is appropriated in advance, the locality lives upon credit for the greater part of a year and then, having spent the money, raises it by taxation, thus waste-fully paying interest which should be saved to the taxpayers.
Assessed value. --Having ascertained the object of taxation, the next procedure is assessment and apportionment. The process of assessment consists in ascertaining the taxable value of the property within the jurisdiction subject to taxation. The value fixed as the basis of assessment is not the actual market value of the property, but is supposed to be the value which it will bring at a forced sale. The market value of property is the price it will bring upon a free negotiation between two persons who are willing to do business, but neither of whom is compelled by necessity to buy or sell. The price at forced sale is necessarily less than that because it is the price which property will bring when the owner must sell.
The fact that property is. supposed to be assessed at the price which it will bring at forced sale has resulted in an entirely false standard of assessment in most localities, and the property is not assessed even fairly at that price, but at -what is known as its "taxable value," an arbitrary portion of its market price. As the tax is to be apportioned equally in accordance with assessment, it does not make a very great difference, if the proportion between the assessed value and the actual value be maintained equally and honestly throughout the tax district ; but the evil which has crept into our tax system by reason of the false assessed valuation is that it gives room for favoritism between the assessed value and the actual value, or value at forced sale.
People are coming round to the belief now that it is futile to establish any false basis of assessment, and the most conservative American cities are trying to get the assessed values upon the basis of actual values.
Determining of tax rate.—The books of the assessors are open for inspection for a stated period, and if there be objections to the amount of assessment, notice of such objections must be filed before the books close. When the books close the tax commissioners consider such objections as may have been made, and finally determine the assessed value of all property subject to taxation. Having ascertained this value, and deducted from the budget the income of the locality from sources other than taxation, the tax rate is obtained by dividing the amount of money to be raised by the total assessed value of the property to be taxed.
The levying of a tax is a legislative act. It is not done arbitrarily by executive officers, but is ascertained under the supervision of the legislative elective officers of the locality and levied by and with their authority, except in the case of the school tax, which is levied by direct vote of the tax payers of the locality.
Reduction of assessment on land.—If the owner of property considers that it has been over-assessed, he should analyze the assessment and determine whether the land or the building value is too high.
If the land value be too high, he must then consider if there has been an error in assigning to that particular spot too large an assessment; the unit may be a fair unit, but a mistake may have been made. In that case the owner can fairly ask to have the assessment reduced. But generally he will have to face the proposition that in his judgment, the unit adopted for the whole street is too high, and must be changed. In order to support a contention of that sort, the owner must have sales of land, mortgages, rentals and other evidences of value to support his contention. Commissioners will not often change an assessment in the middle of a block without changing the entire street unit.
Reduction of assessment on buildings.—If the owner of property claim that the assessment on the Building is too high, he has a much better chance of getting a reduction than if he claim the land assessment is too high, because, the deputies must take the unit for the entire block and stand by that unit in assessing land ; but reducing the assessment on a building does not affect the assessed value of all the other property in the block.
If an owner can give illustrations of buildings of the same general style as his own and make comparisons with other buildings, proving that his assessment is higher than others, he may win his case.
If the result of an application for reduction of assessment is not satisfactory certiorari proceedings may be commenced, but this must be done before a stated time.
Certiorari.—A certiorari proceeding is merely a proceeding by which a public official can be called upon by a court to certify to it the record upon which he has proceeded in doing an administrative act, so that the court may determine whether the official proceeded in accordance with the principles of law by which he is bound. The court has no right in a certiorari proceeding to arrogate to itself the discretion of an administrative official. It can criticise and give directions that the thing be done in accordance with law, but the court cannot do more than that. Every person under a free government has a right to have an inquiry made, if he feels aggrieved by the doings of any administrative official, to ascertain whether that official has proceeded in accordance with the formalities and principles which have been adopted as safeguards and guides to govern his acts.
When taxes become a lien.—The general rule of law is that as between buyer and seller, the tax is a charge and must be borne by the seller as soon as it is definitely fixed, even if it be not collectible until a future time. By special law in the City of New York, taxes are a lien and charge from the time when they become collectible, and not previously.
Payment of taxes.—In order to induce prompt payment of taxes, it is usual to allow a discount off the face of the tax, and to charge interest or penalties for failure to pay promptly. The method of enforcing the payment of taxes finally is by selling the property upon which the tax is laid, or an interest therein. The procedure is regulated by statute. If it be followed, the purchaser gets the right of possession. Generally the sale is not of the entire fee, but of a leasehold interest. Announcement is made of the amount which is necessary to be paid in order to raise the tax, with all penalties and expenses of advertising, and bidders are asked the least number of years for which they will take the property in consideration of advancing the amount required. The bidder who offers the least number of years is the successful one, and to him the property is knocked down.
The term is supposed to begin on the day of sale, but the bidder does not get immediate possession. Having advanced the amount of the tax with penalties and expenses, he receives not a tax lease, but a certificate which states that if the property be not redeemed within the time prescribed by law, that then he will be entitled to a tax lease.
Having received that certificate, it is the duty of the bidder to give notice to the occupants of the property and to the true owner (ascertaining that owner at his peril) of the fact that the property has been sold at auction, that he is the successful bidder, and that it must be redeemed within a time fixed by law. At the end of that time, if there has been no redemption—and redemption must be by paying the amount advanced together with an exorbitant rate of interest—then, if all the proceedings have been regular, the purchaser will be-come entitled to possession of the property for the balance of the term which he has bid.
All procedure from the first step toward assessment up to and including the giving of notice of redemption must be carefully followed before a tax sale can be held valid. There are very few tax sales which will stand critical examination.
Interests affected by tax lien. The tax lien when laid upon property affects the interest of every-body. If a tax be levied upon property, it affects every interest which there may be in the property. The tax lien is a lien against the thing—against the interest of the entire world in that thing. In some states where tax sales are not highly technical, they are a favorite method of clearing titles.
Definition of assessments.—Assessments are special taxes levied upon specific property benefited by local improvement for the purpose of paying or contributing to the expense of such improvement. They are levied by public authority, and are laid in proportion to the assessed value of the property. The assessed value is fixed upon the same principles as the assessed value for general taxation, but the apportionment is different. The apportionment of assessment is not equal over the entire area of assessment, but is in proportion to the benefit to be derived from the improvement. If there were a local assessment for opening a street, the lots immediately fronting on the street would be assessed at a higher rate than those further away. The rate dwindles as the distance of the property from the benefit of improvement increases. The area of assessment is arbitrarily fixed by public authority, and very often it is hard to see wherein the benefit to remote parcels consists.
Assessment laid by authority of courts.—Assessments are laid either in a proceeding in court or by a board of assessors. Assessments are laid by courts in proceedings in which property is being acquired for public purposes by condemnation. The money to be raised for the improvement is raised by an assessment which is laid by the commissioners in the condemnation proceedings, who are for that purpose not only commissioners of estimate to fix the cost of the property to be taken, but also commissioners of apportionment. They have to determine the area upon which their assessment will be laid, fix according to just principles the cost of the improvement upon the assessed area, and then give notice of the fact that their report is ready to be filed, and may be examined.
The principle of notice must attach to all special assessments. Taxation is periodical. It is an obligation that always attaches and is to be expected at recur-rent periods. The laying of a special assessment is unexpected unless notice is given. It amounts to the taking of private property, and private property cannot be taken except by due process of law, which means efficient notice and regular and orderly procedure after notice. One test of the validity of every assessment where laid by a court or by an administrative act must always be, "Was there efficient notice of the intention to lay the assessment?"
Assessments levied by board of assessors.-The principles applicable to assessments levied by authority of a board of assessors are similar to those applicable to assessments levied by authority of a court. The board of assessors is often limited by a mechanical rule, how-ever, that it cannot lay an assessment upon any specific piece of property for more than a definite proportion of its assessed value. While in one respect that is a protection to the taxpayer, in another respect it operates to retard needed public improvements, especially in suburban districts where land values are low, and in districts not fully developed. In such cases public authorities will often refuse to put through improvements which really add to the land value ; and will wait until the assessed value rises by reason of other improvements and settlement in the neighborhood before they will do the work which is necessary to develop such lots.
Within the limit allowed them, the assessors are sup-posed to proceed according to sound economic principles in laying assessments for public improvements. The assessments which they most frequently lay are for sewering, regulating and grading, paving and laying of cross walks. The making of physical improvements to complete a street are the first thing for which assessments are laid. After an assessment is made, it adds to the land value: the assessed value for taxation the following year should rise not only by the amount of the assessment, but by so much as the usefulness of the lot has been increased, which is very often more than the amount paid for the mere physical work.
Notice of assessment by a board of assessors is given in the same manner as with respect to other assessments. If their decision is unsatisfactory, after a hearing, there may be an appeal. After they have decided there is no way to appeal except by a separate judicial proceeding.
When assessments become a lien.—Usually, except in the city of New York, assessments are a fixed lien and chargeable between buyer and seller as soon as the assessment is definitely determined; but in the city of New York an assessment is not a lien or chargeable between buyer and seller or deemed to be fully confirmed until it is entered and ten days thereafter have passed.
If assessments be not paid the payment is enforced by assessment sale, which is regulated in exactly the same manner as the tax sale, and the consequences of which are exactly the same as the consequences of a tax sale.
Water rates.—Water rates are not a tax at all in their proper analysis. Where water is furnished by a municipality, the rates are enforced like taxes, but they are payment for a commodity. In most large cities there is municipal ownership of water, and monopoly of its service, and this is necessary as a health measure. The city charges for the water in accordance with its consumption. It lays the charge in one of two methods, either by fixing an annual charge for each tap which uses water, or by measuring the consumption through a meter. A city has a right to fix the charge by municipal ordinance, but it is not a tax measure. The owner of property does not have to use the water in his building if he does not want to. If he does have a water main enter his building, he must pay a certain fixed frontage charge, whether he consume the water or not, because water may be used for his fire protection.
Taxes, assessments, water rates and charges for installing water meters are all liens, and, if not paid, the lien may be enforced by a sale of the property, which is the final step in the collection of all items of taxation.