Land Value Tax (LVT)

Definition

The term land value tax is used to describe an ad valorem tax based on the unimproved value of land, disregarding improvements such as buildings.  While traditional property taxes levied by state and local governments take into account the entire value of real estate, land value tax is only concerned with the worth of the land.

Explanation

Also known as a site valuation tax, the history of land value tax (LVT) in the United States was influenced by the thoughts of Thomas Jefferson and Benjamin Franklin.  The state of Pennsylvania still imposes a land value tax.  This levy is applied to the value of unimproved land.  That is to say, the tax does not apply to any improvements made to the land such as the construction of a home or building.  This attribute distinguishes LVT from real estate tax (also known as property tax).

A land value tax is categorized as an ad valorem tax, which means the taxes owed are based on an assessment of the land's value.  It's also thought to be a progressive tax, reducing economic inequalities by placing a larger share of the tax burden on the wealthy.

Advocates for LVT point out the simplicity of the approach, since the only information required to impose the tax is an assessed value of the land and the owner's name.  Critics of LVT point out that an assessor's valuation is unreliable, and the correct value of the land can only be found through its sale on the open market.

Related Terms

flat tax, progressive tax, expatriation tax, excise tax, ad valorem tax, tax treaty, FUTA, franchise tax, gas guzzler tax, gross production tax, innocent-spouse rule, household employer's withholding tax, luxury tax, non-resident entertainers' tax