It is the continuation of a dispute that has been simmering for years – and which has the potential to literally block the judiciary for the next few years: property owners all over the country are objecting to their property tax assessments, also because associations have aggressively called on them to do so. Now the Rhineland-Palatinate Finance Court, located in the tranquil Neustadt an der Weinstrasse, has decided in two cases – initially in favor of the taxpayers. The judges granted citizens’ applications in two interim legal protection proceedings. They had complained about their property tax valuation notices to their respective tax office (case numbers 4 V 1295/23 and 4 V 1429/23).
At the end of November, the court decided that the tax office’s assessment 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 notices under simple law and about the constitutionality of the underlying valuation rules,” the tax court said in its reasoning. The notices are therefore not legally binding until further notice.
It is the first time that taxpayers have brought their objections to the valuation according to the so-called federal model before a tax court in a federal state. This fact makes the decision from Neustadt so exciting, even though it is not a verdict. The judges decided neither on a lawsuit nor on the general legality of the property tax. Only the Federal Finance Court, Germany’s highest tax court, can determine the latter. He would then have to refer a corresponding case to the Federal Constitutional Court in Karlsruhe, which would make the final decision on whether it is constitutional.
Nevertheless, the decision from Neustadt in Berlin and especially in the Chancellery is likely to be followed closely: Rhineland-Palatinate is one of eleven federal states in which this same federal model applies. It was devised by the current Federal Chancellor and then Finance Minister Olaf Scholz (SPD). Tax experts criticized it early on as being particularly complicated. Five federal states therefore decided to enact their own property tax law or to change the federal model.
What is particularly controversial in both cases before the Neustädter Court are the valuation rules on which the property tax is based. Property tax is calculated using a three-stage process. As a result of the property tax reform, the values in stage one are changing: The tax offices initially evaluate the properties based on the declarations submitted and the newly determined 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 measurement amount; Finally, the municipalities apply their respective assessment rate to the product and send the final tax assessments.
The Rhineland-Palatinate Finance Court has doubts about these land reference values: it is not clear whether they “came about lawfully”. The judges had “serious concerns about the legally required independence of the Rhineland-Palatinate expert committees,” which determine the standard land values. Possible influence cannot be ruled out.
The parameters for calculating property tax are also controversial among tax lawyers – as is the entire design of the property tax reform. Lobby associations like Haus are also involved
Kirchhof, who holds the chair for public law, financial law and tax law at the University of Augsburg, comes to the conclusion in his report that the federal model is illegal. He names a total of ten points, including the standard land value: Kirchhof considers this to be problematic because the values show “systematic assessment deficiencies” and are “sometimes hardly comparable”. The value is based on the property purchase prices in a municipality and the statistical net rent. The report sees a risk here that the strict application of the standard land value will violate the principle of equality in the Basic Law.
Lawyer Henning Tappe from the University of Trier, however, believes the federal property tax model is constitutional. The professor of public law as well as German and international financial and tax law admits that the classification of a property in the federal model “already goes quite far”. Nevertheless, he does not believe in the demand from lobby associations and his colleague Kirchhof that states with the federal model should now switch to a different tax model. “In the federal model, too, there are injustices in individual cases – as with any typification – but all in all probably fewer than with pure area models that other states have opted for,” said Tappe.
In order to better take the special nature of properties into account when valuing them, Tappe believes it is conceivable to allow counter-evidence from experts in individual cases. So if owners have a reasonable disagreement with the tax office about the value of their property, they could consult an expert.
While experts, lobbyists and politicians argue, the tax offices are processing the property tax returns received piece by piece. It was not uncommon for employees to be taken away from other tasks and the administrative effort was huge. A total of 36 million properties need to be revalued. The tax offices have to be finished with their work by 2024, because then the municipalities may 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.
Note: This article first appeared on Capital.de.
