A land value tax is a levy on the value of unimproved land. It disregards the value of any buildings or improvements, such that the basis of property taxes are solely on the assessed value of land. The land value tax has also been referred to as an annual charge on the rental value of land. It may be thought of as a payment for the benefits received from municipal improvements such as the street and sewer systems, parks and schools. The 19th century American writer and political economist Henry George was a proponent of the land value tax and believed that when the locational value of land was improved by public works, the "economic rent" of the land was the most logical source of public revenue. 1
The land value tax is intended to encourage development and discourage speculative land investment. The land value tax is well suited to established cities and smaller growing cities where there is a need to build new mixed-use infill projects, but high taxes on improvements discourage new development. A land value tax is levied in more than a dozen cities in Pennsylvania, together with other taxes on buildings. This arrangement is called a split-rate property tax, where typically the value of land is taxed at a higher rate than the value of the improvements. Between 2011 and 2016, the City of Altoona in central Pennsylvania was the first and only city in the United States to rely on a land value tax alone. Outside the United States, the land value tax is used in such places as Denmark, Estonia, Hong Kong, Singapore, New South Wales and Mexicali.
A land value tax is levied on land only and not on any improvements on it such as buildings, drainage, agricultural crops, or other works. If there were a vacant parcel in a row of homes, all the properties would be taxed at the same rate including the vacant lot. Land valuations are based on optimum use of the land within existing planning regulations. If properties undergo rezoning, they should be reassessed to reflect the type of development the change allows. Unlike property tax rolls which increase as new construction and development takes place, the tax base does not grow with the land value tax. Therefore, regular reassessments are essential with the land value tax if municipalities need additional tax proceeds.
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