IPTI | Update on U.S. & EU Property Tax Issues: February 2022

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together below a selection of articles from IPTI Xtracts; more articles can be found on its website (www.ipti.org).

UNITED STATES

Colorado: Property tax rates poised to skyrocket in coming years, report by business group finds

Coloradans are facing massive property tax increases in the coming years due to a combination of the state’s surging real estate market, the tax system’s biennial assessment calendar, and the looming expiration of measures adopted to ease the shock of tax hikes, according to a recent study released by business coalition Colorado Concern.

“You look at these numbers, and you see that we are in the process of pricing ourselves out of our own state,” said Mike Kopp, president and CEO of Colorado Concern and a former Republican state senator from Golden. “And that has implications for families, for younger workers, for seniors on fixed income, people in gentrifying neighborhoods. And it has implications for small businesses across the board.”

The report, prepared by Anderson Analytics, said property owners in Colorado will get hit with 20% property tax increases on average over the next four years if the state doesn’t come up with a solution.

Kopp said that solution will likely include a ballot measure, though he added that discussions with legislators and key stakeholders are ongoing. “We have to change some of the features of the status quo, or people simply are not going to be able to afford to live here,” he said.

Under the existing system, state-wide property tax revenue — not counting oil and gas and related revenue – is projected to nearly double over the stretch from 2021 to 2025 from $7.3 billion to $13.9 billion, the report found. Factoring in population growth and the distribution of property tax burden, that translates to a property tax increase of more than 20% for the average property owner, the study said.

Over the same period, the state-wide assessed value of residential property is projected to jump 38.5% – from $71 billion to $98.3 billion. Total assessed value of non-residential property is expected to climb by 15.3% from 2021 to 2025, the study found, from $60.0 billion to $69.3 billion. (Assessed values, determined biennially in odd-numbered years, are a fraction of a property’s market value and can differ depending on the kind of property being assessed and on other factors.)

“Because of the timing of the biennial property tax assessments, residential homeowners and renters have yet to fully face the substantial increase in property values during the bulk of the pandemic,” the report said. “As those market developments are factored into valuations, homeowners and renters will be faced with significantly greater tax burdens as values increase by double-digit percentages over just a few years.”

Kopp said he was surprised to find that property taxes could soon be climbing so fast. “I thought maybe population and property taxes rose at roughly the same rate,” he said. “They don’t. Property taxes are rapidly outpacing population growth.” Unless things change, he said, home prices – already overheated by demand, supply chain challenges and a strained labor market – will become even less affordable.

“Over the next four years you’re going to see a 30% increase in already superheated and tremendously unaffordable housing market,” he said. “Property tax is not the whole of the matter, but it’s certainly an aspect of the matter, and we wanted to dip our toe in the water and really understand this.”

The market value of the average single-family home is expected to rise by 29.9% from 2021 to 2025, from $465,741 to $605,068, the study found. The projected hike in market value for condominiums and multi-family residential housing is projected to climb even faster over the same period, by 31.9% for condos and 34.3% for apartment buildings.

The study suggests that recent attempts to fix the state’s property tax system won’t prevent the dramatic tax increases property owners will soon face. A 2020 ballot measure approved by voters to repeal the Gallagher Amendment — Colorado Concern was among its backers — and a bill passed last year by the legislature helped protect state property owners for a while, Kopp said.

He noted that SB 21-293 temporarily reduced assessed rates for certain types of property, including residential, for two years, but after its provisions expire next year, taxpayers will see an even greater increase in their bills.

A little-utilized provision of the legislation also allows homeowners to defer property taxes that climb by more than 4% from the previous year by, in effect, borrowing the money from the state and paying the debt — with interest — when they sell their home, Kopp said.

Kopp said the program could help some taxpayers but stressed that he doesn’t believe it’s a permanent solution to what could be an approaching affordability crisis. “In acute situations, if it helps people stay at home, that’s great,” he said. “But the question would be, does everybody in the state that is facing a dire economic condition want to borrow with interest on their tax burden?”

Added Kopp: “We’re not faulting the policy, but it’s reactive to the structural problem that we’re articulating here on the study.” Kopp declined to speculate on the solution the organization will be introducing in coming weeks but said the group believes it’s important to start the discussion with sound data in hand.

The study’s conclusion spells out next steps: “In the coming weeks Colorado Concern and partners will work to advance a solution that ensures both that vital services are funded and that taxpayers are given some relief. Modernizing the state’s property tax laws is the first step in ensuring the long-term growth and competitiveness of the state.”

“There are no single silver bullets,” Kopp said. “If the state legislature could come up with one thing that would lower home prices in the state in a way that values and honors our free market system, I’m sure they would have done it by now and everybody would stand up and cheer. It’s going to be multiple steps in this journey.”

Pennsylvania: The case for property tax elimination

Since I was elected to the Pennsylvania Senate in 2019, I’ve heard from constituents on issues that span the spectrum of all areas of the state government. Their feelings on one particular issue have been very clear: The school property tax is the most hated tax in Pennsylvania (with the gas tax being a close second).

The property tax is like paying rent to the government for the land you own. It’s easy to see why this antiquated tax is so despised in all corners of the Commonwealth. More than 10,000 homes are seized annually in Pennsylvania and auctioned off for failure to pay the tax. It is particularly troubling that most of the home seizures are from our elderly. Many of our retirees on fixed income are faced with the stark choice of paying for food, medicine, or paying the tax. This is simply unacceptable.

Property taxes also impede homeowners who long for the autonomy to expand their homestead. The way the tax works is that a government entity assesses a price for each piece of property owned. As a home becomes bigger or better, that assessment increases. Not only are homeowners shackled by this, but it also impacts local businesses that would otherwise benefit from selling materials and goods for home expansion.

When presented via ballot referendum question in 2017, the people made their voice loud and clear. By a vote of 54% to 46%, voters state-wide supported amending the Constitution to allow for the full elimination of property taxes for homeowners.

Property taxes rates vary depending on the locality or county where a home is located. For example, Chester County has one of the highest average annual tax rates at $4,192 while the average in Philadelphia is $1,236.

If we look at the median value of a home in Pennsylvania ($164,700) and the average rate (1.3%), the average Pennsylvania homeowner pays over $2,200 a year, according to Taxrates.org.

A property tax of a few thousand dollars in addition to a monthly mortgage payment hurts individuals looking to maintain a home especially when they are on a fixed income or living paycheck to paycheck. Homeownership in Pennsylvania has dropped from a high of 75% in 1999 to 70% in 2020.

The common defense of those wanting to keep the property tax in place is that our state “can’t afford it” without drastically affecting the quality of education. I counter that we can make property tax elimination a reality with a little “outside the box” thinking.

For starters, we need to reimagine how we fund education. By redirecting our state funds to follow students instead of systems, not only will we expand choice on where parents can send their children to school, but we will also save money. Currently, Pennsylvania spends over $19,000 per student each school year according to Department of Education statistics for 2019-2020. We are spending more on education than ever but not seeing better results when it comes to academic performance.

Meanwhile, per-pupil spending is about $15,000 for charter schools and the average cost of private school tuition is $11,800 a year.

Establishing programs like Education Opportunity Accounts (EOAs) would provide families with direct access to educational resources. Individual school districts would no longer receive the average per-pupil state education subsidy for the children who participate in the EOA program. Instead, the funds would be redirected to the child’s education opportunity account administered by the state treasurer and regularly audited by the state. With better accountability and increased competition for students amongst schools, Pennsylvania can actually save money on expenditures for education while improving its quality.

Property tax elimination will lead to benefits in other sectors of our economy.

The average tax savings of property tax elimination for all homesteads would have the same effect of annual stimulus checks for a household. In April 2020, households with two adults and an income under $150,000, received a total of $2,400 on average ($500 more for each dependent child).

According to Forbes, 75% of those households spent their checks on household expenses to stimulate the economy. I think we would see a similar breakdown of spending percentage with property tax elimination and annual tax savings of over $2,000 for an average household.

Increased consumer spending in our Commonwealth grows GDP. Businesses flourish and consumer sales increase with more demand. This growth ultimately leads to more annual money into the coffers of the General Assembly’s general fund available for education spending.

We can also explore revenue alternatives that don’t hurt the wallets of everyday Pennsylvanians.

Several of our private state universities are sitting on billions in untaxed endowment funds. University endowments are comprised of money or other financial assets that are donated to academic institutions. The largest in our state, Penn, has an endowment of over $20 billion after a 41% return from investments in 2021.

Only a minuscule percentage of university endowment funds are expended per year and less than half of those small expenditures go towards tuition reduction and scholarships for students, according to the American Council on Education.

Taxing endowments on wealthy private colleges in Pennsylvania would be significant annual revenue generator for the General Assembly’s general fund.

Another untapped source for revenue is a fee on international remittances conducted by a money transfer licensee or agent. An international remittance is a sum of money that is electronically sent out of the Pennsylvania economy and into the economies of international destinations. Remittances are primarily utilized by illegal immigrants, foreign workers, and non-US citizens to send earnings back to a foreign country. Over $70 billion dollars is transferred out of the United States and into the economies of recipient countries on an annual basis.

Considering Pennsylvania’s estimated foreign workforce, even a modest fee would generate significant annual revenue for the state.

We also must look at getting our current spending under control. I believe that a thorough review of all 33 state government agencies will reveal significant waste and redundancy. Trimming the fat off these agencies will pay dividends for Pennsylvania in the long run, reduce the cost of our state government, and slash burdensome regulations. Better stewardship of the already exorbitant spending by Harrisburg is key to how can afford property tax elimination.

As I’ve laid it out, full elimination is realistic and fiscally responsible. We just need the determination in Harrisburg to find ways to make it happen.

In late 2019, I joined as a member of the Senate Majority Policy Committee working group on Property tax elimination. Sadly, that working group ended with the emergence of COVID-19 in 2020. I’m in favor of the group starting up again and would certainly sign up as a member.

This session, I’ve gotten the ball rolling on a start to property tax elimination. My bill, SB 619, will exempt households for those who make $40,000 or less annually, are 65 or older, and have resided in Pennsylvania for at least 10 years.  This is not a resolution to the property tax issue, but a short-term action to keep some of our elderly from being kicked out of their homes.

The modern model of property taxation has roots in the 14th and 15th centuries when feudal obligations were owed to British kings or landlords. British tax assessors used ownership or occupancy of property to estimate a taxpayer’s ability to pay.

We must not forget that the Lamp of Liberty was lit right here in Pennsylvania in 1776. In the spirit of our founding fathers who rejected ancient European laws and customs, we can once again embrace our role as a beacon for freedom by eliminating all property taxes on homeowners in our Commonwealth.

Sen. Doug Mastriano is a Republican who represents Pennsylvania’s 33rd Senatorial District.

Illinois: Here’s how much Chicago commercial property assessments are increasing

Preliminary data show commercial property assessments under assessor Kaegi climbing at three times residential rate.

Commercial property owners in Cook County, which includes Chicago, could see a 75 percent hike on their assessments, roughly three times the increase for homeowners, according to preliminary figures.

Citywide assessments would rise by an average of 50 percent as a result of Cook County Tax Assessor Fritz Kaegi’s first triennial reassessment, according to an analysis by property tax appeals firm O’Keefe Lyons & Hynes reported by Crain’s.

“The shift from residential to commercial demonstrates the 2018 under-assessment of large commercial properties in downtown Chicago and elsewhere during the (Joe) Berrios administration,” Assessor’s Office Spokesman Scott Smith told Crain’s, citing assessments by Kaegi’s predecessor.

Kaegi has long said that commercial properties have historically been under-assessed, thereby shifting the tax burden onto homeowners. While independent analyses support that claim, the business community has pushed back against the increases, saying they can’t afford a dramatic hike during the pandemic.

The reassessments come two weeks after first-half property tax bills were mailed. Full-year, second-half tax bills due later this year won’t go up as much as the assessments and will drop in some cases. Increases on individual properties will depend on the value of the property relative to property values citywide.

The average assessment on commercial property will be 76.87 percent, taxes on rental apartments will rise by 73 percent and single-family residential properties by 25.6 percent.

Average residential hikes vary from 14 percent in Hyde Park Township to just under 36 percent in West Chicago Township.

The assessments won’t be final until they’ve been reviewed by a three member panel called the Board of Review, which previously overturned many of Kaegi’s reassessments in the suburbs, according to Crain’s.

Some industrial properties will see an increase over 121 percent, the largest increase for any property type, as a result of an increase in land values in gentrifying neighborhoods near the city’s downtown.

Massachusetts: PILOT Action Group Hosts Forum to Call on Tax-Exempt Institutions to Invest in Cities

The Massachusetts “Payment in Lieu of Taxes” Action Group hosted a virtual statewide forum Tuesday to discuss the group’s commitment to calling on tax-exempt institutions to invest in city development.

PILOT – a coalition of labor unions, advocacy groups, and individuals across Massachusetts – advocates for wealthy nonprofit institutions to invest in localities. Tuesday’s forum, which was live-streamed over Facebook, was intended to educate the public on the coalition’s goals.

The event featured guest speakers like Trinity College professor Davarian L. Baldwin, who wrote “In the Shadow of the Ivory Tower: How Universities Are Plundering Our Cities,” and Boston City Councilor Elizabeth A. “Liz” Breadon, who represents the Allston-Brighton district, which includes real estate owned by three universities.

The greater Boston area is home to a high concentration of some of America’s wealthiest universities such as Harvard. As nonprofits, the institutions are not required to pay property taxes under Massachusetts law.

According to PILOT’s website, 70 percent of Boston’s revenue derives from property taxes, while 49 percent of the city’s land is occupied by government and nonprofit institutions that pay no property tax.

Baldwin said this dearth of property taxes makes cities reliant on donations at the discretion of these institutions.

“This is almost a feudal relationship where residents have to look out or gain access to resources at the philanthropic behest of these power brokers,” he said.

In January 2020, the Boston City Council filed a PILOT ordinance that strengthened existing recommendations for contributions from tax-exempt institutions. The existing measure, spearheaded in 2010, suggests that institutions with over $15 million in holdings contribute 25 percent of their assessed value to the city.

PILOT has also introduced legislation at the state level – H. 3080, S. 1874, and H.3803 – that would enable towns to establish additional programs to generate revenue from tax-exempt institutions.

“These institutions need to pay their fair share to our neighborhood of Allston-Brighton and to our city as a whole,” Breadon said.

Harvard participates in the PILOT program, but the University has not paid its full recommended sum for the past nine years. Last year, the program requested that Harvard pay $13 million for its landholdings in Boston, $6.5 million of which should be paid in cash. Last year, the University contributed $3.7 million, a little over half the request.

One of the leaders of PILOT, Enid Eckstein, condemned the lack of contributions by institutions. “This is not good policy — local governments need reliable and predictable resources to plan, to have good schools, to have good libraries, roads, et cetera” she said. Eckstein called on state legislators to standardize how these nonprofits contribute funds.

“Our legislation is an attempt to create a standard framework for PILOT and then give towns the opportunity to opt in and use that as the standard,” she said in an interview after the forum.

Kansas: Market Study Analysis for the Assessment Year 2022 – Johnson County

A study of the residential real estate indicators reflects the market has continued to grow with over 95% of the residential properties increasing in value for 2022. In preparation for our annual valuation process, we reviewed over twenty-two thousand residential sales and used this data in a sales comparison analysis within ORION to develop Market values.

The growth in the Residential market has been significant with demand far exceeding supply thereby putting upward pressure on Real Estate sale prices and property values. In addition, the ORION Mass Appraisal system utilizes a national cost service, Marshall & Swift (CoreLogic), which provides the Appraiser’s Office with annual updates each July. No changes were implemented from the annual depreciation study performed for residential property. Land analysis indicates the supply is generally in balance with minor adjustments made to land values. Land values in the northeast area of the County have seen continued upward pressure due to improved residential properties being purchased and subsequently torn down to facilitate construction of totally new residential dwellings.

Commercial real estate uses the Income, Cost, or Market approach to estimate value. Industrial and multifamily properties continue to see market conditions conducive for growth. Demand has continued to be strong despite the pandemic. Office and retail properties have remained relatively flat overall as the market is still adjusting to the way people work and shop due to the presence of COVID-19. The hotel market showed some slight gains in 2021 and forecasts from national sites predict continued slow and steady recovery.

Multifamily new construction starts have slowed and buildings currently under construction have experienced delays. Older communities continue to renovate albeit perhaps at a slower pace than in the past. In 2021, capitalization rates are down across the board in Johnson County.

The vast majority of properties report stable rents with occupancies in the mid- to-upper nineties. The Johnson County multifamily market continues to perform better than many markets in the country.

Industrial properties remain at the height of the expansion cycle as over 2.0 million square feet of warehouse permits were issued in 2021. The first building of the planned Heartland Logistics Park in northwest Shawnee completed. The approximately 273,000 square foot warehouse is the first of five proposed buildings which will total over 2 million square feet of warehouse space when complete.

Block and Company completed a new roughly 606,000 square foot warehouse in southwest Lenexa, as it continues to develop the Lenexa Logistics Centre East business park. Lineage Logistics, a temperature-controlled food distribution company, has also completed an estimated 350,000 square foot cold storage warehouse in the Lone Elm Commerce Center at I-35 and 167th street in southern Olathe. While much of the larger new construction is concentrated in Shawnee, Lenexa and Olathe, smaller industrial properties continue to be developed throughout the county as industrial properties continue to thrive even during the pandemic.

Office properties in Johnson County continue to stabilize in 2021. The newly completed Johnson County Courthouse in Olathe with approximately 390,000 square feet began occupancy in early 2021 and Phase I of Shamrock East with nearly half a million square feet (including a parking garage) was close to obtaining a Certificate of Occupancy. A new 4-story office building is also slated for Hallbrook Office Center.  For 2021, rental rates are stable in most areas of the County. Office capitalization rates are flat throughout all investment classes. Speculative construction has moderately increased. Nationally, suburban office markets such as Johnson County have outperformed more urban areas during the COVID-19 pandemic.

Retail properties continued to stabilize in 2021. There continues to be redevelopment in the county for older sites demolished to make room for new construction, and often in the form of mixed-use type properties. Construction of Sonoma Plaza at 87th Street & I-435 in Lenexa was strong with permits issued for several new strip centers and a few eateries. The area along the Metcalf corridor in Overland Park has seen quite a bit of construction as well, some new and some redevelopment.

Capitalization rates were slightly down overall for restaurants. The capitalization rates for single-tenant retail properties were also down slightly for the highest investment class properties. Strip center properties saw a slight decrease of 25 basis points in capitalization rates for C investment class properties only. However, A investment class neighborhood and community shopping center properties saw an increase of 50 basis points, while the B and C investment classes of this property type saw an increase of 25 basis points. Retail continues to experience more build-to-suit construction than speculative construction during the 2021 year.

Hotel/Motel property in Johnson County saw significant declines in occupancy and REVPAR due to the COVID-19 pandemic in 2020 but began to climb up in 2021. Due to the continuing unstable market conditions, Johnson County contracted a 2021 Hotel Benchmark Study. The results of the study determined valuations declined 25% for full-service hotels. Additionally, select and limited-service hotels saw valuations decline 15%. Despite COVID-19, Johnson County added three new hotels which added 292 rooms. The total room count increased 3% to 9,842 rooms. There are several more projects that are in various stages of planning and construction. Industry experts to make a slow recovery, with most predicting REVPAR reaching pre-COVID-19 levels in 2024.

The annual depreciation study for commercial property found evidence for adjusting very few of the structure categories for depreciation, economic life and other table variables. These adjustments, however, realign internal depreciation with verified sale transaction value indications. The land study for commercial property is updated annually and found minimal upward pressure for land values. Computer Assisted Land Pricing (CALP) models include all commercial and condominium properties with reliance from the commercial land study as support. 

Rhode Island: New report says R.I.’s property tax system is ‘out of balance,’ hindering affordable housing construction, economic development

Property taxes are the largest source of local revenue in Rhode Island, but yet, are causing imbalances in municipal services, like the construction of affordable housing, K-12 education, and economic development, according to a newly released report by the Rhode Island Public Expenditure Council (RIPEC). The report, “A System Out of Balance: Property Taxation Across Rhode Island,” found there’s a striking difference among tax burdens of resident homeowners, non-resident homeowners, and businesses.

“Rhode Island’s least affluent communities simply do not have the property wealth to adequately fund municipal services – particularly K-12 education,” said Michael DiBiase, RIPEC’s president and CEO, and pointed to Central Falls, Pawtucket, and Woonsocket having the least property wealth to help fund schools. “This severe lack of property wealth has led these communities to impose relatively high taxes on residents, and particularly on renters, least able to afford to pay.” And municipalities that levy higher tax rates on businesses discourage economic development, he said.

Tax policy choices, classification differences and homestead exemptions shift the tax burden away from resident homeowners and toward businesses and renters, said the report. Higher non-resident tax burdens and commercial rates applied to apartment buildings make housing less affordable to “those most in need,” and they discourage the development of more affordable, higher-density housing, said DiBiase. He said the report also found that tax burdens shifted to businesses will raise additional equity issues.

DiBiase explained in an interview with the Globe that while looking back at Rhode Island’s history, most property taxes were paid by large industrial properties. But over time, a business and industry-based system moved to a less property-based system and more value was placed in the hands of residents. Then, he said, it became difficult to respond to homeowners shouldering more of the tax burden.

“In a post-industrial society, [businesses] have more options as to where to locate and expand their business,” he said. “Business property tax incentives for specific projects have sought to provide relief, but have failed to address the core issue – the high tax rate burden imposed on businesses.” Now that many businesses can “work from anywhere” with the promotion of remote work, DiBiase said it’s one of the issues RIPEC has been worried about.

“Commercial property is stagnant, but there’s an uptick in residential values,” he explained. “We’re worried that this is going to go into a direction where we can’t straighten things out.” RIPEC provided a number of recommendations for state and local policymakers in the report. DiBiase said state policymakers should consider how the state’s education funding formula may be reformed to better respond to disparities in property wealth, and should promote tangible reform by reducing municipal reliance on property tax collections.

The report also said municipalities should seek to “minimize the use and impact of property tax classification and homestead exemptions.” “We need a system that is going to be more equitable. Less affluent towns already have high tax rates and don’t have the resources to raise the money,” he said.

EUROPE

United Kingdom: Devolve business rates to mayors

Levelling up secretary Michael Gove has said England’s directly elected mayors should be given control of business rates in order to boost devolution and aid the government’s economic vision for reducing regional inequality.

He said he wants to give mayors more control to improve competition between regions, telling the Financial Times regional flexibility is “definitely the direction of travel we want to go down”.

Gove said that fellow Conservative, Tees Valley mayor Ben Houchen, should be given power over business rates to “demonstrate how he can make a difference”, and that the West Midlands combined authority should be given powers over policing to prove it works.

Asked about whether the Treasury and his ministerial colleague chancellor Rishi Sunak had denied him further resources, after the levelling up white paper published earlier this month came without new funding proposals, Gove said “you never have everything you want, but sometimes you get what you need”.

“It is important that people recognise that we’re in it for the long haul, that there’s a down payment on future investment,” he added.

“People are asking if the scale of ambition outlined in the missions is capable of being delivered with the resources necessary, and that’s what we’ve got to demonstrate.

“I don’t think there’s anyone who’s quibbling with the basic analysis of what’s required to be done.”

Gove said Whitehall’s attitude to devolution still comprises “a lot of scepticism”, but cases such as Tees Valley and the West Midlands would prove the concept.

He defended the austerity measures introduced in the past decade, which many have said exacerbated the inequalities the new levelling up agenda is nominally aimed at reducing, but admitted local government in particular “had to make some incredibly difficult choices”.

This new attitude of relative interventionism, particularly when compared to recent Conservative governments, represents a “modernisation” of Tory thinking, he said.

“We have to be a party that recognises the economic and moral imperative of helping cities like Sunderland to succeed,” he said, adding that the new attitude was linked to the Brexit referendum.

Greece: ENFIA to have new brackets

Local objective values will determine whether each owner faces a cut or a hike this year

The new ENFIA blueprint that the government has presented to its creditors contains changes to the rates and the brackets of the Single Property Tax in a bid to avoid any hikes that the new taxable prices of properties, known as objective values, would generate. Otherwise – i.e., with the rates unchanged – ENFIA would have shown hikes of up to 60%, according to Finance Minister Christos Staikouras.

Speaking on Skai TV, Staikouras said the new ENFIA will be ready within two weeks, noting that the “rates have been tweaked for the better, so as to prevent any hikes.”

He added that, overall, the 2022 ENFIA will be reduced from 2021 for most owners and noted that any hikes for those who used to pay a supplementary property tax (which is now incorporated into ENFIA) will depend on how much their zone rates have increased. He explained that the supplementary tax concerned 5% of owners but accounted for 15% of property tax revenues from individuals.

In 2021 the supplementary tax amounted to 646 million euros, with €368 million originating from individual taxpayers and €278 million from corporations. Sources say the 68,652 enterprises will continue to pay the supplementary tax in 2022.

The scenario presented to the country’s creditors, in the context of the 13th post-bailout assessment, provides for changes to brackets, but also introduces a limit for specific cases where the tax rate has soared due to the increase in objective values.

The Independent Authority for Public Revenue has already received all the parameters from the competent committee of the ministry and is set to begin the simulation procedure for the tax each owner will have to pay. Based on the sum the IAPR will come up with, the ministry will have a clear picture of who will enjoy a property tax cut this year and who will need to shoulder more dues. The outcome of the exercise will be forwarded to the creditors for approval before the bill is submitted to Parliament for voting by the end of February.

Cyprus: Taxation of undeveloped land is long overdue

For the last 15 years we have been pointing out the need for vacant building plots and development land which is not being used to be taxed.

Approximately 40 per cent of this land in Cyprus is vacant, while at the same time there is a shortage of development land for sale, pushing prices up and making it unaffordable to many people. The rising prices in turn encourage owners to hold on to land to increase their future return. The shortage also results in the state enlarging development zones (usually every 5 years).

So it is with a great satisfaction that we noted that the municipality of Nicosia is suggesting the taxation of vacant land in the Nicosia municipal area, in an effort to encourage development, sales and better planning. The suggestion is a 20 per cent increase. Though this is not enough to achieve their goal, it is a step in the right direction.

The problem which remains is how this tax hike will be enforced. We have to look into the legalities of the proposal and of course there will a strong reaction from large landowners, such as the church among others, and we expect that petty politics will come into play, especially given the election period.

Taxation would encourage development and control property prices with them increasing every 5 years by approximately 20 per cent.

Plots should be considered unused if over 50 per cent of the building density is vacant.

In addition, buildings which are in a derelict condition or out of use for a continuous period of 5 years, should classed as vacant land.

At the same time when land cannot be developed, for example due to lack of access, the surcharge of 20 per cent should be passed on to the withholding land.

We expect a lot of objections, but other countries, like the UK, have adopted even stricter measures, where vacant properties give the municipality the right to take them over in order to accommodate homeless people.

The Nicosia municipality has also suggested it should be the duty of building owners to provide a certificate showing that their structural condition is sound for public health and safety purposes.

Unfortunately, these type of measures are difficult to implement when governments don’t hold a majority in parliament.

This is a good effort by the mayor and the council of the municipality but perhaps due to the resistance it will face there should be a grace period of five years once it comes into effect.

Authors:

• Paul Sanderson, President | psanderson[at]ipti.org
• Jerry Grad, Chief Executive Officer | jgrad[at]ipti.org
• Carlos Resendes, Director | cresendes[at]ipti.org

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY.