Statistical Control of Assessment Uniformity

In most states constitutional provisions exist that there shall be uniformity in the assessment of properties (real estates) in a taxing district. Since property tax rate is applied to the assessed values of properties, it is believed that the equity of taxation will be preserved if their assessed values bear a uniform proportion to their respective fair cash values. But fair cash values are unobservable, because each parcel of real estate is unique and is usually infrequently transacted in a market far from being perfect. Consequently, the relationship between the fair cash value of a parcel and its sale price is difficult to specify. The problem therefore arises as to how one can detect departure from assessment uniformity by using market data of unique properties generated in a taxing district. A review of the opinions of state tax courts in several important tax abatement cases and an examination of a few key studies dealing with property tax administration reveal a state of confusion as ubiquitous as the property taxation itself. In this paper, several models are proposed in an attempt to bring some measure of order to property tax administration. One of the models that utilizes the lognormal transformation of sales and assessment data appears most promising. Preliminary empirical investigation appears to confirm its usefulness in extracting essential information for the purpose of monitoring the quality of property tax systems.