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Real estate taxes in France: Valuations lag behind marketReal estate tax valuations in France are so far out of date that they have not followed market values for decades. Taxpayers and the government generally agree this is a serious problem, but no steps have been taken toward a solution. France's last valuation of land was in 1961, and on buildings in 1970. This is despite a legally required six year valuation cycle. An annual coefficient based on general market trends is applied, but tax valuations have
not kept pace with the actual value of real estate. These are some of the findings of a study of real estates taxes in 14 countries published in the book, "An International Survey of Taxes on Land and Buildings," by Joan M. Youngman and Jane H. Malme of the Lincoln Institute of Land Policy in Boston. Throughout the world, property taxes are generally paid to local officials. In France, however, the central government is responsible for collection. One of the few other countries where a central government collects real estate taxes is Sweden, and there they are collected as part of the national income tax and withheld from wages. In the United States, only Maryland has a state-level centralized assessment system. In all other parts of the U. S., assessments and collection of real estate taxes are generally at the county level and in some cases at a municipal or district level. The tax base is established by the French central government and may not be altered by local authorities. Fiscal responsibility and accountability are diluted by taxes being levied at the same time on the same tax base by four levels of government. While the tax base is set at the national level, some minor adjustments in the rate are permitted at each level of government. The tax bill received annually by each taxpayer specifies the rate imposed by each level of government, but is delivered to the taxpayer on a single combined payment. Most taxpayers simply pay the total amount without studying the rates of each level of government. If the regional (state) government, for example, increases the tax rate but the departmental (county) government has a lower rate, the net amount of property taxes may be the same as the prior year. So, the tax rate changes often go unnoticed. To increase accountability, there have been legislative efforts to require each level of government to issue a separate tax bill. In many countries throughout the world, computer assisted mass appraisal systems are being used to statistically determine market values. Along with Switzerland and the United Kingdom, France is one of the few industrialized countries where computers are not used in property valuation. Even though complete revaluation has not occurred in many years, the government has tried valuation adjustments by indexing. Many French officials and taxpayers believe this indexing has only made matters worse. Other than the real estate tax system, other sectors of the French economy are highly computerized. Less industrialized and poorer countries have used technology to resolve similar real estate tax controversies. For example, table driven valuation systems are fully computerized in Chile and Indonesia. A residential occupancy tax is reduced according to the number of children and other dependents in the household. By U. S. standards, these deductions for children are generous. There is a 10 percent deduction in property taxation for each of the first two dependents, and 15 percent for each dependent after that. New buildings and the costs of remodeling or improving existing buildings are exempt from property taxation for two years after construction is completed. Subsidized low income housing is allowed a 15 year exemption, and some other types of real estate can receive an exemption for 10 to 20 years. About 20 percent, or 7 million dwellings, of all real estate in France is exempted from taxation. The national government partially reimburses local governments for loss of taxes from exemptions. As in the majority of countries, a transfer tax is imposed on the sale of property. Additionally, France imposes a sales tax on real estate buyers. This buyer's tax is a percentage of the market value, rather than the actual sale amount. The value of real estate is included in death and gift taxes in France, as it is in Chile, Denmark, Japan, The Netherlands, South Korea, Sweden and 22 states in the United States. The valuation standard in France is a property's rental value, while most other countries use the fair market value standard. A general coefficient is applied annually to adjust the valuation, but it has been so long since a formal revaluation that taxes vary widely from actual rental values. With its unsolved problems, real estate taxes have increased at rates higher than other taxes in France. Although taxpayers and government officials agree that complete reassessment of all real estate is long overdue, it remains a controversial and unresolved political issue. Other articles in this series: Real estate taxes in Chile |
By Kenneth V. Smith