What the sensational property tax decision means for owners

Judgment in Rhineland-Palatinate - What the sensational property tax decision means for owners

It is the continuation of a dispute that has been smouldering for years - and which has the potential to literally block the judiciary for years to come: Property owners all over the state are appealing against their property tax assessments, partly because associations have been aggressively calling on them to do so. Now the Rhineland-Palatinate tax court, based in the tranquil town of Neustadt an der Weinstraße, has ruled in two cases - in favor of the taxpayers for the time being. The judges granted the applications of citizens in two interim legal protection proceedings. They had contested their property tax assessment notices against their respective tax office (case no. 4 V 1295/23 and 4 V 1429/23).

The court ruled at the end of November that the assessment by the tax office should be suspended in both cases "due to serious doubts about the legality". After examining the applications, there were doubts "both about the legality of the individual assessments under simple law and about the constitutionality of the underlying assessment rules", the tax court stated in its reasoning. The assessments are therefore not legally binding until further notice.

This is the first time that taxpayers have prevailed before a tax court of a federal state with their objections to the valuation according to the so-called federal model. This is what makes the decision from Neustadt so exciting, even though it is not a judgment. The judges ruled neither on a complaint nor on the general legality of the property tax. The latter can only be determined by the Federal Fiscal Court as Germany's highest tax court. It would then have to refer a corresponding case to the Federal Constitutional Court in Karlsruhe, which would make the final decision on constitutionality.

Urgent appeal against property tax reform by Olaf Scholz

Nevertheless, the decision from Neustadt is likely to be closely observed in Berlin and especially in the Chancellery: This is because Rhineland-Palatinate is one of eleven federal states in which the federal model applies. It was devised by the current Federal Chancellor and former Finance Minister Olaf Scholz (SPD). Tax experts were quick to criticize it as being particularly complicated. Five federal states therefore decided to enact their own property tax law or to change the federal model.

In both cases of the Neustadt court, the valuation rules on which the property tax is based are particularly controversial. Property tax is calculated using a three-stage procedure. In the course of the property tax reform, the values change in stage one: the tax offices first assess the properties on the basis of the submitted declarations and the newly determined standard land values. This results in the so-called property tax value, for which many have already received a notice from their tax office. In stage two, this property tax value is multiplied by the so-called tax assessment amount; finally, the local authorities apply their respective assessment rate to the product and send out the final tax assessment notices.

The Rhineland-Palatinate tax court has doubts about these same standard land values: it is not clear whether they were "lawfully arrived at". The judges had "serious concerns regarding the legally required independence of the Rhineland-Palatinate expert committees", which determine the standard land values. The possibility of influence could not be ruled out.

Property tax models controversial among tax lawyers

The parameters for calculating property tax are also controversial among tax law experts - as is the entire structure of the property tax reform. Lobby associations such as Haus & Grund and the German Taxpayers' Association are heavily involved. For example, they have commissioned an expert opinion from the well-known lawyer Gregor Kirchhof. The paper is intended to serve as an argumentative basis for model lawsuits that the two associations want to take to court in several federal states.

Kirchhof, who holds the Chair of Public Law, Financial Law and Tax Law at the University of Augsburg, concludes in his report that the federal model is unlawful. He mentions a total of ten points, including the standard land value: Kirchhof considers this to be problematic because the values have "systematic valuation flaws" and are "sometimes hardly comparable". The value is based on the purchase price of land in a municipality and the statistical net cold rent. The expert opinion sees the danger here that the strict application of the standard land value violates the principle of equality in the German constitution.

Lawyer Henning Tappe from the University of Trier, on the other hand, considers the federal model of property tax to be constitutional. The professor of public law as well as German and international financial and tax law admits that the standardization of a property in the federal model goes "quite far". Nevertheless, he does not believe that lobby groups and his colleague Kirchhof are calling for the federal states to switch to a different tax model. "Even with the federal model - as with any standardization - there will be injustices in individual cases, but all in all probably less than with pure area models, which other countries have opted for," says Tappe.

In order to take better account of the special nature of properties in their valuation, Tappe considers it conceivable to allow counter-evidence by experts in individual cases. This means that if owners have a justified opinion about the value of their property that differs from that of the tax office, they could consult an expert.

While experts, lobbyists and politicians argue, the tax offices are working through the property tax declarations received one by one. It is not uncommon for employees to be diverted from other tasks to do this, and the administrative workload is enormous. A total of 36 million properties need to be revalued. The tax offices must have completed their work by 2024, as the municipalities may then have to adjust their assessment rates - so that they can send taxpayers their notices towards the end of 2024. The new property tax will be levied from January 1, 2025.

Capital.de.

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In response to the Rhineland-Palatinate tax court's decision in favor of property owners, Berlin and particularly the Chancellery are likely to pay close attention, as Rhineland-Palatinate is one of the eleven federal states utilizing the federal model, a property tax reform initiated by current Federal Chancellor and former Finance Minister Olaf Scholz.
The Federal Fiscal Court, as Germany's highest tax court, will need to determine the general legality of the property tax if the court in Karlsruhe, the seat of the Federal Constitutional Court, decides to refer a corresponding case to it.
In two interim legal protection proceedings in Neustadt an der Weinstraße, the Rhineland-Palatinate tax court suspended the assessments due to serious doubts about their legality, both in terms of individual assessments under simple law and the constitutionality of the underlying assessment rules.
Tax experts critiqued the federal model as overly complicated, with five federal states deciding to create their own property tax law or modify the federal model in response.
The three-stage procedure used to calculate property tax, with standard land values playing a crucial role, is highly controversial among tax law experts and lobby associations such as Haus & Grund and the German Taxpayers' Association.
The expert opinion commissioned by these associations argues that the federal model is unlawful, pointing out issues with standard land values, which it claims have systematic valuation flaws and often lack comparability.
Lawyer Henning Tappe from the University of Trier, however, considers the federal model to be constitutional, acknowledging that the standardization involved may cause injustices in individual cases, but arguing that such injustices would likely be less than with pure area models.

Source: www.stern.de