Identifying Determinants of Horizontal Property Tax Inequity: Evidence from Florida

Abstract

In the property tax literature, an ad valorem property tax is considered equitable if all properties in the taxing jurisdiction are subject to the same effective tax rate. That is, all properties, regardless of value or type, should be taxed at the same percentage of their market value. Because market value is a theoretical construct and not directly observable, errors in estimating market value may result in systematic inequity, with some properties taxed at higher effective rates than others. This study extends previous research on property tax inequity by examining potential determinants of errors in the property valuation process for a sample of single-family homes in Palm Beach County, Florida. The results indicate that assessment difficulty (as measured by the variation around the mean assessment to transaction price ratio) is positively related to lot size, living area, age of the home and the percentage of minority residents in the neighborhood and is negatively related to market activity levels, resident income levels, whether the property is the permanent residence of its owner, and whether the property has a swimming pool. The generality of these results is limited by the use of transaction price as a proxy for unobservable market value.