Moves to tax land and structures separately gain momentum

Spurred by a recent United States Supreme Court decision, advocates of a split property tax - separate valuation and levies on land and structures - are pushing proposals in several states.

Last May the high court upheld a Hawaiian law under which assessments are based on potential value instead of actual value. The ruling appears to remove both legal and practical obstacles to the split tax: By permitting governments to assess the value of land on the basis of its economic potential rather than its current use, the court ruling makes it possible to shift more of the tax burden to the land and perhaps eventually tax only the land, not the structures on it.

In effect, this would mean that the owner of a vacant lot or a parcel with slum dwellings on it would have to pay as much property tax as if there were a new apartment complex or a factory on the land. The backers of such tax reform are well aware of the apparent potential for both economic growth and slum clearance under such tax policy.

In Pennsylvania, where the state constitution provides for split taxation, six cities, including Pittsburgh, have in the past decade instituted or broadened such levies. And in Missouri a constitutional amendment enabling such a tax plan was approved by the state House of Representatives earlier this year. Although time ran out on the legislative session before the measure could be deliberated by the state Senate, proponents plan to reintroduce it next year.

Groups in Georgia, Massachusetts, New York, and Wisconsin are planning dual property-tax efforts.

A dual-rate system with emphasis on land values rather than buildings ''is fairer and tends to encourage new construction and rehabilitation,'' holds Stan Rubenstein, executive director of the Center for Local Tax Research, an affiliate of the Henry George School in New York City. The split tax, perhaps leading to a single tax on land, owes much to the ''single tax'' theory of self-taught economist Henry George (1839-97).

''Very low land taxes encourage monopolistic holdings of large tracts and induce owners to keep their land out of productive use,'' says Mr. Rubenstein, who hailed the Supreme Court's ruling in the Hawaii case.

Steven Cord, a history professor at Indiana University of Pennsylvania (in Indiana, Pa.), views the split-tax system as having ''very beneficial impact'' on economic development in those cities that have made the change.

''Taxing the location value of land at a higher rate than improvements will serve the same purpose as breaking up of large property holdings through direct government intervention, and (it will) enable the states themselves to reap benefits that now go to private landowners,'' he says.

Pittsburgh and Scranton, Pa., have had taxes on land since 1913, but state law limited the discrepancy between the taxation of the land and structures on it. Since 1977, however, Pennsylvania cities have had the authority to vary the rates pretty much as they see fit. Under that law, Scranton now taxes land at 9. 6 percent and buildings at 2.55 percent, and the Pittsburgh levy is 15.15 percent on land and 2.7 percent on buildings.

Other Pennsylvania cities that have gone to the separate rate setup are Harrisburg in 1974, McKeesport in 1980, New Castle in 1981, and Washington beginning next January.

Comparing the three years before the change with the first three years after the split tax was adopted, building permits in McKeesport increased in value by 38 percent, says Professor Cord. In two neighboring communities without split taxes, the value of building permits dropped 20 percent and 28 percent in the same period.

Cord suggests that an eventual switch to taxing only land is a laudable goal, but says it will take time to achieve. ''Meantime, lower taxes on buildings should encourage new construction,'' he says, since higher land tax rates induce owners to put sites to fuller use.

In Washington, Pa., a city of 19,000 in the western part of the state, the new tax setup, approved last July by the City Council, will involve assessing land at 16.555 percent and buildings at 1.68 percent. The city's property tax previously has been a single 2.58 percent levy based substantially on use instead of potential.

Unlike Pennsylvania, most states have constitutional restrictions on dual property-tax systems, which split-tax advocates are working to clear away.

State Rep. Walter Mueller (R) of Kirkwood, a leader in the split-tax movement in Missouri, says that proposed measure has provisions that would protect farmers from being put at a tax disadvantage.

Stan Frederiksen, executive director of the nonprofit Public Revenue Research Council in Missouri, contends that 70 percent of property owners in St. Louis ''would be paying no more than at present, or even less than at present,'' were a dual property-tax system implemented.

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