A discourse on navigating the transition
Common Ground-OR/WA
March 2026
In this document we propose four steps that will ease the transition from a state’s present equal rate property tax system to a land value tax.
Several ideas evolved during our simulation studies and secondary research over the past several
years. For cross-checking, we examined three proposals from Tim Helm Economic Consulting at
Prosper Australia, our sister Georgist organization advancing the expansion of land-based taxes
in that nation. His report, titled “STAMP DUTY TO LAND TAX Designing the transition”, is
instructive and could be a model. U.S. states do not have a stamp tax on real property sales as
does Australia, but some do have flawed property tax systems that call for similar remedies.
Here are excerpts from the report:
What transitional policies could best address these issues of principle and politics in order
to minimize the persuasive task required of reform-minded politicians?
Land value tax is the obvious replacement of a stamp duty, providing a more stable revenue
alternative. Borne by the same property owners, administratively simple, unavoidable and
perfectly economically efficient, it finds favour with economists and progressives alike. It is
“the least bad tax” (Milton Friedman) and a “no-brainer” (Martin Wolf). The economic case
for it is “simple, and almost undeniable” (James Mirrlees). A land value tax is like a
generalised ‘user charge’ for the benefits society provides the landowner; as the benefits
vary across space and time, so does the charge.
Transition options
In recommending abolition of stamp duty, the Henry review suggested three alternative
models for the transition to a new land tax. (The 2010 Henry Tax Review “Australia’s Future
Tax System” report recommended a major overhaul of Australian land tax to increase
efficiency.)
A model that can be referred to as full grandfathering or switch-on-sale (Coates 2017), in
which an exemption from LVT is granted to existing owners, while new purchasers are liable
for LVT but are no longer required to pay stamp duty; current property owners are
exempted from the new land tax until sale;
A phase-out / phase-in or gradual transition model, whereby rates of duty for new
purchases are gradually reduced and LVT gradually increased over time (e.g. 10 years);
»» In the version of this proposed by Henry, the initial phase-in period would apply to future
buyers only, with existing owners remaining exempt for a different period (e.g. 15 years)
before facing a similar gradual phase-in period to the full rate of LVT.
The switch-on-sale model has serious disadvantages: it loses too much revenue, poorly
targets this cost at the real transitional inequity, and creates a disincentive to transfer
property.
»» With only around 5-6% of properties changing hands each year, the revenue loss from
exempting current owners indefinitely would be substantial. This cost would be poorly
targeted at the real transitional inequity – the double taxation of recent buyers. Switch-on-
sale would also create a disincentive to sell property, undermining the efficiency objectives
of the reform.
A gradual transition has two sides to it, each with different purposes.
An immediate full introduction of LVT will be unfair on recent buyers and might provoke a
‘tax revolt’. A gradual phase-in resolves the issues of both fairness and politics relating to
existing owners simply by slowing down the introduction of the new tax to minimise the
grumbling. A 3-year tax holiday would give current owners time to get used to the idea as a
land tax is phased in at 25% increments. A tax holiday might encourage prospective buyers
to bring their home purchase forward: stimulating turnover and protecting house prices
from the effects of uncertainty.
The phase-out of stamp duty has different goals. Primarily it avoids significant revenue loss
while the new LVT is being phased in. But it also means buyers do not experience radically
different tax treatment depending on whether their purchase precedes or follows the
reform date. Adjustments to property markets, i.e. the minor ups and downs in asset prices
resulting from differences between old and new tax structures, are therefore likely to occur
gradually.
However, the turnover disincentive of stamp duty remains in place for longer, with
associated efficiency cost. This cost might be considerable. A phase-in of land tax is a
necessary complement to a phase-out of stamp duty since otherwise new buyers would be
taxed twice during the transition period. The revenue costs of these policies are funded via
a higher land tax rate over a defined transition period, so the overall reform package is
budget neutral.
Phase-in LVT rates modelled:
Year 1 = 0.18% Year 2 = 0.37% Year 3 = 0.55% Years 4-10 = 0.74% Years 11+ = 0.46%
This package makes sense on its own but could also be supported by a radical proposal: to
allow widespread deferral of land tax until the next sale at commercial interest rates.
With interest on commercial terms, the state benefits by receiving payment in excess of
borrowing costs. Tax deferral is in economic terms profitable lending by the state secured
against property and should be seen as such. The interest charged on the deferrals at state
borrowing rate + 1.5% ensures no net debt increase.
Asset-rich cash-poor landowners unable to free up liquidity may encounter hardship when
facing a new tax which must be paid in cash. Yet on principle there are no grounds for
exemption, especially for long-held properties, since the hardship is not one of inherent
ability to pay – i.e. wealth – so much as the structure of asset portfolios. The obvious solution
is to allow deferral of tax payment with debt discharged on sale. Such arrangements are
well established for rates deferral in several states. 1
Designing the transition to LVT for U.S. cities
Background
Regardless of how the property tax is structured, it contains economic incentives. Imbued within the
present equal rate system are perverse incentives – to withhold capital investments in improvements and
to hold land for speculative gain. These detrimental actions lower tax liability for speculative landholding.
The land tax, on the other hand, is conceived to produce desirable incentives – to invest in substantial
property improvements, not to speculate on sites and raise the costs for later occupants. Constructive
investing behaviors lower landowners’ tax liability compared to the conventional tax system. To fully
realize the impact of these incentives, the land tax must be based on accurate assessments.
The two urgent problems with the current property tax many states in the U.S. that need to be addressed
during transition to a land value tax are: 1) Several states have statutory limitations on the annual growth
of assessments. California’s Proposition 13 and Oregon’s Measure 50 are prime examples. Because of
this limit, taxable value is detached from real market value. Over time the gap widens as land values
continue to increase faster than the constrained land values. 2 Improvement values generally grow at
about the same rate as inflation. 2) Assessment practices in some counties are not up to standard.
Historically, U.S. assessors tended to undervalue land relative to improvements. To avoid taxpayer
complaints and lawsuits, they sometimes simply lower the assessment on land. Land value taxation
simply will not function effectively with erroneous or out-of-date evaluations. The desired incentive
effects will be distorted.
Commentary on the Australian transition proposal
Although we believe the steps proposed in the Australian case are a workable model, there are a few
features we feel could be modified: A change from either unintentionally lagging assessments or statutory
limited assessments to LVT will be a big leap for many property owners. A method must be in place to
ease the increase from undervalued to real market assessments. Some reform-minded organizations in
Oregon have recommended reset-on-sale for a transition to RMV. But we have reservations like those
expressed by the Prosper Australia reformers. We agree that the switch-on-sale model has serious
disadvantages in that it is narrowly targeted and creates a disincentive to transfer property. Household
lifestyle changes require different living accommodations, but prolonging change in residence creates a
mismatch. California’s Proposition 13 is a prime example of the problem of resetting to full market value
upon sale. Only 3.6% of residential properties in the state are resold annually. Furthermore, it is not the
sellers who often profit from their sale proceeds, but rather the buyers who must absorb the shock of an
abrupt change to full market value resulting in higher property taxes.
Taking a 3-year tax holiday before LVT is phased in at 25% increments would slow the process of
introducing LVT after it has been authorized by the state legislature and adopted by a local jurisdiction.
Legislators and local elected executives want to see results that supporters promised in terms of
incentive effects of the new tax system. Accordingly, gradual increases in the land tax rate could be
introduced in smaller increments at the outset, giving landowners time to get used to a new tax system. In
the same way, gradual increases toward true market assessments can be introduced. Ideally, accurate
and current assessments should be concurrent with LVT implementation. If a county has been using
undervalued assessments in its current property tax system, it may be preferable to get its valuations in
order whilst LVT legislation is clearing constitutional or statutory hurdles, before the reformed tax system
is finally adopted and authorization given to local jurisdictions.
A Four-step Transition to Land Value Taxation
LVT seeks to remedy two major problems with current property tax systems: 1) equal rates; 2) erroneous
assessments. Because the bulk of assessments fall on structures rather than land, there is a disincentive
to use property to its highest and best use. Statutory limited assessments are shown to produce
horizontal inequity – taxing similar properties at different levels. Chronic under-assessment of tax rolls
produces unequal treatment as well, inviting political interference.
Here are the four steps we propose to ease the transition to LVT and to address unnecessary hardships
that may result:
1. GRADUAL TRANSITION TO REAL MARKET VALUES
It makes no sense to base LVT tax levies on what amount to false assessments because this will
completely distort the desired incentive effects. The first step in transitioning to a land value tax is to
change currently under-assessed values (CUV) to real market values (RMV). But as previously noted, an
immediate introduction of real market assessments will be a shock to most property owners.
A gradual phase-in resolves this issue and is preferred over the reset-on-sale.
Other jurisdictions within the U.S. have dealt with a similar problem where property assessments have
over time fallen short of true value, even when county assessors are not beset by mandated growth
limitations. Maryland addressed the out-of-date valuation problem by passing an assessment “phase in
law” that allows any adjustment correcting an under-assessment in a property’s value to be phased in
over the next three years. The law requires that the increase in value over the old assessment be “phased-
in” over the next three years. For example, a new appraisal of $130,000 compared to an old appraisal of
$100,000 is $30,000 higher than the old appraisal. That $30,000 increase is “phased in” equally over the
next three years: 1st year, $110,000; 2nd year, $120,000; and 3rd year, $130,000.
The problem with this approach is that by the third year the ‘new’ appraisal is likely to be out of date. Using
a capped annual increase is a static approach. Because RMV assessments change over the phase-in
period, the assessor must account for this moving target. The method preferred here is a Buffered Phase-
in, perhaps over a 5-year period. A simultaneous phase-out / phase-in would look like this: First year: CUV + X% of current RMV; second year: Year 1 value + X% of current RMV; third year, Year 2 value + X% of current RMV…etc., where X% is a factored increment that results in cumulative phase-in values reaching the estimated target year RMV. An illustration of this process produces a gradual change in the CUV:RMV ratio that approximates this distribution:
Phase-in CUV/RMV
Ratio
Current 0.39
Year 1 0.59
Year 2 0.73
Year 3 0.83
Year 4 0.93
Year 5 1.00
In each successive phase-in year, the new assessment increases a given amount greater than the current
CUV – the moving target. A graphic of this process is shown here:
In the process of transition, it is important to maintain revenue neutrality, a policy objective that most
legislators would insist upon. Because RMVs are higher than CUVs the tax rate must be lowered at each
stage in order to produce the same revenue as the CUV levy would have yielded. For example, a
combined mill rate for all taxing districts within the adopting jurisdiction is $22.75; to reach revenue
neutrality the RMV combined rate would have to lower to $10.00 when RMVs have finally replaced CUVs.
As the new tax system is phased in and the CUV assessments move closer to the target RMV, the taxable
rate will gradually decrease. To be clear, the 5-year transition period shown here is only an illustration.
We shall further explore the possibility of making this period more flexible.
2. GRADUAL TRANSITION TO A LAND VALUE TAX
The next step is to phase in the LVT option. The question is: do we undertake this process simultaneously
with the CUV-to-RMV phase-in period? In the beginning years we are still using assessments that fall
short of RMV; yet we do not want to base LVT rates on false assessments, distorting the desired incentive
effects. However, as previously stated, this is not an ideal outcome but is necessary to ease the burden of
tax shift. Furthermore, we do not want to delay the transition to LVT when a local jurisdiction has chosen
this option by official resolution.
A reasonable solution is to begin using LVT in a limited fashion, as suggested in the Australian report. This
is accomplished by phasing in the differential rates on land and improvement assessments over a period
of time. The current tax system taxes land and improvement values at the same rate, a 50/50 tax ratio.
Under the LVT regime, we increase the tax rate on land and decrease the rate on improvements – a higher
LVT ratio. For example, a current mill rate of $12.50 applies this rate to both land and improvement values
on all taxable properties. A 90% LVT would split this rate into differential rates: 90% of the total rate to
land and 10% improvements. This may produce a split such as $28.00 on land assessments and $1.50 on
improvements. A graphic of this process appears below:
With a gradual phase-in, we would start with a low LVT ratio, say 60/40, and gradually increase the ratio
each year to 90/10, simultaneous with the CUV:RMV assessment phase-in period.
At this point in our discourse two questions remain: 1) Who chooses to adopt the LVT local option? 2) Is
the phase-in period a ridged timeline expressed as a fixed number of years, or can it be flexible?
Our experience with local interest in LVT indicates that the larger cities in a state are most likely to take the
local option. Studies have shown that the incentive effects of LVT are most robust in high value central
cities. The impact of the land-based tax is minimal in rural areas, and in natural resource lands where
current use valuations are in effect the tax shift from the current system to LVT is negligible.
Are counties an appropriate governmental level to apply the LVT model? The arguments for the affirmative
are: 1) real estate markets aren’t limited to jurisdictional boundaries; businesses and households seek
locations in both central cities and suburbs. Why should two tax systems bisect the demand-supply
market? 2) County assessors administer the property tax in all jurisdictions within its boundaries (with
few exceptions). They certainly would prefer a uniform system throughout. And what about overlapping
taxing districts?
In the balance, we believe the municipality is the better choice for local adoption of LVT. Furthermore, it is
important that the LVT tax method be applied to all taxing districts within the jurisdiction in order not to
weaken the incentive power of LVT. In some Pennsylvania jurisdictions the incentive effect of LVT is
limited because school districts are exempt. This led to its eventual repeal in Altoona. By making the
municipality choice, split-rate calculations will indicate revenue neutrality at the municipal level.
County territory exclusive of municipalities will remain under the current system, notwithstanding findings
that the effects of LVT are minimal. At some point in the future, if constitutional provisions allow and
legislators approve, the entire property tax system in some states with statutory limits on assessment
growth may revert to real market values – doing away with limited assessments altogether.
The second question: What is an appropriate length of time for the phase-in period? It is likely that all
stakeholders will prefer some flexibility in the timelines for both the transition from CUV to RMV and equal
tax rate to LVT. Alternatively, the dependent variable may be the degree of change in the LTV ratio instead
of an adjustment in the interim time period.
We propose that a dynamic adjustment of dates for successive changes be handled by an LVT
Commission comprised of a government official from (i) each of the municipalities within a county that
have adopted the local option LVT, (ii) the corresponding county assessor’s office, (iii) the state’s
department of revenue responsible for administering tax laws with oversight over assessment practices
and the collection of revenue. This commission would meet annually to review factors that would
influence the choice of the next uptick in the transition. The principal factor would be the current transition
period’s rate of increase in land values.
Bear in mind that one of the objectives of LVT is to constrain land value inflation, thereby increasing
housing affordability. The commission has two levers: changing the ratio or changing the time. If for
example the rate of land value inflation is high the commission may decide to increase the LVT ratio by
20% the following year or alternatively shorten the period to the next change. If the land inflation rate is
modest, it may decide to wait two years or instead increase the LVT ratio by only 5 percent. Or, if there is
a general decline in land values, the commission may slow or pause the adjustment to the tax rate
differential. Given a choice, we would prefer that the interim time periods not be extended. Keep the
movement to LVT going at a steady rate.
As for the phase-in / phase-out of CUV to RMV, there may be no need for the same flexibility. Closing the
gap in 5 years seems reasonable. The commission’s second task is to set the annual buffer factor, for
instance the Year 1 value + X% of current RMV. Choosing the percentage value of the X factor will depend
on the pace of increase in the city-wide RMV. Implementing the transition simultaneously means to begin
at the same time. It’s possible that the LVT transition period will take longer than the buffered phase-in.
Several states have statutory limitations on the annual growth of assessments. The property tax system in
these states is a rate-based scheme. Here tax rates are usually set to extract the maximum amount of
revenue allowed to meet local government budgets. Once the transition phase is complete the tax system
will revert to a revenue-based regime. In this case the projected revenue becomes the basis for
calculating tax rates. States using true market value assessments are already under this regime. This is
the norm for property tax systems nationally and internationally. However, to alleviate taxpayer concerns
about uncontrolled government spending, a cap can be placed on revenue growth, based on regional rates
of inflation and variations in the cost of public works and services.
3. TAX DEFERRAL
Under the LVT system, specific situations may arise that create unintended hardships for landowners. This
may create some resistance to a reform of the property tax system; thus, some form of mitigation will be
needed to offset undue burden. The most common case is households that are asset rich but cash poor.
This often occurs in urban areas that have seen high appreciation in properties values over the last 15 to
30 years.
Again, on principle there are no grounds for an exemption, especially for long-held properties, since the
hardship is not one of inherent ability to pay, i.e. wealth, so much as the structure of current assets. By
taxing away the surplus economic rent that runs up parcel values to prohibitively expensive and
speculative levels, we can ensure that real estate markets are more stable, competitive and attractive on
a wider scale.
The deferral option is fair to both the homeowner and the community. Relieved of any fear that the current
tax will lead to forced abandonment, a household is assured it can reside in place so long as it wishes. It
also assures that the municipality will ultimately, even if not immediately, receive its fair share of property
taxes due. The capital gain when a parcel is ultimately sold provides the revenue necessary to meet
budget projections. As in the Australian case, an obvious solution is to allow deferral of tax payment with
debt discharged on sale and payable at commercial interest rates. Tax deferrals are well established and
well proportioned.
4. STANDARDIZED ASSESSMENT METHODS
Any property tax system, either conventional or land-based, produces economic incentive effects. LVT
finds favor among economists because taking the tax off buildings engenders no drag or “deadweight loss”
on the local economy. Urban planners favor the land tax because it encourages compact, more efficient
development patterns and dampens land price inflation, the main cause of housing price escalation.
These are the desired effects of LVT which depend upon accurate property assessments. Again, if the tax
base of LVT were the false assessments of statutory growth limits, the incentives would be distorted.
Likewise, if market value assessments become outdated or land is undervalued by county appraisers,
unequal tax burdens will result.
Over the decades, U.S. assessors tended to undervalue land relative to improvements. It was gross land
underassessment that caused the demise of Pittsburgh’s two-rate tax in 2001. Disgruntled public officials
complained that the reinstituted old flat-rate tax would favor land holding rather than land using—the
opposite of what a healthy city requires.
It is already universal practice for assessors to list land and building values separately on their property tax
rolls. But when the same tax rate is applied to both land and improvements as is the conventional
method, assessors have little reason to expend resources assessing these two values accurately. To
avoid taxpayer complaints and lawsuits, they sometimes simply lower the assessment on land. If a
jurisdiction shifts to two-rate property taxation, however, both components need to be measured
accurately.
The state’s revenue department should adopt appraisal standards that must be applied by county
assessors in jurisdictions electing to adopt the LVT local option. State-of-the-art appraisal methods
should be in effect by the time LVT is being phased in. We strongly recommend that the department adopt
standards set by the International Association of Assessing Officers (IAAO) which establishes criteria for
measuring fairness, quality, equity, and accuracy. 3 For counties in which cities have adopted LVT the
department will likely have to supplement assessor’s offices with funding assistance.
Currently, the best practice method used for arriving at a fair land and building value is Computer Assisted
Mass Appraisal, available as a software package. The CAMA model enables valuation counties to adopt a
standard system of evaluation. Mass appraisal is the process of valuing many properties at the same time
at lower administrative cost. Another novel idea for reducing administrative expenses is free-market
solution to reassessments. Because real estate markets cannot operate without valuation information,
assessors could employ realtor and property insurance databases, a constant source for valuing land and
buildings.
CAMA can efficiently break down the sales prices of properties into values contributed by location, lot size
and shape, building square footage, building style and age, and other property characteristics. The
capacity to link data files can be linked to geographic information system (GIS) map files should be
available to all county assessors. Parcel level data sets should be made available to approved public
users including stakeholders and LVT Commission members who can monitor progress using such
measures as land value inflation rate, pace of RMV increase, tax burden and incentive effects.
If local officials adopt best assessment practices and reassess land values frequently, then
implementation of land value taxation will have a much better chance of success.
NOTES:
1 The New South Wales Treasury website has current information on these subjects:
https://www.treasury.nsw.gov.au/sites/default/files/2020-10/FFR%20Final%20Report%20-%20200828%20%281%29.pdf
2 Oregon Property Tax Capitalization: Evidence from Portland, Northwest Economic Research Center College of Urban and
Public Affairs, FINAL REPORT March 2014.
3 Bell, Michael E., John H. Bowman, and Jerome C. German, The assessment requirements for a separate tax on land. In
Land value taxation:
Theory, evidence, and practice, Dye and England, eds., 2009.