What Is a Land Value Tax?

A land value tax is a more predictable way to 澳洲幸运5官方开奖结果体彩网:tax property based solely on the value of a parcel of land and not any associated buildings. The concept of a land value tax dates back to the beginning of agrarian societies when when the goal was to tax landowners fairly for the benefit of the larger community.

Purpose of the Land Value Tax

A land value tax (LVT) is intended to fairly assess the value of the land, which is a finite resource with a base value that doesn’t fluctuate as dramatically as the value of buildings or other structures. Fluctuations in land values are determined in great part by what happens with and around the land. For example, an acre of land in a rural setting may not contribute as much to the surrounding economy as the same sized plot in a downtown urban location, where the location might be next to a new food distribution center needing an additional loading dock.

History of the Land Value Tax

From the earliest times, land has been seen by societies as an asset that cannot be owned by an individual in the traditional sense of ownership, but rather something to be treated as a rental passing from generation to generation. It is the human activity undertaken on a parcel of land that largely determines its overall value, and that activity is almost always linked to the wealth of the landowner, so a land value tax is viewed as a fairer basis for determining tax liability. This has led us to our modern-day system of 澳洲幸运5官方开奖结果体彩网:assessing land and buildings separ💯ately for taxation purposes. 

How Does the Land Value Tax Work?

LVT is also known as a site valuation tax, an example of an 澳洲幸运5官方开奖结果体彩网:ad valorem tax. Ad Valorem is a Latin phrase meaning “according to value.” Modern examples of these include 澳洲幸运5官方开奖结果体彩网:municipal land assessments homeowners receive annually, in which their land is valued separately from the various buildings on their land.

A homeowner can make improvements to the buildings on the land, changing the taxable value. But the land itself tends to maintain a more stable value over time. The opposite is also true in the case of a landowner who lets his buildings fall into disrepair. In this case, the overall 澳洲幸运5官方开奖结果体彩网:property taxes paid to the community will be less than before, yet the land itself maintains more or less its original wor൩th, which will be important when a potential buyer is considering their tax burden and the real value of what they are purchasing.

Deadweight Loss and the Land Value Tax

Changes in property values are largely determined by market fluctuations and can be extremely volatile. These changes create what economists call 澳洲幸运5官方开奖结果体彩网:deadweight loss, which is the measure of the loss to society at large. These losses have far-reaching adverse effects in funding the basic services any ⛎prosperous soಌciety needs, such as police, fire and rescue.

The land value tax helps mitigate these market swings by separating the more stable value of the land from the buildings in creating a manageable system for 澳洲幸运5官方开奖结果体彩网:real estate taxation.

The Bottom Line

A land value tax is an alternative to traditional property taxes that could provide a more stable and fair way to assess property taxes. By taxing only the land value, rather than the land and buildings together, LVT encourages better land use and reduces the economic inefficiencies caused by fluctuating property values. While not yet widely adopted, land value taxes hold promise for communities seeking a more equitable and predictable tax system.