Fears of many tenants and homeowners in North Rhine-Westphalia that they will have to pay significantly more in property taxes from next year seem to be coming true. According to a survey by the Association of German Cities and Towns in North Rhine-Westphalia, reported in the ‘Rheinische Post’ (Monday edition), the majority of local authorities plan to recommend their council members not to apply the Hebesatz splitting.
The state had allowed cities and towns to set different rates for residential and non-residential properties, aiming to mitigate the tax burden on residential properties due to the Scholz model, which increases the tax burden for residential properties while reducing it for commercial properties. However, the majority of the participating towns and cities (81%) do not intend to apply the proposed differentiation.
According to the survey, if the recommendations of the treasurers are followed – and they still are in 91% of the cases –, this will have consequences for the citizens: ‘In many cases, there will be a shift in the burden to the disadvantage of housing, unless the rates are so low that commercial properties are virtually the only ones to be relieved and not the housing sector as well’, said Christof Sommer, CEO of the Association, to the ‘Rheinische Post’.
‘Such a situation is likely an exception, though.’ Sommer cited the main reason for the reluctance to differentiate as ‘the uncertainty whether a differentiation would withstand a legal test’. A corresponding warning has been issued by a report of the German City Association. ‘There is a significant risk of a court ruling against the Hebesatz splitting and then a bylaw being declared null and void.’
The Ministry of Finance had calculated the necessary rates for each town to achieve a total equal to the previous one, considering the Scholz model’s impact. 15% of the towns aiming for a uniform rate will be above the recommended rate, while around 56% follow the recommendation, and nearly 29% are below it. Sommer thus dismisses concerns that cities and towns would take advantage of the reform for their own gain.
Regarding the towns that consider differentiating, Sommer said it is almost certain that lawsuits will be filed: ‘Perhaps we will see the first decisions next year. Depending on the outcome, the differentiation may not be applied in more towns until 2026 at the earliest.’