Land Value Taxation (also known as split-rate real property taxation, and two-tiered real property taxation) is a type of real property taxation. Whereas the typical real property tax taxes both land and the improvements on the land at the same rate, LVT taxes land at a higher rate while simultaneously reducing, or even eliminating, the tax on improvements.
For example, Clairton in Allegheny County, Pennsylvania has a tax rate of 103 mills on
land and 4.32 mills on buildings rather than 29.5 mills on both (City and School District
Note: this video does not mentioned that the tax rate each landowner would pay is higher the
higher the land value. Land in the center of a bustling city for example would command
a higher tax than one in a rural area. Even though the same tax rate is applied to all
land, the total tax paid for each parcel differs as a function of its value.
Why Would Cities Implement Land Value Taxation?
A shift to land value taxation, even when structured in a revenue-neutral manner,
usually results in net tax reductions for the vast majority of residents.
The problem of inaccurate or radically higher assessments is reduced because of the
reduction in reliance on the building portion of the property tax.
By reducing or eliminating the tax on improvements, there is a greater incentive to
build, to build with higher quality materials, to maintain, to avoid blight, and to
redevelop economically depressed areas.
Cities are usually on the short end of the stick when economic development dollars
are issued. This program helps achieve the same goals with no public investment.
When cities *do* get permission to give out tax abatements, they lead to a revenue
loss to the community with no assured payoff later. Land taxation is purely revenue
neutral to the city. There is *no* tax shifting to citizens and property owners who
have already done their bit.
A tax on land also has the advantage of being a “value capture tax.” A new public
works project may make adjacent land go up considerably in value, and thus, with a
tax on land values, the tax on adjacent land goes up. Thus, those most benefited by
the new public improvements – i.e., those whose land value went up most, would
pay for the new public improvements.
A tax on land has been shown to result in better land use patterns and more in-fill
development. This has the benefit of reducing sprawl.
Several Nobel Prize winners in economics have stated their approval of government
revenue being raised from taxes on land.
Support for Land Value Taxation cuts across political lines. Free-market economists
like how it reduces distortions in economic decision-making. Environmentalists like
how it reduces sprawl and helps fund public transportation. Developers appreciate
how it makes new homes more affordable for their customers. Citizens like the
reduction in taxes.
Where has Land Value Taxation Been Implemented?
In the United States, it is best associated with Pennsylvania. In Pennsylvania, numerous
cities and boroughs have implemented Land Value Taxation. In Harrisburg, the tax on
improvements is only one sixth the tax on land — many economists credit the
“Renaissance” of Pittsburgh and Harrisburg over the last three decades to Pittsburgh’s
shift to Land Value Taxation in 1978.
How Can I Learn More About Land Value Taxation?
You can contact the Center at the address below. We can do a study of your city. Please
let us assign a level of study that fits your city’s needs: basic analysis, aggregate analysis,
or a full parcel-by-parcel analysis.
Center for the Study of Economics * 413 South 10th Street * Philadelphia, PA 19147
(215)923-7800 * [email protected]