PRC: How to Challenge Value Assessments

About the PRC (or other land tax descriptions).

On a lunchtime walk, my neurons were firing like crazy about how a Georgist land tax could be implemented, and I came up with the following method for ensuring the accuracy of land-value assessments.

I described in an earlier column a process that involved recording all land sales, paying particular attention to sales of unimproved land, whether infill, the result of a natural disaster (like fire), or in cases where the owner of land and the owner of improvements are seperate entities. This process, however, could still come up in error, whether by a simple mistake, or corruptly deliberate falsification. The idea of leaving it to the courts to figure this out was unsatisfying; I couldn't figure out how to handle this issue. On my walk, I realized how amazingly simple the solution is

Simply put, when someone fails to pay his rent/tax (for whatever reason), the rent/taxing entity (such as the PRC, or a government) would create from the parcel a landholding corporation, with, at its inception, the owner of the property as 100% shareholder. If, for example, the tax rate is 5% of the sale value of the land minus improvements, the taxing entity would then take 5% of that "corporation", leaving the owner with 95%. It would immediately sell off that percentage; the proceeds would satisfy the rent bill. The recorded sale value of the site would immediately be adjusted to match the value paid for the shares.

Shareholders would have the usual rights. A majority of shareholders would have the authority to charge rent to the occupant of the site at whatever rate the majority specified. If they wished to evict the current occupant, they would still have to buy the improvements at whatever rate the occupant specified. Notice that at 5% of sale value, an occupant unable to pay his rent/tax would have a good ten years before privately collected rent even became an issue; there'd be plenty of time for him to consider his options.

Shareholders would also have the usual obligations. They would have to pay their portion of the sale value of the land to the rent/tax collecting entity. Notice that this actually relieves the occupant of some of the burden until the 50% mark is reached.

Finally, notice that this takes a rent/tax value that the occupant either cannot or will not pay and gets a second opinion from the market. If the value the rent/tax collecting entity turns out to be lower than the initial estimate, then the assessment would be adjusted downward. Of course, it could also result in it adjusting upward. This risk would likely result in most people, in most places, paying in money rather than in kind.

An issue one might raise is the potential for the occupant to charge an extortionate amount for the capital improvements when majority shareholders would like to evict him, or the ability of majority shareholders to charge extortionate rent to the occupant.

For the extortionate rent issue, such an act would be self-defeating, in my opinion. Landowners can't really charge more than the market values it at. If they chaged too much, the occupant would simply have to move (the value lowering effect of this kind of tax providing him with more affordable opportunities), and then, they'd be collecting nothing, and paying much to the rent/tax collecting entity. As to capital improvement sales, I personally prefer favoring the occupant. In the event that an occupant simply won't pay his rent (or his rent/tax), but attempts to block default via an extortionate capital sale price, they majority will eventually get the house (or other improvement) via an equally extortionate rent value.

So far as I can tell, I think this system would work well. Feel free to present me with scenarios which make this system a REALLY bad idea.