Property Taxes are a major source of revenue for local governments, while user f
ID: 2806120 • Letter: P
Question
Property Taxes are a major source of revenue for local governments, while user fees are frequently used by local governments as an alternative to unpopular property taxes. Address all of the following. (a) Explain the advantages and disadvantages of relying on the property tax from the point of view of BOTH a local government and a taxpayer. (b) Explain steps a local government can take to ensure property taxation is administered as fairly as possible. Now Assume your boss is the mayor and he/she asks you to devise user fees to help offset property taxes. (c) Explain what general types of user fees you would recommend (not recommending any is not an option) to offset property taxes and why. (e) Explain what some of the downsides might be with respect to generally relying more heavily on user fees than the property tax.
Explanation / Answer
a) For tax payer.
Adv-
1.Predictable- Unlike income and sales tax which depend upon consumer behaviour they are predictable in nature.
2.Low administrative cost- Cost associated wiith filing of property tax can be as low as 7$ as compare to high filing cost of inxome amd sales tax.
Community Benifits- like trash pick up, fire ambulance, school funding or any other service.
For Govt.
Difficult to evade-They are not easy to evade because the govr. sends an assessor to cal the value of property.
Transparency- Any information can be obtained as they are controlled locally.
Source of revenue- Another major soucre of revenue apart from other taxes.
Disadv
For Taxpayer
Lump sum payments-Since property tax falls on un realized capital gains they may not be correlated with cash flows.
Misunderstanding of the relationship b/w apprised value and tax-This can be viewd as another major disadvantage when compared to fixed rates tax such as sales or income tax.
Property tax appraisals might be perceived as inequitable, especially since assessment ratios differ b/w property class.
For Govt.
Resource intensive tax- Appraising property for tax purpose is a very time and money consuming process as compared to voluntary reporting mechnasim of sales and income tax.
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