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Land Use Implications of the Ad Valorem Property Tax: The Role of Tax Incidence

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The impact of an unmodified ad valorem property tax on land and product values is examined for forestry and annual yield enterprises under the assumptions of (i) full tax capitalization, (ii) full tax shifting, and (iii) shared tax incidence. The models have been extended to include annual management costs and to differentiate between one-time initial investments in capital improvements versus recurrent reforestation expenditures. The two types of investments are shown to have quite different tax consequences. The property tax is biased against capital intensive forms of land use, regardless of the length of the income cycle. The myriad investment situations that can occur within as well as among land uses make it difficult to formulate practical tax policies that would be equitable in all circumstances. This problem is further compounded when the incidence of the tax is shared between land and commodity markets. It is demonstrated that if some of the tax can be shifted forward in the form of higher product prices, certain types of intensive agricultural crop production may be quite insensitive to the level of the property tax. Public tax policies that are formulated on the assumption that all property taxes are fully capitalized ignore the differential effects that can occur within as well as among types of land use and could have quite unintended consequences. Forest Sci. 29:702-712.
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Keywords: site burden; tax neutrality; tax shifting

Document Type: Journal Article

Affiliations: Assistant Professor, University of Kentucky, Lexington, KY 40546

Publication date: 1983-12-01

More about this publication?
  • Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
    Forest Science is published bimonthly in February, April, June, August, October, and December.

    2016 Impact Factor: 1.782 (Rank 17/64 in forestry)

    Average time from submission to first decision: 62.5 days*
    June 1, 2016 to Feb. 28, 2017

    Also published by SAF:
    Journal of Forestry
    Other SAF Publications
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