date | theme

03. January 2022 | Property tax reform 2022: what is new?

03. February 2022 | The new property tax in Bavaria from 2025

04. February 2022 | Property tax in Baden-Württemberg from 2025

07. February 2022 | Property tax in Saarland from 2025

08. February 2022 | Property tax in Saxony from 2025

10. February 2022 | Property tax in Hessen from 2025 (this contribution)

11. February 2022 | Property tax in the Hanseatic City of Hamburg from 2025

14. February 2022 | Property tax in Lower Saxony from 2025

With the opening clause, which the legislature recently introduced as part of the property tax reform, the federal states have the possibility to regulate the collection of property tax according to their own provisions. This approach is now also followed by Hessen. Hessen intends to calculate property tax according to an area-factor method. Primarily the area of a plot of land plays a decisive role. Per unit of area, a plot is subject to the application of a certain number of areas. Buildings built on them are also subject to this approach. This results in the amount of area. This amount of area is in turn multiplied separately by the land area and building area in each case by the legally prescribed control measurement number. The sum of this is the so-called starting amount. Furthermore, a location-dependent factor is calculated in which the soil guide value of a property is in a certain relation to the local average soil guide value. The application of the factor to the initial amount then results in the basic control measurement amount.

The property tax is unconstitutional, the judges of the Federal Constitutional Court stated in their judgment in April 2018. But this judgment was certainly expected by many who followed the matter. Because the tax bases, which were based on an valuation that had been outdated for decades, could hardly be considered as contemporary. In addition, due to the reunification of Germany, two different requirements existed in parallel.

Consequently, the judges of the Federal Constitutional Court demanded that the Property Tax Act in its previous form be reformed. They left the legislature a deadline until the end of 2019. If a solution had been found by then, then further taxation under the existing regulations should be allowed no later than 2024 inclusive. Otherwise, the municipalities would not have been allowed to collect property tax from 2020 until a new regulation came into force. Since the property tax is, in addition to the trade tax, a significant factor in the financing of the budget of the cities and municipalities – and these are in any case in most cases underfunded – the loss of the property tax would have caused a dramatic effect.

Therefore, the then Federal Government was also strongly motivated to reform the property tax law within the deadline set by the Constitutional Court. However, the amended Property Tax Act also had to overcome the hurdle in the Federal Council. But some federal states viewed the changes made critically. They also preferred other approaches to calculating property tax, which they considered both fairer and less complex. Therefore, the Federal Government was prepared to create an opening clause in the Basic Law, which allows the federal states to introduce their own regulations on property tax.

Of the 16 federal states facing this election, Hessen was one of seven to choose its own path. We now want to report on this in detail.

We start with the basics, namely the legal bases. Thus, the property tax in Hessen is to take place from 2025 according to the newly created Hessian Property Tax Act (HGrStG). It consists of 17 paragraphs and is not subject to any further outline.

Immediately after the information on the scope in § 1 HGrStG, § 2 HGrStG contains the important information that determines which individual standards of the general property tax law and the valuation law for the legal situation in Hessen do not apply. In addition, there are mentioned the own regulations of the Hessian Property Tax Act as a substitute. At the same time, however, information is also listed in § 2 HGrStG that explicitly refers to the standards of other laws that apply in Hessen. In addition to the Property Tax Act and the Valuation Act, this overview also includes aspects that are the subject of the Tax Code and the Tax Administration Act.

With § 3 HGrStG, the Hessian Property Tax Act defines who is liable for property tax in Hessen.

The actual instructions for determining the parameters essential for the collection of property tax are, however, contained in §§ 4 to 7 HGrStG. These authoritative details will be discussed separately in the next chapter.

§§ 8 to 12 HGrStG inform us about the different types of investment (main, new and post-investment). In this respect, § 11 HGrStG is also relevant, because it regulates the possible cancellation of tax measurement amounts.

On the other hand, § 13 HGrStG conveys a very own aspect. This is about empowering the municipalities to set their own lifting kits for construction-ready but still undeveloped land. In addition, there are the conditions attached to it and many other regulations on these special plots of land. Thus, this corresponds to property tax C in the Property Tax Act.

§ 14 HGrStG deals with possibilities through which a waiver of property tax due to a significant reduction in income can be implemented.

The last three paragraphs govern legal action, authorization and entry into force.

Agricultural and forestry enterprises are levied in Hessen according to the requirements of the general property tax law. Thus, there are no deviations.

For the collection of property tax B in Hessen, the calculation via the so-called area-factor method applies from 2025. First of all, a distinction is made between the simple land area and the usable area of buildings built on it. This is because the calculation of the first important variable in the course of this method takes place by multiplying the respective area by an area value. For plots of land, the area value is EUR 0,04 and for building areas EUR 0,50 per square metre of area. This results in the respective amount of area.

The amount of the area is then multiplied by the tax number specified in § 6 HGrStG. As a rule, the control measurement number is 100%. However, in the case of residential areas, only 70 % is to be taken as a tax measure. The sum of the products from these calculation operations is then the starting amount.

A location-specific factor is now applied to the initial amount. To determine the factor, you need two soil guidelines. On the one hand, the land reference value of the property to be taxed is relevant. On the other hand, the average value of the soil guidelines of the zone in which the property is located is used. In this way, the location quality of a property is to be included in the calculation of the property tax in Hessen. The local expert committees determine the soil guidelines every two years. These two soil guidelines are then used in the following formula:

(Soil Indicative Land / Average Local Soil Indicative)0.3 = Factor

This brings us to the last computing operation with which we determine the relevant tax measurement amount for property tax in Hessen:

starting amount x factor = control measurement amount

With this tax measurement amount, which the respective competent tax office determines and communicates to the municipality entitled to lift, it can then calculate the property tax by applying its own determined lifting rate.

The property tax for building-ready, previously undeveloped properties is also to be applied in Hessen. The aim is to ensure that building land, which has been designated for the creation of housing, which is often urgently needed, is actually used for this purpose instead of being used as a speculative object. The amount of this property tax should be staggerable according to the duration of the outstanding development. The longer a plot of land designated for development remains unbuilt, the higher this special property tax should be incurred on it. Speculation is thus made more expensive by means of this property tax. However, the property tax for construction-ready but previously undeveloped land should be at most five times the regular property tax.

This brings us to the last chapter in our contribution to property tax in Hessen. Here we actually want to draw a conclusion on the regulations introduced by the Hessian state government with regard to property tax. But although we are able to calculate the property tax for a property based on the relevant parameters, we still lack an important component for determining this for the first assessment according to the new legal situation, as it applies from 2025. Because the municipalities can still determine the height of the lifting rate themselves in the future. Therefore, we can currently only speculate whether the cities and municipalities will maintain the current lifting rates by 2025, or whether they will determine other lifting rates.