The new valuation right under property tax follows a zone concept. According to this, the soil indicative value is in principle binding for all properties that lie within the soil indicative value zone. § 247 (1) sentence 1 BewG basically excludes adjustments of the land benchmark due to deviations between the land characteristics of the land benchmark and the land to be assessed. Proof of a lower common value of the property is therefore excluded. This can significantly increase the tax burden. However, there are ways to set a lower value. We clarify which exceptions to the binding effect nevertheless arise within this zonal value concept and how legal protection against the soil guideline is possible.

1st Introduction to Soil Guidance

SEGMENT002 1.1. The soil guideline itself

The market value of an undeveloped plot of land is determined by the land reference value. This is an average per square metre of land area (‘average location value’) calculated for a given area with substantially the same usage and value ratios. It always refers to the so-called soil guide land. The soil guide is a fictitious model plot. This property has been attributed certain significant value-influencing features, which must be identified by expert committees. These are in particular the state of development, the type of use, the extent of construction use and the size and depth of the land. The assigned land features must largely correspond to the predominant land and soil-influencing land features in the soil indicative zone. It must therefore be able to be regarded as typical within the soil constraint zone.

This approach justifies the fact that the land indicative property cannot take into account any property-specific characteristics of the land to be assessed. Therefore, in the valuation practice, the land benchmark often has to be adapted to the land-specific characteristics of the specific land to be valued. This is done mainly with the help of adjustment requirements, which the expert committees typically name in their real estate market reports or which can be read from the electronic portals. Such adjustments are particularly frequent in terms of the extent of construction use, the size of the land, the depth of the land and the condition of the ground exploitation contribution.

1.2. Determination of the Soil Indicative Zone

The first step in determining the soil guideline is to establish the soil guideline zone. In view of the significance of the average value for other plots of land, the indicative zones should be set up in such a way that the type and extent of use in the area coincide and that the plots have a predominantly uniform degree of development.

Differences in value between the land for which the land indicative value is to apply and the land indicative value should in principle not exceed 30 %. Therefore, for example, shorelines, which are often of higher quality and locations on large roads, which are exposed to considerable noise pollution, are each to be mapped via their own soil guideline zones. Furthermore, inner city locations are to be covered in a very differentiated manner.

In some cases, overlapping soil constraint zones are also to be formed. This applies in particular to cases in which two uses are dominant in an area and the formation of two or more soil benchmark zones is not possible or useful.

1.3. Determination of soil guidance values

The soil guideline values are determined in the comparative value method using purchase price collections. First of all, comparison prices from the area concerned are relevant. If such are present, it may still be necessary to make adjustments to the characteristics of the land indicative plot. In areas with little or no real estate traffic, purchase prices and land indicative values from comparable areas or from previous years can also be used.

2nd Land Indicative Value for Property Tax

In the case of property tax, the administration has to cope with a significantly higher number of cases compared to the inheritance and gift tax. 32 million economic units of real estate are to be valued nationwide and this at regular intervals (according to federal property tax law and most state property tax laws: every seven years). For this reason, property tax law is designed to be as automation-friendly as possible.

The building block of this automation strategy is the fundamental significance of the so-called zone value. According to § 247 (1) sentence 1 BewG, the property tax value of unbuilt land is determined by multiplying the land reference value with the area. The valuation rules for built-up land also use the land benchmark as a sub-component of the yield value and the property value.

§ 247 (1) sentence 1 BewG basically excludes adjustments of the land reference value due to deviations between the land characteristics of the land reference value and the land to be assessed. Therefore, the soil indicative value of a soil indicative zone is equally binding for all land situated in that zone. This applies regardless of differences that exist between the properties. Therefore, the demonstration of a lower individual soil value is not allowed. If the expert committee has not determined a land benchmark, § 247 (3) BewG provides for a reserve competence of the tax authority to derive the value of the undeveloped land.

3. Deviations from the soil guideline

3.1 Atypical plots

In principle, the soil indicative value of a soil indicative zone shall be used for all land occupied within that indicative zone. However, there are also plots of land that lie within a soil guide zone and for which the soil guide does not apply.

Although land of different types of use or quality may also be part of a soil benchmark zone. In this respect, it is a question of atypical properties for the soil guide value zone, but they occur in such a singular manner that it seems acceptable not to form a separate soil guide value zone for this purpose. Then, however, the soil indicative value of this zone according to § 15 (2) ImmoWertV does not apply to these properties. Examples of this are green areas, forest areas, water areas, traffic areas and common areas. If the expert committee has identified a plot of land that is atypical for the soil indicative zone, it must decide whether it will form its own soil indicative zone for this plot of land or whether it will make use of § 15 (2) ImmoWertV.

The regulation of § 15 paragraph 2 ImmoWertV also applies in the context of property tax. Thus, it also contains an exception to the decisiveness of the soil guidelines in this respect. But then there should also be a case of § 247 paragraph 3 BewG. Therefore, the tax authority is obliged to derive the value from the values of comparable areas.

3.2. Deviations due to different states of development

An exception to the principle that deviations between the land characteristics of the land indicative value plot and the land to be assessed may not be taken into account is provided for in § 247 (1) sentence 2 number 1 BewG. Accordingly, an adaptation has to be made because of different development states. However, the prerequisite for this is that no land indicative value has been established for the state of development of the land to be assessed. If, on the other hand, a soil guideline exists, this is decisive. In addition, the adjustment must be made in accordance with the specifications of the local expert committee. This presupposes the existence of corresponding adaptation specifications. Often, the expert committees provide a discount from the soil benchmark determined for land ready for construction. If such requirements are lacking, § 247 paragraph 3 BewG applies. Thus, the tax authority can derive the value. However, no atypical approach is required compared to the other properties of the soil indicative zone.

4. Legal protection against the soil guideline

If the taxpayer attacks the property tax value determination, the tax court must also check whether the land value is legally compliant. However, this is only possible in compliance with the scope of assessment granted by the law. This leads to a withdrawal of the judicial review in view of the evaluative part of the valuation process belonging to the subsumption, which appeals to the special expertise of the expert committee. This includes, for example, the cutting of the soil guide zones, the determination of the characteristics of the soil guide land or the division and weighting of the known purchase prices.

Full judicial control is subject to the interpretation of the law. The subsumption under the law is also verifiable by a court, as far as the evaluating element of the valuation is not affected. Furthermore, monitoring of the process is important. It is therefore up to the courts to examine whether the authority has assumed a correct situation, whether it has fully grasped it or whether it has made any other considerations.

In order for the taxpayer and ultimately also the court to be able to check compliance with the legal requirements, the way to the land reference value must be traceable. It is therefore necessary to document, at least in rough, concise terms, the legal and actual reasons why a soil benchmark zone has come about in this way and not otherwise. In addition, it has to explain why a separate soil indicative zone has been waived for atypical land. Furthermore, it must also explain which comparative data were used and why and according to which conditions they were used. Above all, the evaluation elements and their filling must become visible in the specific case. If the tax court cannot understand the conclusion of a soil guide value, then the soil guide value has not been determined in a legally compliant manner.

5. Unlawful soil benchmark and sequence of errors

Should a soil guideline be unlawfully established, the question arises as to what consequences should be attached to it. If the tax court finds that the soil benchmark has not been determined in accordance with the law, then the soil benchmark does not constitute a binding effect. There is currently no basic follow-up relationship. Rather, § 247 (3) BewG is relevant. This applies in any case as long as the expert committee has not determined a new (legally compliant) soil guideline value on the determination period. Until then, there is a lack of a soil benchmark and the financial administration has the power of derivation.

The Finance Court is not forced to go on its own search for errors in the ground values. However, objections from the taxable person must be investigated. It should be noted that the taxable person has no insight into the activities of the expert committee. In addition, only the tax court process offers the possibility that the expert committee has to comment on the conclusion of a concrete land reference value. It is therefore appropriate that, if the taxpayer explicitly denies the binding nature of a land benchmark, the tax court must first request the expert committee to give its opinion on the establishment of the land benchmark and the taxpayer must deal with it.

6th Criticism of the Soil Guideline

It is objected to the soil standard that it is unsuitable for constitutional typification. The land value assessment without a possibility to prove contrary is unconstitutional.

However, it can be seen that the soil guideline determined by lege artis reflects a reasonable market value for the fictitious model plot. The regulator has provided by law that the soil indicative zones are to be set up in such a way that differences in value between the soil indicative land and the land for which this indicative land is to be applied should in principle not exceed 30 %. Thus, the trimming of the soil indicative zone is intended to guarantee that, as a rule, no land to be assessed has a value deviation of more than 30 % in relation to the soil value. Thus, the legislature moves in a constitutionally acceptable typing corridor.

Furthermore, the range of the validity claim of the soil guideline is also limited. According to § 247 (1) sentence 2 no. 1 BewG, the meaningfulness of the zone value is limited to its development state. Furthermore, land that appears like a foreign body in the soil benchmark zone may remain excluded from the binding effect according to § 15 (2) ImmoWertV. Both relativizations of the zone value avoid a failure of the constitutionally acceptable typization framework.