What is it? Are the older residential neighborhoods or commercial districts of your community plagued by numerous dilapidated buildings or a preponderance of vacant or underused properties? Is most of the new development in your community occurring at the periphery of town, and consisting primarily of low-density, land-intensive uses? If you answered ‘yes’ to either of these questions, then split-rate property taxes may be helpful in revitalizing your community.

Property taxes in most communities are single-rate taxes, which tax a parcel of land and the improvements on that land at the same rate. In some U.S. cities, however, property owners pay a split-rate property tax. A split-rate property tax does just what the name implies: it splits the tax assessment into two different tax rates for buildings and land and levies taxes on buildings at a lower rate than the taxes on the land that the buildings are sited on.

Split-rate property taxes are often described as having two main benefits: 1) to encourage property owners to improve and renovate existing buildings, and 2) to encourage owners of vacant or underutilized land to develop or redevelop the land with the highest and best land use for that location.

Why use it? With traditional single-rate property taxes, property owners who construct new buildings on their property or who renovate (or even just properly maintain) existing buildings on their land will likely pay higher property taxes than if they had done nothing to improve their property at all. Conversely, property owners who leave vacant land undeveloped for years in hopes of a future speculative windfall, who allow existing buildings to deteriorate, or who simply board up buildings in order to avoid higher property taxes are rewarded with lower property taxes.

Thus, traditional single-rate property taxes can discourage property owners from developing their land efficiently and intensively. This adds to the maintenance and improvement costs for existing buildings, contributes to the deterioration of older commercial districts and residential neighborhoods, leads to inefficient land use and urban sprawl, degrades urban design, and deprives a city of housing and job opportunities.

Split-rate property taxes can help remedy these problems by encouraging revitalization of older urban areas, discouraging real estate speculation and absentee landlordism, promoting infill development and more efficient use of existing infrastructure, discouraging sprawl and the loss of open space and farmland, encouraging increased economic activity and affordable housing, and improving urban design.

For more information on how split-rate property taxes work and how this tax reform could help revitalize your community, jump to the ‘Is This the Right Tool for You?’ section below.

Does it work? Split rate property taxes have been successfully implemented in several US cities, as well as in numerous cities throughout the world. In a 1999 Working Paper published by the Lincoln Institute of Land Policy, Steven Cord (Research Director, Center for the Study of Economics) wrote:

Most cities with split-rate property taxation in the US are located in the State of Pennsylvania, where the State Constitution gives any tax-assessing entity the option of implementing split-rate property taxation upon voter approval. While Pittsburgh (PA) is the largest and most well-know city to adopt split-rate property taxation, the results of studies on how big an impact theses taxes had (relative to other factors) on Pittsburgh’s economic rebound in the 1980s and 1990s have been mixed. However, studies of smaller cities in Pennsylvania (that have better able to isolate the specific contribution of split-rate property taxation) have shown that these kinds of tax reforms do produce significant revitalization and redevelopment effects. For a more detailed profile of how split-rate property taxation benefited the cities of Harrisburg (PA) and Scranton (PA), check out the ‘Who Else is Doing It?’ section below.