Hong Kong merited the highest grade (an A-) of all the countries and sub national jurisdictions evaluated in a scorecard recently released by the Council On State Taxation (COST) and the International Property Tax Institute (IPTI). Oregon is the only U.S. state to score a B-plus or better, and only one of four jurisdictions in the world to do so, the others being British Columbia in Canada, and South Australia and Western Australia.
On the flip side, the only two jurisdictions to score a D or worse both come from the United States: Pennsylvania and Puerto Rico. Five other U.S. states scored a D-plus: Connecticut, Delaware, Hawaii, Nevada and Rhode Island. The Northern Territory of Australia is the only non-U.S. jurisdiction to score a D-plus or worse.
The United States fared by far the worst in cumulative grades. Only 19 percent (10 of 52) of U.S. jurisdictions scored a B-minus or better, with only two jurisdictions scoring higher than a B-minus (Indiana with a B, and Oregon with a B-plus).
By contrast, 75 percent of U.K countries scored a straight B, 62 percent of Canadian provinces scored a B-minus or better, and 75 percent of Australian provinces scored a B-minus or better. The remaining countries, Hong Kong, Ireland, New Zealand, and South Africa all scored a B-minus or better.
A few characteristics of the U.S. tax system that are unique to the U.S. pop out as possible explanations for the low scores, and they mostly relate to how property taxes apply to business. Unlike the rest of the world, most U.S. states impose taxes on personal property. Although the trend in the U.S. is to move away from personal property taxes, where personal property taxes remain, they apply to business, and have been mostly abolished as applied to individuals. And outside the U.S., no other jurisdictions apply such a wide variation in property taxes between residential property and business property as Colorado, Hawaii, Massachusetts and South Carolina, which apply effective tax rates to commercial property that are 3.5 times higher than residential property.
The scorecard covers real and personal property taxes, and centrally assessed property taxes in the United States, United Kingdom, Canada, Australia, Hong Kong, Ireland, New Zealand, and South Africa. The study grades jurisdictions on three broad categories: transparency, simplicity and consistency, and procedural fairness. The final grade averages each jurisdiction’s score in each category.
Like the U.S., countries around the world use property taxes as the primary source for funding local services, with 50 percent of local revenue coming from property tax in the U.K. Most countries in the study collect property taxes at the local or state level, but Hong Kong and the U.K. centrally levy their property taxes.
Puerto Rico, tied with Pennsylvania for the worst score, consistently appears as an example of what not to do in the study’s explanation of its categories. Puerto Rico lacks easy-to-find explanations of how its property tax system works, does not give residents access to information on the assessment of other property to which to compare their own, lacks a consistent appraisal cycle, and imposes a high burden of proof on taxpayers who try to appeal their assessment.
Hong Kong on the other hand, as the highest graded jurisdiction, excels in all three categories, but gets nearly straight As in the transparency category, and the simplicity and consistency category. Oregon and Indiana similarly do well in all three categories, but Oregon especially excels in procedural fairness and Indiana in transparency, scoring As in each one respectively. No other U.S. state scores an A in any category.
Even after establishing one of the most effective property tax systems in the world according to COST and IPTI, Oregon has been considering further reform of its system. Other states should take note.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Does the scorecard prioritize the right aspects of property tax systems in its grading? Why does the U.S. have so many underperforming jurisdictions compared with other countries?
By: George Lynch
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