Real property tax is a non-personal tax imposed on economic units of real property, which are defined in line with section 2 of the Real Property Tax Act (category A real property tax for agriculture and forestry businesses and class B real property tax for real property). Taxation does not take account of the taxpayer’s personal circumstances or ability to pay.
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The process of determining what real property tax is payable follows a sequence of three independent steps. These are the procedure to determine the assessed value, the procedure to determine what is known as the base tax amount, which is derived from the assessed value, and the procedure to determine the tax due, which uses the base tax amount as an input.
The process starts with one of the following, depending on the real property in question:
Notable exemptions from real property tax apply to public authorities, the churches and benevolent or welfare institutions.
On the basis of one of the assessed values or substitute economic values, the tax office determines the base tax amount. This information is then passed on to the municipality in question. The rates that are applied to the assessed value or substitute economic value to obtain the base tax amount are as follows:
Article 106 paragraph (6), second sentence, of the Basic Law stipulates that the municipalities must be authorised to set multipliers for real property tax within the framework dictated by the laws. Municipalities apply a multiplier fixed by the municipal council to the base tax amount, and determine the tax due by issuing a tax notice. In the new Länder, real property tax is sometimes still calculated in a simplified procedure, which uses the residential or usable area as a substitute tax base, and applies a flat rate to this. The tax is then collected by means of provisional tax returns (section 44 of the Real Property Tax Act). As the municipalities are free to fix the multiplier as they see fit, the tax imposed may differ to some extent from one municipality to the next.
The weighted average of the multipliers applied by the municipalities in the old Länder in 2011 was 308% for category A real property tax (agricultural and forestry businesses) and 411% for category B real property tax (real property). The corresponding figures in the new Länder were 284% for category A and 414% for category B.
The legal basis for the imposition of real property tax is the Real Property Tax Act, in the version published in the Act to Reform Real Property Tax Law of 7 August 1973 (Federal Law Gazette I, p. 965), with subsequent amendments.
Real property tax is collected by the municipalities, who receive the revenue in its entirety.
The imposition of tax on real property is one of the oldest forms of direct taxation. Already in existence in the ancient world, this type of taxation spread northwards over the Alps under Roman influence and was initially replaced on German soil by land tithes and land charges payable to churches and feudal lords, being refined from the High Middle Ages onwards under the name of Bede from a ‘voluntary contribution’ to an obligatory tax. By virtue of its link to real property as the most evident and most readily accessible part of any property, the tax came to predominance in the territorial tax systems during the agrarian period (under names such as Hufenschoss, Bauernschoss, Grundschoss or Kontribution). Whereas the older types of real property tax were based only on rough, area-based estimates of land values, the development of land registry techniques from the 18th century onwards brought an additional assessment in terms of the type of cultivation and the quality of the land. This was the basis of real property tax laws in the 19th century tax systems of the individual states (for instance the laws passed in 1811 in Bavaria, 1821 in Württemberg, 1854 in Baden and 1861 in Prussia). In Miquel’s tax reform of 1891/93, real property taxation in Prussia was essentially left to the municipalities. In the dire financial straits after the First World War the Reich financial reform of 1920 placed the Länder under a direct obligation to realise the revenue from this tax. This gave rise to differing systems in the Länder, and it was only the 1936 reform of non- personal taxes, which put in place a standardised Real Property Tax Act throughout the Reich, generally assigning the revenue to the municipalities. After 1945 new real property tax regulations were passed in various Länder, but these were replaced in 1951 by a single Real Property Tax Act valid throughout the Federal Republic of Germany. In 1961 and 1962, category C real property tax (on building land) existed alongside categories A and B. The category C tax imposed a higher charge on land that was available for building but was still undeveloped, the aim being to increase the supply of building land.