Is There Land Sales Tax When Purchasing Property?

When you buy property, one of the considerations you need to take into account are any taxes due, specifically land sales tax. The short answer is that there are no sales taxes when you buy land or property. But that doesn’t mean you don’t pay taxes. Every owner of real estate or land has to pay property tax.

Property Tax

Every state in the U.S. has some form of property tax, including real estate and the value of land. The local government, at the county or municipal level, levies the property tax. In the case of property tax, it is considered more stable revenue than sales tax, because the property tax levy always equals the tax revenue, whereas a sales tax imposition faces budget deficits due to shortfalls. This is one reason why there is no land sales tax. As long as property is owned, the taxing authority can count on the revenue from the property tax (unless the owner fails to pay, in which case the taxes become delinquent).

Annual assessments are made by the appropriate taxing authority (the county tax assessor’s office or department of real estate, for example). The assessment is carried out according to the laws of the particular state. Some may be based on fair market value (FMV), replacement cost, or income approach. A notice of tax due is sent by the first day of January of the tax year. Imposed by counties, municipalities and school districts (as appropriate), additional property taxes in the form of supplemental tax bills, help pay for various expenditures: schools, fire stations, pest and weed control, lighting, sewers and water treatment, road maintenance and improvement, landscaping, etc.

In the state of California, as a result of Proposition 13 that was passed by state voters in the 1970s, local governments may have an incentive to utilize eminent domain condemnation proceedings to transfer real estate (including land) to higher sales tax-generating businesses. They can, therefore, promote commercial changes through zoning and various other regulations. While this is not land sales tax, the end result increases sales tax revenues to the taxing entity.

Land Value Tax (Not Land Sales Tax)

Another form of tax not well known or widely applicable is land value tax of LVT. Every state has laws governing where it stands (or not) on the issue of LVT. Generally, as long as all land and improvements are uniformly taxed, there is not constitutional obstacle. Some municipalities use LVT in one degree or another, but LVT is not used as such on either the state or national level.

LVT is a tax based on a land’s annual rental value. Only the land portion is taxed, not buildings, improvements or personal property. This is the key difference between LVT and property tax on real estate, which does include buildings, land and improvements to the land. LVT is not land sales tax.
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