Assignment 1 Chapter 1 : Property Taxation

Question 1

Two effects of site value taxation are the liquidity effect and the incentive effect.

Which statement bellow is False?

1. Liquidity effect : land tax increases holdings costs.
2. Incentive effect: the supply curve for improvements shifts to the right.
3. Incentive effect: tax on land will affect the quantity of land supplied.
4. Both the incentive and liquidity effect will reduce urban sprawl.

Answer 1

Answer (3) Incentive effect: tax on land will affect the quantity of land supplied.

is FALSE, because with the incentive effect a tax on land will NOT affect the quantity of land supplied. This is due to the fact that the supply of land is fixed or inelastic.

Question 2

Which of the following is NOT a direct problem resulting from Proposition 13?

1. The system discriminates against growing families.
2. The system is based on legality rather than market value.
3. Valuation in California has become more complex.
4. There is an incentive to conduct property transactions sot that reported sale prices appear lower.

Answer 2

Answer : (2) The system is based on legality rather than market value.

Preposition 13 has created several problems in the state of California including a system that discriminates against growing families, incentive to conduct property transactions under the table; and appraisal, valuation, appeal, and administration functions have become more complex, with errors in inventory gathering and administration.

Question 3

Which of the following statements is/are TRUE?

A. Local control of assessment promotes uniformity of administrative procedures.

B. Canada has a more integrated property tax system than Denmark.

C. Some countries only tax land

D. In Canada, property taxes are administered federally.

Answer 3

The statement TRUE is

C. Some countries only tax land

Statement A is false, because central control of assessment promotes uniformity of administrative procedures.

Statement B is false, because Denmark is well noted for its extensive integrated tax system.

Statement D is incorrect, as property tax in Canada is administered locally by municipal governments.

Question 4

Which of the following is NOT generally considered to be a regressive tax?

1. Pure income tax
2. The Goods and Services Tax
3. A poll tax
4. A tax that represents a larger proportion of income for those who earn a lower income compared to those who earn a higher income.

Answer 4

Answer:

(1) Pure Income Tax -→ is Progressive tax, because tax rates increase as income increases.
(2) The Goods and Services Tax -→ (GST) is a sales tax in Canada. Sales taxes in general are often argued to be regressive because those with lower incomes spend a larger proportion of their income on consumption.
(3) A poll tax -→ is not based on income, but rather a charge on everyone (i.e. the poorer you are, the bigger proportion of your income is going to the tax, compared to rich person)
(4) A tax that represents a larger proportion of income for those who earn a lower income compared to those who earn a higher income.-→ definition of a regressive tax.

Question 5

The definition of the “OLD VIEW” perspective regarding the regressiveness and progressiveness of taxes, holds all of the following

1. tax on structures can be shifted to consumers.
2. property taxes are imposed at a uniform rate across the country.
3. property tax that falls on land must be borne by landowners.
4. land is assumed to be fixed in supply.

Answer 5

Answer : (2) property taxes are imposed at a uniform rate across the country.

because (2): is an assumption of the “NEW VIEW” of property tax incidence.

The OLD VIEW regarding the regressiveness and progressiveness of tax divides property tax into two categories: land and improvements (structures).

Because structures are investment decisions, the property tax that falls on the structure can be shifted to the price of the consumer goods and services that are provided by the structures.

Assuming that land is fixed in supply, property taxes that fall on land must be borne by landowners, because they cannot alter the quantity of land supplied and thus pass the tax onto consumers.

Question 6

Which of the following statement(s) regarding the benefits received principle is/are TRUE?

1. Taxpayers should pay according to their ability to pay.
2. The value of one’s real property is used as a proxy for one’s ability to pay.
3. It is not fair to fund people-related services such as schools and park through property taxation because renters would be benefiting but not paying their share.
4. A tax levied on the owners of real property is justified because benefit go to the properties.

Answer 6

The statement TRUE is:

D. A tax levied on the owners of real property is justified because benefit go to the properties.

Statement D, refers to the benefits received principle- property taxes are justified because the services of local government accrue directly to property, such as roads, sewers, and fire protection.

Statement A and B.

A. Taxpayers should pay according to their ability to pay.

B. The value of one’s real property is used as a proxy for one’s ability to pay.

Both refer to the principle of ability to pay.

Statement C

C. It is not fair to fund people-related services such as schools and park through property taxation because renters would be benefiting but not paying their share.

-→ is false because contemporary theory on property tax incidence shows that renters also pay a share of property tax through their rent, and thus the benefits received principle can be used to justify using property taxes to pay for “people-related” services.

Question 7

Which of the following is a problem associated with levying a uniform ad valorem tax on both tangible and intangible forms of wealth?

1. Intangible personal property is easy to hide from the appraisers.
2. In today’s economy, tangible personal property is difficult to value due to no active secondary resale market.
3. Double taxation of wealth may occur because some intangibles are wealth and some are rights over taxable tangibles.
4. All of the above re problem associated with levying a uniform ad valorem tax on both tangible and intangible forms of wealth.

Answer 7

Answer : (4)

(4) All of the above re problem associated with levying a uniform ad valorem tax on both tangible and intangible forms of wealth.

Question 8

Imagine a system of taxation where commercial and industrial properties are subject to a higher tax rate than residential properties. As owners of residential properties make up the majority of taxpayers, they will tend to demand a greater level of services because the bulk of the cost would be borne by commercial and industrial tax payers.

Since commercial and industrial properties typically have customers from outside the city, the increased tax burden here would be exported to these external customers rather than the taxes being borne by those receiving the services within the city.

The above scenario violates;

1. The accountability principle because tax is being exported.
2. the fairness principle because residential property owners should make up the bulk of tax revenues, rather than commercial and industrial taxpayers.
3. the neutrality principle because industrial taxpayers will avoid the tax.
4. none of the above.

Answer 8

Answer : (1)

(1) the accountability principle because tax is being exported.

The scenario violates the accountability principle, which says that tax burdens should not be exported.

Question 9

Leigh Gershwin is considering implementing ad ad valorem tax system in her city. Which of the following is a consideration in developing an optimal taxation system?

1. Administration and accountability
2. Vertical equity
3. Stable levels of tax revenue
4. All of the above

Answer 9

Answer (4) All of the above.

Leigh Gershwin should focus on all of the principles listed.

• Administration
• Accountability
• Neutrality
• Fairness (including horizontal and vertical equity), and
• Stable tax base

Those are all important criteria that would exist in a good property taxation system.

Question 10

In order to make residents pay for local services, Jordan Candell, The Mayor of Ottawa, is considering implementing a fixed annual tax which will be levied on individuals living within the local area.

In general, this type of tax will likely be problematic for all the reason bellow, EXCEPT:

1. There will be a greater difficulty in determining land values
2. People will likely evade the tax
3. The registration process will create significant costs.
4. It is a regressive tax.

Answer 10

Answer: (1)

(1) There will be a greater difficulty in determining land values

The tax proposed by the Mayor is similar to a poll tax

Option (1) is the correct answer, as difficulty in valuing land is associated with a land value tax, not a poll tax.

A poll tax is a regressive tax that creates evasion and enforcement difficulties. Because people are mobile. it is usually difficult and expensive to register people for the tax.