4 ms·

Why do you feel that that the "value of the property" should be defined by what another party is willing buy it for after it has closed rather than than the amo

by nkurz 8y ago

Why do you feel that that the "value of the property" should be defined by what another party is willing buy it for after it has closed rather than than the amount the current owner is willing to sell it for while it is open? Both strike me as reasonable positions, and thus a compromise value between the two seems like it might be most fair.

cperciva 8y ago
Because the price the current owner would demand isn't just the inherent value of the property -- it's that plus the cost of relocating their business.
- nkurz 8y ago
  Yes, but symmetrically, the amount that a third party is willing to pay presumably has already subtracted their expected cost of relocating into the new space. Why should we privilege one valuation over the other? As a thought experiment, consider a custom-made many-billion dollar chemical factory that (due to IP or somesuch) can only be utilized by the current owner. Should the town be required to charge property tax as if it was unimproved land, or worse, as an unsaleable cleanup site? It's not that "nothing but resale" is obviously the wrong approach, but I don't see why "value to current owner" couldn't also play a role. Property tax on businesses feels like a negotiation to me, and I don't see why a town shouldn't be allowed to use whatever rules it wants.
  - AnthonyMouse 8y ago
    > Yes, but symmetrically, the amount that a third party is willing to pay presumably has already subtracted their expected cost of relocating into the new space. Why should we privilege one valuation over the other? We're not. The buyer values the property at $120,000 but has to pay $20,000 to relocate, so won't pay more than $100,000. The seller values the property at $80,000 but has to pay $20,000 to relocate, so won't accept less than $100,000. The market value is the $100,000 that actually gets paid. This also has the extremely strong virtue of being a known quantity. > As a thought experiment, consider a custom-made many-billion dollar chemical factory that (due to IP or somesuch) can only be utilized by the current owner. Should the town be required to charge property tax as if it was unimproved land, or worse, as an unsaleable cleanup site? What the state is obviously going to try to do in that case is use the market value of the property as it would be if it were alienable. Try a different one. Suppose a communications company has built ground stations for a global communications network. The initial locations were somewhat arbitrary but had to be chosen specifically with respect to the other stations, so that once the network is built none of the locations can change. The value of each individual station is a million dollars but there are ten thousand stations and the overall network is worth billions. Selling off individual stations would compromise the entire network. Does that mean the operator has to pay property taxes on billions of dollars for every station across thousands of jurisdictions, because they wouldn't sell any of them individually? You also get all the trouble with having to distinguish between having this property and having a property. A company might be able to make a billion dollars as long as they have somewhere to operate, even if it's not anywhere in particular. That doesn't make any particular property especially valuable if there are a large number to choose from and not a lot of competing buyers. Suppose in your example that the billion dollar facility can operate out of the back of a large truck. The truck needs to be somewhere, but it doesn't need to be somewhere specific. And if you say the value inside the truck gets taxed, it's going to move down the road to where it isn't (or at least where the rate is lower). Which isn't what you wanted, because then you don't get anything. > Property tax on businesses feels like a negotiation to me, and I don't see why a town shouldn't be allowed to use whatever rules it wants. It seems like what you're after isn't really property tax. If you want to tax based on factory output or number of employees or sales within the jurisdiction, you can do that, but there is no need to pretend it's property tax. The actual problem is that everybody wants tax revenue and nobody wants to discourage any specific activity by taxing it, but that's how it works. People will try to move the thing you tax out of your jurisdiction. This is why the better taxes are the really broad ones, like VAT, because the broader the base the lower the rate for the same revenue.
- SilasX 8y ago
  But if everyone is pricing that in, it scales all values by roughly the same factor and doesn't change the appropriate mode of taxation -- x% is still appropriate, for some value of x.
aakilfernandes 8y ago
Because moving has transaction costs. Imagine two lots right next to each other going for a million, but it takes another $100k to set up the store and move in everything. Walmart moves into one of the lots, then someone offers them 1 million and $1. They could switch lots and make $1, but the switch would cost $100k.
Matticus_Rex 8y ago
My parents love their home. They wouldn't sell it at 30% above market value. Should their property taxes be based on what it's worth to them, or what it's worth on the market? What it's worth on the market is a semi-objective measure, while worth to the owner is highly subjective. Calculating the tax basis value based on what the owner would sell it for has numerous problems even outside that subjectivity. It penalizes businesses for success in a way that promotes looting the company to artificially lower the business value. Aside from the deadweight loss involved, it artificially promotes the type of behavior firms like Bain are already criticized for. Also, it's highly subject to system-gaming. What is the incentive of a firm to actually accurately value it at what they would sell for while it was open? The only way it works is to enforce some draconian policy that requires them to sell if someone ponies the cash (a la Posner and Weyl's proposition in Radical Markets).
- __jahh 8y ago
  the fa makes the point that what makes a store successful it's location in the flow of a city's life and so the boarded up ones are going to be least productive junctions. The property is worth more because it's the property that is there and NOT the one that is 5 miles further in the under occupied suburbs.
  - Matticus_Rex 8y ago
    Exactly, but the extent that's the case, it's captured in the market value.
- SilasX 8y ago
  It's not that big a problem. You can let everyone designate one primary residence, and exempt the first $X of asserted value from taxation. People are entitled some sentimentality exemption, but (like today) not an unbounded one.
ams6110 8y ago
Property is generally priced and sold vacant, so a property tax should be based on a fair market value of the real estate + improvements in a vacant state. If a business is sold as a going concern, it's still priced as property (or lease) + inventory + the business itself. If you want to tax a business based on its sales, income, inventory, or whatever, then pass legislation to impose that tax, don't try to call it part of the assessed value of the property.
Digory 8y ago
Glen Weyl of Microsoft Research suggests property tax should be charged on self-assessed value -- but the owner can be forced to sell at their assessment. It was an interesting econtalk episode. [0] [0] http://www.econtalk.org/glen-weyl-on-radical-markets/ http://www.econtalk.org/glen-weyl-on-radical-markets/

by nkurz 8y ago

cperciva 8y ago

Because the price the current owner would demand isn't just the inherent value of the property -- it's that plus the cost of relocating their business.

nkurz 8y ago
Yes, but symmetrically, the amount that a third party is willing to pay presumably has already subtracted their expected cost of relocating into the new space. Why should we privilege one valuation over the other? As a thought experiment, consider a custom-made many-billion dollar chemical factory that (due to IP or somesuch) can only be utilized by the current owner. Should the town be required to charge property tax as if it was unimproved land, or worse, as an unsaleable cleanup site? It's not that "nothing but resale" is obviously the wrong approach, but I don't see why "value to current owner" couldn't also play a role. Property tax on businesses feels like a negotiation to me, and I don't see why a town shouldn't be allowed to use whatever rules it wants.
- AnthonyMouse 8y ago
  > Yes, but symmetrically, the amount that a third party is willing to pay presumably has already subtracted their expected cost of relocating into the new space. Why should we privilege one valuation over the other? We're not. The buyer values the property at $120,000 but has to pay $20,000 to relocate, so won't pay more than $100,000. The seller values the property at $80,000 but has to pay $20,000 to relocate, so won't accept less than $100,000. The market value is the $100,000 that actually gets paid. This also has the extremely strong virtue of being a known quantity. > As a thought experiment, consider a custom-made many-billion dollar chemical factory that (due to IP or somesuch) can only be utilized by the current owner. Should the town be required to charge property tax as if it was unimproved land, or worse, as an unsaleable cleanup site? What the state is obviously going to try to do in that case is use the market value of the property as it would be if it were alienable. Try a different one. Suppose a communications company has built ground stations for a global communications network. The initial locations were somewhat arbitrary but had to be chosen specifically with respect to the other stations, so that once the network is built none of the locations can change. The value of each individual station is a million dollars but there are ten thousand stations and the overall network is worth billions. Selling off individual stations would compromise the entire network. Does that mean the operator has to pay property taxes on billions of dollars for every station across thousands of jurisdictions, because they wouldn't sell any of them individually? You also get all the trouble with having to distinguish between having this property and having a property. A company might be able to make a billion dollars as long as they have somewhere to operate, even if it's not anywhere in particular. That doesn't make any particular property especially valuable if there are a large number to choose from and not a lot of competing buyers. Suppose in your example that the billion dollar facility can operate out of the back of a large truck. The truck needs to be somewhere, but it doesn't need to be somewhere specific. And if you say the value inside the truck gets taxed, it's going to move down the road to where it isn't (or at least where the rate is lower). Which isn't what you wanted, because then you don't get anything. > Property tax on businesses feels like a negotiation to me, and I don't see why a town shouldn't be allowed to use whatever rules it wants. It seems like what you're after isn't really property tax. If you want to tax based on factory output or number of employees or sales within the jurisdiction, you can do that, but there is no need to pretend it's property tax. The actual problem is that everybody wants tax revenue and nobody wants to discourage any specific activity by taxing it, but that's how it works. People will try to move the thing you tax out of your jurisdiction. This is why the better taxes are the really broad ones, like VAT, because the broader the base the lower the rate for the same revenue.
SilasX 8y ago
But if everyone is pricing that in, it scales all values by roughly the same factor and doesn't change the appropriate mode of taxation -- x% is still appropriate, for some value of x.

aakilfernandes 8y ago

Because moving has transaction costs. Imagine two lots right next to each other going for a million, but it takes another $100k to set up the store and move in everything. Walmart moves into one of the lots, then someone offers them 1 million and $1. They could switch lots and make $1, but the switch would cost $100k.

Matticus_Rex 8y ago

My parents love their home. They wouldn't sell it at 30% above market value. Should their property taxes be based on what it's worth to them, or what it's worth on the market? What it's worth on the market is a semi-objective measure, while worth to the owner is highly subjective. Calculating the tax basis value based on what the owner would sell it for has numerous problems even outside that subjectivity. It penalizes businesses for success in a way that promotes looting the company to artificially lower the business value. Aside from the deadweight loss involved, it artificially promotes the type of behavior firms like Bain are already criticized for. Also, it's highly subject to system-gaming. What is the incentive of a firm to actually accurately value it at what they would sell for while it was open? The only way it works is to enforce some draconian policy that requires them to sell if someone ponies the cash (a la Posner and Weyl's proposition in Radical Markets).

__jahh 8y ago
the fa makes the point that what makes a store successful it's location in the flow of a city's life and so the boarded up ones are going to be least productive junctions. The property is worth more because it's the property that is there and NOT the one that is 5 miles further in the under occupied suburbs.
- Matticus_Rex 8y ago
  Exactly, but the extent that's the case, it's captured in the market value.
SilasX 8y ago
It's not that big a problem. You can let everyone designate one primary residence, and exempt the first $X of asserted value from taxation. People are entitled some sentimentality exemption, but (like today) not an unbounded one.

ams6110 8y ago

Property is generally priced and sold vacant, so a property tax should be based on a fair market value of the real estate + improvements in a vacant state. If a business is sold as a going concern, it's still priced as property (or lease) + inventory + the business itself. If you want to tax a business based on its sales, income, inventory, or whatever, then pass legislation to impose that tax, don't try to call it part of the assessed value of the property.

Digory 8y ago

Glen Weyl of Microsoft Research suggests property tax should be charged on self-assessed value -- but the owner can be forced to sell at their assessment. It was an interesting econtalk episode. [0] [0] http://www.econtalk.org/glen-weyl-on-radical-markets/ http://www.econtalk.org/glen-weyl-on-radical-markets/