A property tax refers to a tax on real property. Generally, property taxes are ad valorem, based on a fixed proportion of the value of the property on which the tax is assessed.
Ad valorem property taxes are based on ownership of the property and are payable regardless of whether the property is used and regardless of whether it generates income for the owner (although these factors may affect the assessed value). A property tax may also be referred to as a land tax, especially if the property is undeveloped.
While income tax technically meets the broadest definition of a property tax, the term is often limited to taxes based on real property. The most frequent use of property taxes in the U.S. is by municipal governments, authorized to generate necessary revenue in this fashion under state law.
For an example of property taxes, New York’s Real Property Tax Law allows property taxes to be imposed “by or on behalf of a county, city, town, village or school district for municipal or school district purposes.” Under §102, real property includes land, buildings, mobile housing, railroad structures, water pipes, and heating and electric apparatus.
[Last updated in February of 2024 by the Wex Definitions Team]