Special Tax Assessment

Definition

The term special tax assessment refers to charges public authorities can assess against real estate parcels to raise funds to support certain public projects.  Special tax assessments are usually levied when a benefit flows to the owner of the real estate parcel as a direct result of the public project.

Explanation

Special tax assessments are traditionally imposed by state and local governments to help fund infrastructure projects.  The tax will be levied in areas known as a special assessment district (SAD), which are real estate parcels believed to directly benefit from the infrastructure improvements.

For example, a township may decide to run a main line (piping) necessary to provide homes access to a sanitary sewer system.  The geographic areas benefiting from this improvement would be designated as the SAD.  The owners of the real estate parcels, whether a home sits on the parcel or not, directly benefit from the sanitary sewer system since it adds to the resale value of the home or property.

The township incurs a cost to run the main line down each street.  A special tax assessment can help to defray the cost of running the main; effectively establishing a cost and profit sharing arrangement with owners in the SAD.  In addition to sanitary sewer systems, special tax assessments are used to pay for improvements such as street paving, drinking water mains, and street lighting.

Related Terms

flat tax, progressive tax, excise tax, ad valorem tax, franchise tax, gas guzzler tax, pick-up tax, Pigovian tax, regressive tax, marginal tax rate, sales tax, sin tax, sumptuary tax