Special Assessment Tax
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In the United States, a special assessment is a charge that public authorities can assess against real estate parcels for certain public projects. This charge is levied in a specific geographic area known as a special assessment district (SAD). A special assessment may only be levied against parcels of real estate which have been identified as having received a direct and unique "benefit" from the public project.


Examples

The most universally known special assessments are charges levied against lands when
drinking water Drinking water or potable water is water that is safe for ingestion, either when drunk directly in liquid form or consumed indirectly through food preparation. It is often (but not always) supplied through taps, in which case it is also calle ...
lines are installed; when sewer lines are installed; or when
street A street is a public thoroughfare in a city, town or village, typically lined with Building, buildings on one or both sides. Streets often include pavements (sidewalks), pedestrian crossings, and sometimes amenities like Street light, streetligh ...
s are paved with
concrete Concrete is a composite material composed of aggregate bound together with a fluid cement that cures to a solid over time. It is the second-most-used substance (after water), the most–widely used building material, and the most-manufactur ...
or some other impervious surface. However, special assessment tax levies can be made for other purposes including
police The police are Law enforcement organization, a constituted body of Law enforcement officer, people empowered by a State (polity), state with the aim of Law enforcement, enforcing the law and protecting the Public order policing, public order ...
or
fire protection Fire protection is the study and practice of mitigating the unwanted effects of potentially Conflagration, destructive fires. It involves the study of the behaviour, Compartmentalization (fire protection), compartmentalisation, suppression and inve ...
, parking structures, street lighting and many of the other purposes permitted by state and local government statutes. While variations of the concept of special assessments have existed in a number of the world’s nations since the 1600s, in the US a special assessment is more formally defined through court action as remuneration that a governmental unit may demand from property owners to fund a public project which creates a "benefit" in properties lying within a special geographic area known as a special assessment district. Some argue this tax has aided the ever-widening gap between the living standards of the rich and poor.


Special assessment district

A special assessment district (S.A.D.) is a geographic area in which the market value of real estate is enhanced due to the influence of a public improvement and in which a
tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
is apportioned to recover the costs of the public improvement. Individual special assessment levies may be made only in a S.A.D., which is one of two kinds of geographic areas commonly associated with a special assessment levy. The other kind of geographic area is the "service district". Circumstances vary according to laws of various states, but the essential distinguishing feature between these two types of districts is this: a service district is composed of all individual parcels of land that are somehow connected to the public improvement for which the special assessment is to be levied. The special assessment district consists of only those properties which are designated by the applicable law as having received a specific and unique "benefit" from the public improvement. Examples of properties which may be connected in some way to a public improvement and are therefore included within a service district, but may be excluded from the special assessment district are properties associated with a dam and properties associated with a business parking structure. In the case of a dam ... ''all properties'' located within a scientifically defined " watershed" and all properties lying within the
floodplain A floodplain or flood plain or bottomlands is an area of land adjacent to a river. Floodplains stretch from the banks of a river channel to the base of the enclosing valley, and experience flooding during periods of high Discharge (hydrolog ...
of the dam are connected by how water drains from an entire watershed into a lake and how water within the lake may flood specific areas downstream. Since the area of a watershed and the area of a floodplain are often very, very large when compared to the area of a lake, it is possible for some portions of the watershed and floodplain to be physically located in some government unit other than the lake. It is also possible that the government unit authorizing a special assessment levy does not have jurisdiction to include all land within the watershed and floodplain. In this example, the service district would be large enough to include all properties connected to the lake by how water flows. The Special Assessment District would be a smaller area within which the government unit proposing the special assessment has the power to levy a special assessment tax. In the case of an economic development project (e.g. a parking structure for a business district) circumstances which would cause the service district and S.A.D. to have differing geographic boundaries relates to the existing and permitted use of property rather than political subdivisions. That is, economic forces within the market would be the key to including or excluding a specific property. The service district for a parking facility is generally limited to the geographic area from which pedestrians would walk between businesses and the parking structure. An example might be that users of a parking structure will traverse an area defined as being within six blocks or less of a parking structure. In this example, the service district would consist of all properties lying within six blocks of the parking structure. However, there may be more than just retail business structures within the six block area. All classes of properties lying within the distance shoppers can reasonably be expected to walk to and from retail outlets could include a block of homes or an industrial facility. The commercial properties would be assessed because surveys would illustrate that retail sales depend upon adequate parking for customers. It could also be demonstrated that residential properties (homes), would be excluded because users of those properties might not reasonably be expected to "benefit" from the parking structure. Depending upon various
scenario In the performing arts, a scenario (, ; ; from Italian , "that which is pinned to the scenery") is a synoptical collage of an event or series of actions and events. In the ''commedia dell'arte'', it was an outline of entrances, exits, and actio ...
s, industrial properties might similarly, not "benefit", from a parking structure.


Benefit

There are variations between state governments as to what constitutes a “benefit” under special assessment laws. In general, the "benefit" must result directly, uniquely and specifically from the public project. For example, when water and sewer lines are installed by government units, nearby land often increases in value. Both the presence of safe drinking water and of sewer lines means that expensive wells and septic systems do not have to be installed by affected property owners. It also means the potential for contamination of ground water and surface areas from improperly treated
sewage Sewage (or domestic sewage, domestic wastewater, municipal wastewater) is a type of wastewater that is produced by a community of people. It is typically transported through a sewerage, sewer system. Sewage consists of wastewater discharged fro ...
will be eliminated. Land that might have been “unbuildable” before may become "buildable" once government provided water and sewer services become available. Providing water and sewer service are situations which may adapt formerly unusable land for residential or commercial use. A
storm sewer A storm drain, storm sewer (United Kingdom, United States, U.S. and Canada), highway drain, surface water drain/sewer (United Kingdom), or stormwater drain (Australia and New Zealand) is infrastructure designed to Drainage, drain excess rain an ...
or a dam or dike may mitigate flooding and therefore the sewer, dike or dam relieves a burden, flooding. The term benefit most frequently means an increase in the market value of the benefited property. However, some states historically have defined the term benefit to mean more than an increase in market value. For example, benefit may mean a special adaptability of the land or a relief from some burden.


Tax limited to real property

Only certain property can be specially assessed. The "property" to be assessed must be real estate as opposed to "personalty". Personalty is a taxation term which means
personal property Personal property is property that is movable. In common law systems, personal property may also be called chattels or personalty. In civil law (legal system), civil law systems, personal property is often called movable property or movables—a ...
. Examples of personal property include the machinery, equipment, furniture and fixtures which a person or corporate entity may own.


Summary of special assessment components

In summary, when a government unit funds a public project that directly, uniquely and specifically "benefits" (increases) the value of certain parcels of real estate it may levy a charge against each specifically benefitted property as compensation for the benefit. Properties designated to be specially assessed are assembled into a geographic area with clearly defined boundaries. This geographic area is termed a Special Assessment District.


Unique Aspect

In some states, sometimes one government unit can levy a special assessment against another. This is true in cases where the public's health, safety and welfare are being promoted by the project (e.g. repairs to a dam). Refer to specific state statutes for details.


A special assessment is not an ''ad valorem'' property tax

The property tax most citizens are aware of is known as an ''
ad valorem An ''ad valorem'' tax (Latin for "according to value") is a tax whose amount is based on the value of a transaction or of a property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). A ...
'' tax. This tax is used to fund general or day-to-day government operations. An ''ad valorem'' tax is commonly levied on both real and personal property. A property tax is based upon a property's market value. The ''ad valorem'' tax levy is based upon a millage rate which never varies from parcel to parcel. The foundation principles for ''ad valorem'' taxes are that each property is valued according to its market value ( equity) and that each property is taxed based upon a single millage rate that applies to everyone (uniformity)."Turner, Joseph M., Michigan Property Taxation - Distinguishing between Special Assessments and an Ad Valorem Tax. Michigan Assessor Magazine, June 2004, pgs 35-38. Accessed June 10, 2013 at http://www.michiganpropertytax.com/distinguishingfeatures2004.htm" Special assessment levies are not ''ad valorem'' property taxes even though they may be collected on a property tax bill. A special assessment is based strictly upon the concepts of "need" and "benefit." Special assessments require a finding that the public improvement is "needed" for a reason consistent with the law which permits the special assessment and that each property specially assessed receives a unique, measurable and direct benefit from the public improvement that was needed. The basic idea is, if government funds make a property more valuable, the government has the right to get money back from a property owner. This contrasts significantly with an ''ad valorem'' tax which is extracted to fund government operations that are designed to benefit all citizens. An ''ad valorem'' tax is based upon the legal principles of equity and uniformity. That is, everyone must be treated fairly and equally. In special assessments, proportionality is a key element. A special assessment is premised upon the necessity for the public improvement and the fiscal burden imposed must be reasonably proportional to the benefit created. Unlike ''ad valorem'' taxes, special assessments are not expected to be uniformly levied (the same millage rate for each parcel). The fiscal burden is spread among only those properties within the special assessment district and it is apportioned to each property based upon the unique, specific and direct benefit the property received from the public improvement. Thus, a vacant lot might be assessed the same fee as an adjacent lot which has a million dollar home on it. For example, both the vacant lot and the property improved with a million dollar home, might be assessed Five Thousand Dollars ($5,000.00) for a sewer connection. So, while both properties have identical $5,000 special assessment obligations because sewer installations have been specially assessed, there will be a huge difference in their ''ad valorem'' tax levies; one ''ad valorem'' levy will be based upon the value of a vacant lot and the other will be based upon the value of the lot plus the million dollar home.


Difficulty

Among the unique characteristics of the special assessment is one that makes a special assessment particularly onerous for ordinary citizens. A special assessment levy enjoys a
legal benefit Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a pr ...
known as a "presumption of validity." This means that it is much harder and usually, much more expensive to appeal than the ''ad valorem'' property tax most citizens are familiar with. This happens because it is difficult for the ordinary citizen to recognize that an error in the special assessment procedure or methodology has occurred and the resources a taxpayer must use to fight a special assessment levy are more expansive and costly than resources to fight an improper ''ad valorem'' tax on their real estate. For example, most property taxpayers intuitively understand market forces associated with the value of their homes or other property. Consequently, if the tax assessment seems out of line, they usually can recognize it quickly. In the case of special assessments, it is difficult for even professionals to grasp the complex nuances associated with the concepts of necessity and benefit which are the foundations of a special assessment levy. Once a taxpayer has recognized a problem exists, the difference in procedures to appeal a property tax and a special assessment levy makes a special assessment appeal much more difficult. Whereas, ''ad valorem'' tax appeals can often be made at a local level without any professional help, special assessment appeals often require the assistance of attorneys,
engineer Engineers, as practitioners of engineering, are professionals who Invention, invent, design, build, maintain and test machines, complex systems, structures, gadgets and materials. They aim to fulfill functional objectives and requirements while ...
s and other consultants. Furthermore, a taxpayer often has the opportunity to protest a property tax assessment annually. In the case of most special assessments, there is usually a very short window of opportunity to appeal and if the window is missed, there can be little recourse available. Of most importance to any property owner who feels aggrieved by a special assessment levy is a legal concept known as a "presumption of validity". This means courts regard the actions of local government units with deference and the courts presume the government unit did everything correctly. At a minimum, any challenge to the special assessment must show the government did not act lawfully. That challenge is significant. For all these reasons, it is critical for any person facing a special assessment levy to participate in public hearings and monitor the special assessment process from its earliest stages.


See also

*
Value capture Value capture is a type of public financing that recovers some or all of the value that public infrastructure generates for private landowners. In many countries, the public sector is responsible for the infrastructure required to support urban dev ...


References


External links

* {{DEFAULTSORT:Special Assessment Tax Federal government of the United States Property taxes