What is a Special Assessment?

Malcolm Tatum

A special assessment is a type of additional fee or tax that may be levied on real estate holdings when those holdings meet certain criteria established by a government entity. Taxes of this type are above and beyond the usual property taxes, and are usually connected with some specific type of project that will ultimately be of some benefit to the property owners. It is not unusual for a special assessment to be used as a means of raising capital to fund projects that result in public improvements that increase the value of the assessed properties over time, creating a situation in which owners are able to sell those properties for prices that would have been impossible without those improvements.

A special assessment may be levied on real estate holdings if they meet certain criteria.
A special assessment may be levied on real estate holdings if they meet certain criteria.

One of the more common examples of why a special assessment may be levied has to do with adding access to public improvements to a residential area. For example, if a county or parish chooses to create a sewage system that allows individuals living in rural areas of the jurisdiction to enjoy the same benefits as residents of cities and towns in the area, the additional tax may be imposed as a means of raising the funding needed to pay for the project. Doing so means that there is no need to increase local sales taxes or even increase property taxes per se. After the project is completed, property owners begin to enjoy the benefits of the new system, including seeing the market value of their properties increase.

Different nations handle the process of special assessment in different ways. In the United States, an area that is targeted for this type of additional tax is known as a Special Assessment District. In order to keep the process uniform within a given nation, municipalities and other jurisdictions must comply with laws and regulations set at the national level in order for the taxation to be legal. Typically, citizens living in the district must be notified in advance that the special tax will be levied for the upcoming tax period, allowing them time to make preparations. It is not unusual for the special assessment to appear as part of the annual property tax notification, with the amount of the special tax listed separately from the standard property that that is based on the assessor’s valuation of the property.

An alternative approach to special assessment involves issuing what is known as special assessment bonds. Here, property owners as well as others have an opportunity to buy into the bond issue, earning a small amount of return in exchange for their financial support. This approach is often utilized when there are restrictions on using a special tax to fund a project, and is sometimes the preferred method in some districts, since it does avoid the stigma that is sometimes attached to the idea of paying one more form of taxation.

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