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The appropriate capitalization rate for land, assuming a constant perpetual income stream, is a combination of a yield rate (Yo) and an effective tax rate (ETR). [The appropriate capitalization rate for improvements must also make an allowance for recapture (return OF the investment), in addition to the allowances for yield (return ON the investment) and property taxes.]

For ad valorem property tax purposes, not including certain statutory or regulatory provided exceptions, land is always valued at its highest and best use. In determining the income the land could earn, the appraiser considers uses that are (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. Highest and best use was discussed in Lesson 2; we will not repeat that discussion here. (Note: An example of a regulatory exception is Property Tax Rule 8, Subdivision (f), which excludes open space land, as defined in Revenue and Taxation Code Section 421 from the provisions of Rule 8, and also states that not all provisions of Rule 8 apply to taxable possessory interests.)

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The lesson you just read reviewed different methods of appraising land, and discussed direct land capitalization. The next lesson will address the appraisal of improved property and of land using different residual techniques.

The single greatest challenge to any type of land value taxation system is accurate valuation of land on a large scale. In urban areas where nearly all real estate sales data represent transfers of land with improvements, it is difficult to divide prices between land and building components. Although many jurisdictions require a separate listing of land and building values on their tax rolls, these allocations will not affect the final tax bill if the tax rate is the same on both.

Any special tax on land value alone would increase the need to assign more accurate land values to parcels that have been improved over many years. As a result, skepticism as to the feasibility of this process has proven a major stumbling block to serious consideration of two-rate property taxes and other forms of special land taxation. Many observers have concluded that the practical problems of land assessment prevent the realization of the many theoretical benefits it offers.

Comparable Sales: The most straightforward method is an analysis of sales of comparable unimproved land, adjusting the prices to account for any differences in size, location, and features. Similarly, the capitalization of rental income for comparable vacant land can serve as a basis for estimating its sale price. However, these methods are difficult to apply in densely populated urban areas where sales or rentals of unimproved land are rare. The pool of sales data can be expanded if sales of improved land are followed soon after by demolition of the buildings. In that case, the unimproved land value can be estimated as the purchase price minus the costs of the demolition. Although such sales provide an important check for estimated values produced by other approaches, they do not exist in sufficient numbers over a varied enough geographic range to serve as the sole basis for assessment.

Income Analysis: The land residual method begins with an estimate of the income yielded by the developed property. The building value is then calculated, and from that the income attributable to the building is derived. Capitalizing the remaining income then provides a value for the land. However, even a cursory description of this method suggests the difficulties of its application. In particular, the existence of depreciation, or any deviation from highest and best use that would distort the income available to the unimproved land, can leave the independent value of the improvements extremely uncertain.

Cost Analysis: Similar problems confront a division of value according to the depreciated reproduction cost of the improvements. This method assumes that structures can be worth no more than their cost of construction, and assigns all remaining value in the improved parcel to the land itself. Physical, economic or functional depreciation greatly complicates the attempt to calculate building value, however, so this method requires fairly new construction whose price can be confidently estimated as a measure of value. The financial effect of various forms of obsolescence can only be measured accurately through examination of sales data, which will almost never be available for the building alone.

Cost of Development: A full-scale market appraisal of potential development alternatives provides another basis for estimating the sale price of unimproved land. This is the approach taken by developers considering new uses for land, land trusts seeking to acquire and preserve undeveloped open space, and taxpayers claiming deductions for charitable contributions of development rights. However, it is most suitable for valuing undeveloped land to be used for residential subdivisions. Even in these situations, it requires extensive study of the potential market for such properties, local restrictions on development, and the physical attributes of the land that would affect its building capacity, such as soil and drainage characteristics. This type of exhaustive individual appraisal is appropriate for purchasers or developers of individual parcels, but is not feasible for annual assessments for all parcels in a taxing jurisdiction.

Other valuation methods, such as derivation of typical ratios of site value to total improved property value, are even less useful in the case of densely developed urban property, where buildings of all sizes, ages and utility may be found in close proximity on fairly similar parcels of land.

Development of these new approaches must be matched by educational efforts to explain their operation to taxpayers, local officials, and the lawyers and judges who will consider their consistency with legal standards for assessment practice. Through its innovative efforts in both of these areas, Lucas County has made an important contribution to the theory and practice of land valuation.

This book, intended for the general reader curious about land and its taxation, brings together 12 leading scholars and practitioners to share their views on the theories and practice of land value taxation.

We analyze locational preferences of investors in the metaverse. The setting allows us to compile a unique data set with parcel- and investor-specific observations. We find strong evidence that location matters even in a virtual world with negligible transportation costs. Locational preferences come in two distinct forms. Investors are willing to pay substantial premiums for (1) land in close proximity to popular landmarks, and (2), for parcels with more memorable addresses. Virtual land incorporates characteristics from real estate and domain name markets. We argue that these effects are primarily driven by commercial land use and visitor density expectations.

The Texas Constitution and Tax Code provide that certain kinds of farm and ranch land be appraised based on the land's capacity to produce agricultural products (productivity value) instead of at market value. Land owners can apply for special appraisal based on the property's productivity value. The land's ability to produce agricultural or timber products determines the productivity value, which is usually lower than market value. Land used to manage wildlife may also qualify for special use appraisal.

The Comptroller's Manual for the Appraisal of Agricultural Land (PDF) explains the eligibility requirements and the appraisal procedures for agricultural land, as provided by Tax Code Chapter 23, Subchapters C and D, and is adopted by the Texas Comptroller of Public Accounts under Comptroller Rule 9.4001 as required by Tax Code Section 23.52(d).

Property owners may qualify for agricultural appraisal if land meets the following criteria:

The land must be currently devoted principally to agricultural use. Agricultural use includes but is not limited to the following activities: cultivating the soil, producing crops, raising or keeping livestock, poultry, fish or planting cover crops. It also can include leaving the land idle while participating in a government program or for normal crop or livestock rotation. Land used for raising certain exotic animals (including exotic birds) to produce human food or other items of commercial value qualifies. Cutting wood for use in fences or structures on adjacent agricultural land also qualifies.Using land for wildlife management is an agricultural use, if such land was previously qualified open-space land or timberland and is actively used for wildlife management. Wildlife management land must be used in at least three of seven specific ways to propagate a sustaining breeding, migrating or wintering population of indigenous wild animals for human use.Agricultural land must be currently devoted principally to agricultural use to the degree of intensity generally accepted in the area.The land must have been devoted to agricultural or timber production for at least five of the past seven years. However, land within an incorporated city or town must meet not only the criteria applicable to 1-d-1 land but also must meet one of the following additional criteria:The city or town must not provide the land with general services comparable to those provided in other parts of the city or town having similar features and population.The land must have been devoted principally to agricultural use continuously for the preceding five years.The land has been devoted principally to agricultural use or to the production of timber or forest products continuously for the preceding five years and the land is used for wildlife management.

The application for special appraisal as land qualified open-space agricultural use is Form 50-129, Application for 1-d-1 (Open-Space) Agricultural Use (PDF). The application for special appraisal of land based on its capacity to produce agricultural products is Form 50-165, Application for 1-d Agricultural Appraisal (PDF). The application for special appraisal for ecological laboratories is Form 50-166, Application for Open Space Land Appraisal for Ecological Laboratories (PDF). 2351a5e196