What is a Property Tax?

What is a Property TaxA person who wants to know about accounting, finance and business may wonder, “What is a property tax?” This type of fee is levied by a government authority on real property owned by an individual or a business. If it is not paid, the government can claim ownership of the property.

What Is Subjected to Property Taxes

Most property taxes are levied on real property. Each jurisdiction gets to define this in its own way, but it generally includes land and fixed buildings or structures on the land. The property could be zoned as commercial, industrial, residential, or mixed-use. For example, a residential property might include the land, a single-family home, and a detached garage. A commercial property might include land, a parking lot, and a retail building.

How Property Taxes Are Calculated

Every one to five years, the local authorities conduct an assessment of property values. They also set the tax rate, which may be passed as part of the operating budget or as an issue at the voting polls. In order to calculate the amount of taxes due on a specific property, the fair market value is multiplied by the tax rate. Some places issue automatic discounts or credits on property taxes. For example, if the property is zoned as residential and includes a single-family home, there may be a credit or discount if the owner lives in the house on the property. The taxes may be due once or twice per year.

Who Has to Pay Property Taxes

The owner, title holder, or deed holder of the property is responsible for paying the taxes to the tax authority. In the case of a business, property taxes are an operating expense. Landlords often work the cost of property taxes into the rent fees they charge their tenants. For a residential property owner, they are responsible for paying their own property taxes. In some cases, the law allows for a residential property owner to dispute their property’s assessed value. For example, if the house next door burned down, a person could request a reassessment in hopes of lowering their property taxes.

How the Tax Funds Are Used

The money collected by the taxing authority can be used for a variety of purposes, ranging from fire and police protection to road construction and schools. For example, Ohio’s property taxes are used to fund libraries and public schools. The funding of public schools with property taxes was found to be unconstitutional on March 24, 1997 in DeRolph v. State. According to Investopedia, the tax funds may also be used for water and sewer projects, road resurfacing, and snow plow services. Cities or taxing authorities typically allocate specific percentages of the collected taxes paid by property owners to different public entities or public works projects.


This regressive tax often has a big impact on the budget of a fixed-income household. When an increase is proposed for property taxes, many senior citizens who are home or property owners often protest or vote against the increase, as their retirement pensions or Social Security income does not usually increase at the same rate. Understanding the answer to, “What is a property tax?” helps a person know more about the functions of local government and the responsibilities of property owners.

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