Property tax decision

The Rhineland-Palatinate Fiscal Court has ruled in favor of taxpayers in two cases concerning property tax value assessments. Despite this development, the reform remains unaffected for the time being.

This marks a continuation of a long-running dispute that has the potential to keep the judiciary very busy over the next few years. Across Germany, property owners are appealing against their property tax assessments, partly due to proactive appeals from associations. The Rhineland-Palatinate tax court in Neustadt an der Weinstraße has now provisionally ruled in favor of the taxpayers in two cases in interim legal protection. The judges granted the applications of citizens who had contested their property tax assessment notices with their tax offices (Ref. 4 V 1295/23 and 4 V 1429/23).

In November, the court decided to suspend the assessment by the tax office in both cases 'due to serious doubts about the legality'. After examining the applications, there are doubts 'both about the legality of the individual assessments under simple law and about the constitutionality of the underlying assessment rules', the tax court stated in its reasoning. The assessments are therefore not legally binding for the time being.

This is the first time that taxpayers have successfully raised their objections to the valuation according to the so-called federal model before a tax court of a federal state. This circumstance lends the decision from Neustadt a special tension, although it does not formally represent a judgment. The judges did not pass judgment on a complaint or on the general legality of the property tax. The latter can only be determined by the Federal Fiscal Court as Germany's highest tax court. It would then have to refer a case to the Federal Constitutional Court in Karlsruhe, which would make the final decision on constitutionality.

An urgent appeal against Olaf Scholz's property tax model is pending. Nevertheless, the decision from Neustadt is being closely followed in Berlin and in the Chancellery in particular. Rhineland-Palatinate is one of eleven federal states in which the federal model in question is applied. This was designed by the current Federal Chancellor and former Finance Minister Olaf Scholz (SPD). It was criticized early on by tax experts as being particularly complicated. Five federal states therefore decided to enact their own property tax laws or modify the federal model.

In the Neustadt court, the valuation rules on which the property tax is based are disputed in both cases. Property tax is calculated using a three-stage process. In the first stage, the values change as part of the property tax reform. The tax offices assess the properties on the basis of the submitted declarations and the newly determined standard land values, which results in the property tax value. In the second stage, this property tax value is multiplied by the tax assessment amount, and finally the local authorities apply their respective assessment rate to the product and send out the final tax assessment notices.

The Rhineland-Palatinate Fiscal Court has particular doubts about the standard land values: it is unclear whether these were 'lawfully arrived at'. The judges have 'serious concerns regarding the legally required independence of the Rhineland-Palatinate expert committees', which determine the standard land values. The possibility of influence cannot be ruled out.

The parameters for calculating the property tax are also controversial among tax law experts, as is the entire structure of the property tax reform. Lobby associations such as Haus & Grund and the German Taxpayers' Association are actively involved and have, for example, commissioned an expert opinion from the renowned lawyer Gregor Kirchhof. This expert opinion is intended to serve as an argumentative basis for model lawsuits that the associations want to bring to court in several federal states.

Kirchhof, who holds the Chair of Public Law, Financial Law and Tax Law at the University of Augsburg, concludes in his expert opinion that the federal model is unlawful. He mentions a total of ten points, including the standard land value. Kirchhof considers this to be problematic, as the values have 'systematic valuation flaws' and are 'sometimes hardly comparable'. The expert opinion sees a risk here that the strict application of the standard land value violates the principle of equality in the German constitution.

Source: Capital 06.12.2023

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Court makes decision on new property tax