Reform of the property tax: Depending on the location, it will be more expensive

Hesse is taking a separate path with the reform of the new property tax and, as expected, is not following the federal model. From 2025, the tax is to be calculated using a so-called area factor method. Finance Minister Michael Boddenberg (CDU) presented the draft law to the state government on Monday and described the model as "fair, simple and understandable". The state parliament is supposed to deal with this in the autumn, because as early as the summer of next year, around three million plots of land have to be re-evaluated. The Hessian municipalities receive around 1.2 billion euros every year from property tax. Even if the reform is to be made revenue-neutral, it will be more expensive or cheaper for some owners and tenants, according to Boddenberg. In addition, municipalities should be given the opportunityto levy a property tax C for plots ready for construction in order to take action against land speculation and to accelerate development.

The previous levying of property tax is unconstitutional due to outdated unit values ​​and is only allowed until the end of 2024. According to Boddenberg, the model adopted by the federal government in 2019 is too complicated and also subject to constitutional challenge. The Hessian model is fair because the size, location and use of the property affect the tax level. It is simple because only a few details are sufficient for the calculation, and it is understandable because the calculation is short and clear. “Simple locations are taxed lower than the pure area model, good locations higher. But both with a sense of proportion, ”said Boddenberg. So that this succeeds, not only the area but also a factor that reflects the value of the property is included in the calculation.The owner of a villa in the best part of the city is said to pay more property tax than the owner of a building in a simple part of the city.

An example calculation

The calculation begins with the fact that the area is recorded first.

Land is valued at four cents per square meter, the building area at 50 cents per square meter.

There is a 30 percent discount for living space.

The calculated tax index is now multiplied by the factor.

This is determined by dividing the standard land value by the average standard land value in the respective city.

So that there are no large outliers and the different tax levels are dampened, the factor is assigned the power of 0.3.

The finance minister justified this by stating that a location twice as good does not mean that the infrastructure, for whose costs the property tax is the consideration, is twice as good.

An example calculation: A single-family house has a living area of ​​140 square meters, which results in a tax index of 49 euros (140 times 50 cents times 70 percent, because it is a living area).

500 square meters of flooring results in a tax index of 20 euros (500 times 4 cents).

This adds up to 69 euros.

The standard land value is 100 euros, but the city's average land value is 200 euros.

The factor would then be 0.5 (100 divided by 200), but is dampened by the power 0.3 to 0.81.

This value is now multiplied by 69 euros and results in the tax base of 55 euros.

Assessment rate is crucial

This is not the final tax amount, because it depends on the tax rate of the respective city.

For example, if this is 400 percent, property tax is charged at 220 euros per year.

The state government's goal is to pay 20 percent more tax for land twice as valuable and 20 percent less property tax for half as expensive.

According to Boddenberg, almost all municipalities will have to change their assessment rates, because it also depends on them how much property tax is to be paid.

It therefore makes no sense if owners try today to calculate their future property tax according to the new rules using the old rates.

Criticism comes from the chambers of industry and commerce. They demand a value-independent, pure surface model that is simpler and more understandable. In addition, the chambers speak out against the introduction of a property tax C. Entrepreneurs should not be punished if they have space available for investments in order to grow their business later, argued Christian Gastl, Vice President of the Chamber of Commerce. The SPD parliamentary group accused Boddenberg of protecting the owners of extremely expensive properties with his model and making it more difficult to levy a wealth tax.