The Various Types of Property Tax
By Jonathan Bales
, last updated October 3, 2011
Property taxes are levies that property owners must pay to local governments. Multiple governments can tax the same property, although only one jurisdiction usually enforces property taxes on inhabitants of a particular region. Property taxes are represented in percentages as it relates to the rate of total property value that must be paid over the course of a year. If a property owner pays $2,000 annually on a $100,000 home, for example, the property tax is 2%. This portion of tax is actually referred to as the real property tax, and some jurisdictions also tax personal property. Listed below is information on these two sub-categories of property taxes.
Real Property Tax
Real property refers to any property which is immobile. Real property is actually made up of two categories: land and improvements to land. The latter category refers to anything which is man-made and cannot be moved, such as buildings. If you buy a lot of land and build a building on it, for example, you will have to pay tax on both the land and the building (improvement). Together, the land and the building make up real property.
Additional improvements to land include wells, roads, canals, mines and so on. As long as it is man-made, improves the land, and is immovable, it counts as an improvement and will be taxed as part of the real property tax.
The jurisdiction in which you live is responsible for the appraisal of your real property. The value of the real property determines your property tax rate.
Personal Property Tax
Personal property tax is paid on any objects which are movable or temporary. This includes furniture, computers, appliances and so on. However, household goods are not part of the personal property tax. Instead, individuals must pay a personal property tax on items which are used as part of a business. Thus, the majority of items in one's home are not subject to property taxes. Personal property is taxed at the same rate as real property.
All equipment on a farm is taxed as personal property, despite the fact that some of it is not technically movable. Farmers then pay the most property taxes of all, paying for their land, all of the buildings on the land, and all of the machines used on the land. The tax rate farmers pay is usually among the lowest, but they also end up paying the most because of the sheer amount of land, improvements and property being taxed.
For example, in some states, agricultural land is taxed at a rate of just four or five percent, compared to up to 11 or 12 percent for manufacturing property. Property tax is used to support a variety of local public services, like education, police departments, fire departments, free medical services and so on. Property taxes are almost always enforced by county governments, rarely by state governments, and never by the Federal government. All jurisdictions that enforce a property tax do so on real property, but many do not tax personal property.