Property tax increases – check or pay?

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Often, the taxpayer notices an increase in property tax. The basis for this is often a city council decision to "consolidate the budget". Using the current example of the city of Neuwied, every taxpayer should question the respective notice. What happened?

In October 2020, the city council of Neuwied set an increase in property tax B to 610% of the tax base amount for the 2021 fiscal year. The corresponding tax assessments have been sent out. The outcry among property owners on social media has been enormous, as the tax hike is said to be almost 50%. But what are the main features of municipal taxation? How should such an increase be assessed?

From the political statements on the tax increase, it could be inferred that this increase is intended to serve the purpose of budget consolidation. There is no doubt that this is a legitimate purpose. Section 93 (4) of the Municipal Code (GemO) of Rhineland-Palatinate stipulates that the budget must be balanced in planning and accounting in each financial year. Simply put, revenues and expenditures must be kept in balance. In addition, § 93 para. 6 p. 1 GemO stipulates that the municipality must not incur excessive debt. So far, so good.

According to the GemO, the cities and municipalities have various sources of income at their disposal, such as contributions, fees, other charges and taxes. However, the GemO goes further in the case of municipal levies and determines the order in which these are to be collected. The municipality has to obtain the income and deposits necessary to fulfill its tasks, as far as is reasonable and necessary, from fees for its services and from taxes, insofar as the other income and deposits are insufficient. The law thus stipulates a subordination for the generation of income from taxes. Expressed the other way around, the municipality may only levy or increase taxes when all other sources of income have been exhausted and the expenses exceed the realizable income.

This so-called hierarchy of revenue-raising options has already been taken by administrative courts as grounds to declare increases in property tax to be inadmissible. When it comes to property tax increases, the question is often more about whether an increase is permissible at all than about the actual tax increase, since municipal authorities have been granted a wide margin of discretion by case law. In practice, municipal administrations often fail to implement the hierarchy for the generation of municipal revenues with sufficient precision, which has led to a wide range of disputes throughout Germany in the recent past. It is worth conducting a thorough examination of such property tax increases.

The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.