Business Property Taxes

by | Jul 17, 2023 | Uncategorized

Business property taxes are a tax levied on the value of a business’s property or real estate holdings. While these taxes play a role in funding public services and infrastructure that benefit businesses and the community, they can also disproportionately impact lower-income people. When businesses are required to pay significant amounts in property taxes, they must find ways to pass on the costs to consumers through higher prices for goods and services. 

This makes it more difficult for lower-income people, who may have less disposable income, to afford necessities. Additionally, business property taxes can impact the availability of jobs and services in low-income communities, exacerbating economic inequality and poverty. 

What are Business Property Taxes?

Business property taxes are taxes that are levied on the value of property owned by businesses. This includes land, buildings, and other structures that are used for commercial purposes, such as offices, factories, and retail stores. The property’s value is typically assessed by a government agency, such as the county assessor’s office, and the tax is calculated as a percentage of the assessed value. States, counties, and municipalities also tax businesses on the value of non-real estate property used in business, property such as furniture, x-ray machines, printing presses, computer equipment, etc.

The purpose of Business Property Taxes is to generate revenue for state and local governments, which are responsible for providing public services and infrastructure that benefit businesses and the community. And the taxes are justified on that basis. These taxes are used to fund a wide range of services, including education, public safety, transportation, and health departments. Business Property Taxes are thought to help ensure that businesses pay a fair share of the costs associated with providing these services and maintaining the infrastructure they rely on.

How do Business Property Taxes Work?

Business property taxes are a type of tax that is levied on the value of a business’s property or real estate holdings. These taxes are assessed by local governments and are used to fund public services and infrastructure. Here’s how business property taxes work in the United States:

  1. Property Valuation

The first step in determining business property taxes is to assess the value of the business’s property or real estate holdings. This valuation is typically performed by a local government assessor who evaluates the property’s value based on several factors, including location, condition, and market trends. As in most taxation in the United States, though, assessors are dependent, to a great extent, upon voluntary taxpayer self-reporting. This dependence provides ample opportunity for cheating.

  1. Tax Rate

Once the property’s value has been assessed, the local government applies a tax rate to that value to determine the amount of property tax the business owes. The tax rate may be expressed as a percentage of the property value or as a dollar amount per $1,000 of assessed value.

  1. Payment Schedule

Business property taxes are typically paid annually, although the specific payment schedule may vary among jurisdictions. The local government usually sets the due date for payment of property taxes and may be based on the fiscal year or calendar year.

  1. Tax Assessment Appeals

If a business believes that the assessed value of its property is inaccurate or unfairly high, it may appeal the assessment through a process established by the local government. This may involve providing additional documentation or evidence to support their claim or engaging in a hearing or mediation process with the assessor’s office.

  1. Exemptions and Deductions

Some businesses may be eligible for exemptions or deductions from property taxes based on the nature of their operations or the use of their property. For example, businesses operating in certain industries or locations may be eligible for tax breaks or incentives designed to encourage economic development or investment. Or religious organizations are largely exempt even though they too depend upon the infrastructure supported by government.

History of Business Property Taxes

Business property taxes have a long history in the United States, dating back to colonial times. Here is a brief overview of the history of business property taxes in the United States:

  • Colonial Times: In the early colonial period, local governments levied property taxes on all property types, including land, livestock, and household goods. These taxes were used to fund local government operations and were assessed based on the property’s estimated value.
  • Post American Revolution: After the Revolutionary War, property taxes became an essential source of revenue for local governments in the newly formed United States. Property taxes were used to fund public services and infrastructure, such as roads, schools, and hospitals.
  • Industrialization Era: In the late 19th and early 20th centuries, the United States underwent a period of rapid industrialization, and business property taxes became a significant source of revenue for local governments. As businesses grew and expanded, their property holdings increased, and local governments sought to capture a portion of this value through property taxes.
  • Modern Era: Today, business property taxes remain an important source of revenue for local governments in the United States. The specific rules and regulations governing business property taxes vary by state and local jurisdiction. Still, generally, businesses are required to pay property taxes based on the assessed value of their property holdings.

Impact of Business Property Taxes

Business Property Taxes can significantly impact businesses, particularly small businesses that may have limited resources to cover the costs of these taxes. For example, small businesses may own property that is not generating significant revenue but may still be required to be assessed resulting in payment of significant amounts in Business Property Taxes. This can place a substantial financial burden on these businesses, making it more difficult for them to grow and succeed. Here are some of the key impacts of business property taxes:

  1. Revenue Generation

Business property taxes are a significant source of revenue for local governments in the United States. This revenue is used to fund public services and infrastructure.

  1. Financial Burden on Businesses

Property taxes can be a significant financial burden for businesses, particularly small businesses with limited resources to cover these costs. The amount of property tax owed by a business is based on the assessed value of their property, which can be affected by various factors, including location, condition, and market trends.

  1. Competitiveness

Business property taxes can impact the competitiveness of businesses. When businesses are required to pay significant amounts in property taxes, they may be less able to compete with larger businesses with more resources. This can make it more difficult for small businesses to survive and succeed in the marketplace.

  1. Compliance Costs

Businesses may also incur additional compliance costs associated with property taxes. For example, businesses may need to hire accountants or tax professionals to ensure they comply with the specific rules and regulations governing property taxes in their local jurisdiction. These additional costs can significantly burden businesses, particularly those with limited resources.

  1. Investment Decisions

Business property taxes can impact the investment decisions of businesses. When businesses are required to pay significant property taxes, they may have less money available to invest in their operations or hire new employees. This can limit the ability of businesses to expand their operations and create new job opportunities.

Business property taxes have a significant impact on businesses and the broader community in the United States. Policymakers and business owners should consider potential solutions and ensure the tax system is fair and equitable for all businesses.

Business Property Taxes can also impact the community as a whole. These taxes are used to fund public services and infrastructure that benefit businesses and individuals alike. For example, Business Property Taxes may fund the construction and maintenance of roads, bridges, and other infrastructure that businesses rely on to transport goods and services. These taxes may also be used to fund public schools, which help to educate the workforce upon which businesses depend.

Business Tax Disproportionate Impact on Lower-Middle-Income People

Business property taxes impact lower-income people disproportionately in several ways:

  1. Higher Prices

Businesses must, to survive, pass on the costs of property taxes to consumers through higher prices for goods and services. This can disproportionately impact lower-income people, who have less disposable income and are more sensitive to price increases. For example, suppose a grocery store in a low-income neighborhood is required to pay higher property taxes. In that case, they must increase the prices of their goods to cover the costs, making it more difficult for lower-income residents in the area to afford groceries.

  1. Reduced Availability of Goods and Services

When businesses are required to pay significant amounts in property taxes, they may have less money to invest in their operations or offer new products or services. This can limit the availability of goods and services in low-income neighborhoods or rural areas, where businesses may be less likely to operate due to lower profit margins. For example, suppose a community has a limited number of businesses that are subject to high property taxes. In that case, those businesses may be less likely to invest in new products or services that could benefit lower-income residents in the area.

  1. Job Losses

Business property taxes can impact the availability of jobs in low-income communities. When businesses are required to pay significant amounts in property taxes, they become more likely to lay off employees or to reduce their work hours to reduce costs. This can make it more difficult for lower-income people to find stable employment opportunities in their communities, further exacerbating economic inequality and poverty.

  1. Displacement

Business property taxes can also contribute to the displacement of lower-income people from their homes and neighborhoods. As property values increase due to higher taxes, landlords may choose to sell their properties or raise rents, making it more difficult for low-income renters to afford housing in their community. This can lead to gentrification and displacement of long-term residents, which can have negative social and economic impacts on the affected communities.

Overall, business property taxes can significantly impact lower-income people in the United States directly through higher prices and reduced access to goods and services and indirectly through job loss and displacement.

Business Property Tax Revenue

Business property taxes are levied by local governments in the United States, and the amount of revenue generated by these taxes varies significantly between jurisdictions. Therefore, no comprehensive data could be found on the total revenue generated by business property taxes across all local governments in the United States. But it surely runs into the billions.

Final Thoughts

Business property taxes can directly impact lower-income people in the United States through higher prices for goods and services and indirectly through reduced access to jobs and services. This can exacerbate economic inequality and make it more difficult for lower-income people to achieve financial stability and upward mobility. Additionally, business property taxes can contribute to the displacement of lower-income residents from their homes and neighborhoods, further exacerbating economic inequality and social dislocation. 

Policymakers should consider potential solutions to address the impact of business property taxes on lower-income people, such as providing tax breaks or incentives for businesses operating in low-income communities, investing in small business development, and supporting affordable housing initiatives to ensure that low-income residents remain in their communities. By addressing the impact of business property taxes on lower-income people, policymakers can help create a more equitable and prosperous society for all Americans.

In his book, A Taxing Problem, The Psychologist’s Prescription for a Just Tax System, Dr. Mitch reveals the inherent inequity of this and other taxes based upon the assessed value of property.  Smaller enterprises that must carry large amounts of debt to operate are required to pay the same amounts in property taxes as another enterprise, with the same business property and without debt.  The net worth or wealth represented by each of these businesses is radically different, and yet they are required to pay the same amount in property taxes. That is why, he argues, that a just tax system, one that levels the playing field and does not favor the wealthy over the less wealthy, would tax only based upon net worth.  His examination of the issue demonstrates that all government and its services could be financed with only a small 2% tax on net worth, without exemptions.

A Brief History of the American Tax System and How it Targets the Poor and Middle Class

A Brief History of the American Tax System and How it Targets the Poor and Middle Class

by | Mar 12, 2023 | Uncategorized

How many times in your life have you heard “life isn’t fair!”? Either you heard yourself exclaiming it in a moment of distress or perhaps you had a punishing parent tell it to you in an attempt to teach you a lesson. Life isn’t fair, and the dialectic of that phrase is that most of us seek fairness in not only our individual lives but also socially and economically. The drive for justice and fairness is innately placed deep in most Americans. Now more than ever Americans are feeling political unrest. Dr. Mitch explains; “Since societal anger is escalating, we can infer that the pain of living in society has been escalating. This pain is the source of political unrest, which is escalating in our country and the world due to treatment or conditions that are perceived as unfair”.

The United States Census reports that the official poverty rate in 2021 was 11.6% or 37.9 million people. To say that people are feeling social and economic strain would be an understatement. A large part of why people feel this way is due to not being paid liveable wages. Especially since the pandemic hit people are taking second jobs and creating “side hustles” just to get by. The middle class is disappearing and the unrest is palpable. With the middle class disappearing the separation between the poor and the wealthy is that much more evident. One major reason why this division is occurring is in our taxation system. Our system is currently designed to keep the rich wealthy and the poor getting poorer.

Taxes. Many believe money is the root of all evil. However, the world needs roots. We know living tax-free is not a solution, however, a fair tax system should be implemented to help even the score. Taxes are widely misunderstood and confusing for a lot of people. Because of this taxes can be incredibly sneaky and there are a plethora of ways that Americans are taxed unfairly.

Taxes are something a lot of people wished they knew more about. It often feels like an impossible task. Most Americans know that taxes play a vital role in our system but can’t help feeling that in some way or another we are also getting screwed by that very system. It’s like when you go to get an oil change as someone who knows nothing about vehicles. You may go in for car maintenance or repair with the understanding that you know nothing about cars and that you might be overcharged for not only the oil change but maybe even sold something you didn’t actually need. You simply don’t have the knowledge to be able to counter whatever the repairman is saying. This is how many people feel when it comes to taxes.

History of Taxes

Taxes have been around almost as long as humans have. The oldest known tax system occurred over 6,000 years ago in Babylonia to finance a war. Since then the United States has been utilizing a tax system that has been rooted in unfairness and targets the poor and middle class.

Declaration of Independence

On July 4, 1776, the Continental Congress adopted the Declaration of Independence. The Declaration of Independence explains that “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”. This is a pertinent part of American history and the taxation system because our tax system does not currently treat all people equally. Some people are born into affluent families and inherit wealth, success, and business. Some are born into homelessness. People are not all inherently born equal. Each person that lives in the United States has a completely different human experience and has different advantages and disadvantages. Therefore to honor that portion of the Declaration of Independence each human needs to be treated as such that evens out the playing field.

16th Amendment

The 16th amendment is widely known as the amendment that changed the way the United States taxes people forever. The 16th amendment was passed in 1909 in response to the 1895 Supreme Court case Pollock V Farmers Loan and Trust Co. The 16th Amendment states; “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” This Amendment established congress’s right to impose a federal income tax. Before the 20th century, most taxes were collected through tariffs rather than income.

Why Do We Have to Pay for Taxes?

You may be wondering what the point is in taxes anyways. You might be aware of the income tax that is taken from your paycheck and that’s it. Here are some of the most common reasons Americans pay taxes.

Government Jobs and Services

Federal taxes help pay for national things such as the president, the military, and congress. State taxes help pay for things such as governor and local roads. County and city taxes help pay for EMS, the police department, and schools.

Income Taxes

Withholdings are taken out of every employee’s paycheck. If you are a business owner or independent contractor and get paid in cash, you are expected to report those earnings to the IRS and pay a certain percentage of your wages as taxes. These taxes typically include medicare, social security, and unemployment.

Property Taxes

Are usually a percentage of tax taken from the current property value  There can often be a property tax from the county and the city.

Sales Tax

Sales tax is tax put on all retail sales in any given area. Across the United States, the percentage of sales tax taken can vary. Sometimes items such as food or clothing can be exempt from sales tax in certain places.

Business Tax

This is the tax that any given business is expected to pay. The amount is variable to the size and profit of that business.

Car Registration Fees

When you purchase a vehicle you have to pay tax for the license plate and for the title of the car. If you move into a different state you will have to pay the same use tax for a new license plate and title in the new state. The idea is to prevent a resident from going outside of the state to buy a car and therefore avoid the sales tax. Moving is extremely expensive, and some people have the desire to move and are unable due to it being too expensive. This added expense when moving with a vehicle is another example of how our taxation system targets the poor and middle class.

Hidden Taxes

Along with the list above, there are plenty of other ways the government implements hidden taxes. Due to Covid-19, the United States saw a spike in “side hustles” and people working for themselves. Side hustles gave people an opportunity to pursue their passions such as making art, content, or jewelry and being able to sell them. Many people began making content because it was work you could do from the safety of your own home. A lot of people began flipping items they thrifted or selling their clothes or beauty items on second-hand selling apps. It seemed like it was a no-harm no foul situation. However, many people don’t know that these side hustles need to be reported to the Internal Revenue Service (IRS) and you must pay taxes on them. Many people don’t understand that any and all earnings you make are expected to be reported to the IRS. Even if you got paid in cash or under the table the IRS expects that you report every single dollar. And if you don’t and the IRS audits you, you could be in some hot water.

What came as a shock to many is how confusing doing taxes were on your own and just how much one could be taxed. When you work a standard 9-5 job for an employer in the United States your paycheck will show you where your tax deductions are going. Nowhere on that paystub, it informs you that your employer matched part of your deductions. Typically an employer will match whatever deduction is taken out of your paycheck for unemployment. Once one becomes a 1099 contractor, or you are your own boss. you are expected to make all those payments. So if you thought you were paying too much in taxes before, you could be paying double as an independent contractor. For a small business or a side hustle this can be detrimental. Side hustles can be extremely lucrative and often people are even becoming millionaires from them. For most, they are simply a way to make ends meet. But being required to pay double in taxes takes a large chunk from their bottom line. This is another way the government unfairly taxes the poor and middle class.

How the Rich Stay Rich

One way the rich don’t have to pay taxes is by how they are taxed. Warren Buffet, a well-known millionaire in the United States has been filmed explaining that his secretary pays more in taxes than he does. This is because most of his money is currently in stocks and he only pays on his sold stocks which is capital gains tax (20%) and his secretary is paying income taxes (approximately 37%). The way that the rich and elite make money is very different from how lower middle-class people make money. And, they are not taxed the same. Investments otherwise known as capital gains have a maximum tax of 20% whereas income tax can be anywhere between 10 and 37%. The super-rich are never paying an equal amount of taxes as the average Joe.

It makes no sense that people who make more money aren’t taxed more. The burden is falling on lower-middle-class people who are already struggling. And we often see celebrities or other rich people getting jail time for tax evasion. Some of the 1% think paying any taxes is unacceptable. Their way of life is drastically different from everyone else. They do not struggle to pay for groceries and often those who do evade taxes are doing so out of greed. Sometimes the 1% lifestyle can no longer be obtained. This is where we see the bulk of celebrities or the rich run into problems. Instead of adjusting their lifestyle, they begin to evade taxes and get themselves into debt to maintain the lifestyle they are accustomed to. It is simply poor money management. The poor shouldn’t have to pay more in taxes just to ensure the elite can afford their second yacht.

Final Thoughts

Taxes can be extremely complex and overwhelming. As we head into tax season you might be feeling the burden and overwhelm of having to do taxes and what that might mean for you and your family’s future. We understand this burden and hope we can spark change and hope. In Doctor Mitch’s book, A Taxing Problem: The Psychologist’s Prescription for a Just Tax System he easily breaks down the how and why our taxation system is targeting the poor and middle class unfairly. When reading this book you will be offered an all-encompassing perspective on the issues of our current tax system and what solutions can be put into place. Dr. Mitch offers his unique insight and how the United States can fairly tax all Americans more equally to create a more just and fair society.

Can “defund the IRS” become a solution to the problem of inherent unfairness?

Can “defund the IRS” become a solution to the problem of inherent unfairness?

by | Feb 6, 2023 | Uncategorized

One need only look to the actions of the new Republican majority in Congress.  The first order of business for them was to defund the IRS.  The last Congress and the Senate passed legislation designed to modernize the IRS infrastructure, enable the replacement of retiring IRS personnel, and to hire more auditors.

The ostensible rationale for the Republican majority was that the new funds were intended to result in the hounding of small business through more auditing of those returns.

The legislation passed in the last congress recognized that the uber rich underreport their income by about 20%, depriving the country of needed revenue that then must be made up on the backs of the middle class in taxation and on future generation because of the need to borrow.  No wonder there is public support for the sentiment of viewing the IRS as an enemy.

The lack of fairness and justice in the ways in which we tax income gives rise to that perception.  When people of color in this country experience policing of their communities, the call to “defund the police” was heard. Just as defunding the police is no solution to the problem of institutional racism in the criminal justice system, “defund the IRS” (the tax police) is no solution to the problem of the inherent unfairness in the way we pay for government and its services.