Introduction

As noted previously, property taxes account for approximately 65% of all state and local tax payments made by businesses. Property taxes generate over $250 billion in revenues per year. In general, there are three methods of valuation: cost, income, and market. In tax planning, it is important to consider all elements that affect value, as well as these three approaches to value, to ensure that property is correctly valued so that a taxpayer is not paying more than his/her fair share of property taxes.

The property tax is primarily a local tax that is levied and administered by local jurisdictions rather than the states. Throughout the history of the U.S., this tax has contributed the lion's share of revenues for local jurisdictions. However, as the U.S. economy has undergone significant changes, with services accounting for an increasingly larger share, the relative importance of the property tax as a source of local revenues has declined. For example, whereas in the years up to World War I property taxes constituted over 90% of the tax revenue base of local governments, that proportion declined to less than 80% in the 1990s. As a percentage of total revenues of local governments, the change has been even more dramatic property taxes now constitute roughly 40% of the total revenues compared with 80% up to the 1940s. ^[1]

Property taxes pay for all kinds of local services, such as schools, fire stations, parks, and libraries. They are also used to provide public safety and...