Property tax reform costs tax offices millions: How owners pay for it

When a proven expert like Merz, who once wanted to revolutionize the German tax system himself, doesn’t understand the upcoming property tax reform? How are the 36 million Germans supposed to record data for new property tax returns by the end of October?

Not only Merz’s reaction shows: Politicians – across all party lines – have come up with a bureaucratic monster with the reform of property tax demanded by the Federal Constitutional Court in 2018 – and are now looking for a way out of how ministries, municipalities and tax offices should deal with it. One thing is already clear: the citizens who own land or houses have to bear the brunt.

The property tax return causes frustration throughout Germany

The anger about the property tax madness in the country is great. Those affected rage, associations protest, the financial administration threatens to collapse. The Finance Minister of Baden-Württemberg, Danyal Bayaz (Greens), says: “Even if Baden-Württemberg has a relatively simple property tax model, I receive a lot of critical feedback every day.”

The whole trouble goes back to a judgment of the Federal Constitutional Court. On April 10, 2018, as so often in recent years, this declared a tax to be unconstitutional. This time it was property tax. Above all, Karlsruhe was bothered by the standard values, according to which the property tax in Germany was assessed. In the West they were from 1964, in the East even from 1935.

In its current form, the tax has been violating the principle of equality since the beginning of 2002, judged Karlsruhe. The decisive factor here was that the same basis of assessment has applied to all owners for some 100 years to this day. After all, the values ​​of real estate have developed differently since then. This leads “inevitably to an increasing extent to unequal treatment through value distortions,” the judgment said.

In other words, although some houses rose in value more than others, both paid taxes on the same basis. The Bundestag and Bundesrat had to decide on a new version of the property tax by December 31, 2019, Karlsruhe decided.

Property tax reform: 16 countries, six models, no overview

At the time of the verdict, a number of reform models were already available. The political negotiations that followed turned into a great mess. They gave an example of why tax reforms in Germany are so difficult – and so often go wrong.

Any attempt to simplify the tax system rings alarm bells among social politicians across all parties that distributive justice or billions in revenue could be lost. The power of bureaucracy should not be underestimated either. “In the ministerial bureaucracy, each specialist official administers a paragraph that sees their life’s work threatened if regulations are dropped,” said the FDP finance politician Hermann-Otto Solms once.

Above all, however, there is hardly any other topic that parties can score with citizens as much as with the topic of taxes – and in no other area do they treat each other so little. And so, in the real estate tax reform, redistribution politicians fought against tax simplifiers, the Union against the SPD and, above all, the federal government against the federal states.

The federal government took over the legislation itself, but the municipalities are entitled to the revenue. In addition to trade tax, property tax is their main source of income. And so the countries that are responsible for the municipal finances had a decisive say in the reform.

With the property tax, wealthy people in particular should be taxed more heavily

State finance ministers from that time report how tough the negotiations were. The SPD saw the property tax as an opportunity to tax the wealthy – which usually includes property owners – more heavily. The finance minister at the time and today’s chancellor, Olaf Scholz, proposed a value-based model (WAM): the value of a property should be calculated as precisely as possible – that is fair. In any case, it is also: complicated.

The Union wanted to prevent that. Together with Bavaria, she promoted a value-independent model (WUM) that is primarily based on area. And so they argued about WAM or WUM for months. Until it ended up being WAM and WUM.

Scholz, who considers himself one of the best negotiators in German politics, had to admit defeat. The “federal model” now applies in eleven countries. The other five federal states have passed their own laws.

Each has its own “declaration form” – and its own procedure for how which data is to be recorded. For example, the land value model in Baden-Württemberg, the area model in Bavaria, the residential location model in Hamburg, the area factor model in Hesse or the area location model in Lower Saxony.

Digital state failure in property tax

Not only could the countries not agree on a uniform procedure, which unnecessarily complicates things for owners. Citizens who own land or houses can now also take the brunt of another policy failure.

The state, on the other hand, has a lot of data at its disposal, which owners now have to laboriously enter manually. He just doesn’t usually know where. In fact, the recalculation of the property tax is further evidence of the goofed digitization of the state. In 2017, with the Online Access Act (OZG), the federal and state governments committed themselves to offering their administrative services electronically by the end of 2022. But it has long been apparent that this is no longer possible.

More on the subject of property tax reform:

Not to mention the plan to align the digitization processes with the needs of the users. Why doesn’t the state collect the data for the property tax itself? Is federalism to blame again, which prevents the federal, state and local governments from interacting?

no way. “I don’t see any legal obstacles,” explains constitutional lawyer Joachim Wieland. According to this, the state could regulate by law to gain access to the required data itself. “Due to the lack of digitization of public administration, the administrative effort would be considerable,” says Wieland. “That should be the reason for using the taxpayers.”

With the property tax, the promise of the traffic light to advance digitization fizzles out

The Federal Ministry of Finance admits: “The tax authorities do not have all the necessary data about the land and the buildings on it in electronically processable form.” This data would therefore have to be requested from the owners. The next point in time for the main finding is in seven years, i.e. in 2029: “By then, the procedure should be digitized.”

With the new property tax, the promise of the SPD, Greens and FDP to be a “progressive coalition” in the digital sector also fizzled out. At the beginning of July, the tax portal “Mein Elster” collapsed at the beginning of the property tax reporting period.

The portal www.grundsteuererklaerung-fuer-privateigentum.de from Finance Minister Christian Lindner should also enable simplified electronic transmission. However, it can only be used for “simple matters”, i.e. for undeveloped properties, single and two-family houses and condominiums.

And only in countries that use the federal model for property tax. It sounds like mockery when the nationwide website for property tax reform says: “It can be done digitally, conveniently and online”.

As early as 2019, the small print of the draft law contained indications of how complex the reform would be: Over the next seven years, the officials from what was then the Scholz Ministry forecast an average of “annual compliance costs of around 2,100,000 hours” for citizens. The additional personnel costs in the tax offices amount to 462 million euros, also because in the coming year more than 3000 additional workers will be needed for the implementation.

The tax offices bring the bureaucratic monster reform to their limits – or beyond, says tax union leader Florian Koebler. “The service centers and hotlines are literally overflowing.”

Numerous tax offices have already brought together specialists from all possible departments on hotlines to advise frustrated owners. Officials, mostly in the middle service, who otherwise carry out external wage tax audits, are assigned between 8 a.m. and 5 p.m. to provide relief on the frustration front. But because that tears new holes at the actual locations, it also requires completely new staff.

The financial administration in North Rhine-Westphalia alone is currently looking for 150 employees and is asking the workforce to advertise the vacancies among their private circle of friends and acquaintances. Because the labor market is generally considered to be tense, even in the private sector there is intense competition for the best personnel everywhere, the applicant profile for the future “auxiliary civil servants” is broad.

Anyone who is actually hired first receives “eight working days” of “basic training” on the subject of property tax and is assessed with pay group 5 of the collective agreement for the public sector in the federal states. The “answering of simple tax information on the property tax reform”, the “recording of facts”, the “forwarding of complex facts to the responsible processors” and the examination of documents for completeness and their subsequent “scanning” are then expected.

The tax offices are expecting numerous objections from property tax payers

From all this it is easy to see that the financial administration rotates quite a bit. A senior official from a tax office in the Düsseldorf area summarizes the internal opinion as follows: “We are really curious ourselves whether this monstrous and sometimes seemingly arbitrary approach will stand up to new legal objections.”

There is also broad agreement in the administration that this will be as certain as the regular tax audit of a thriving gastronomy. It is not for nothing that many tax offices have assigned senior officials to their property offices, internally called GÜST, who collect legal and procedural questions that taxpayers feel are particularly unfair and report them to higher authorities.

And there are countless incomprehensible regulations in the body of laws. This is one of the reasons why, according to a Handelsblatt survey of the state finance ministries, only 3.3 million tax returns were received by the tax offices halfway through the filing period in mid-August (not including North Rhine-Westphalia, which did not provide any information). This corresponds to a rate of just 10.3 percent across all countries.

In this way, as a citizen, you can also express what you think of a reform.

More: Property tax return for homeowners’ associations: This is how it works