A vacancy tax is a fee that cities charge on homes or commercial buildings that sit empty for too long — usually six months or more in a year. It’s meant to encourage owners to rent or sell rather than leave properties vacant, helping boost housing availability and keep neighborhoods thriving.
Purpose and Rationale for Imposing a Vacancy Tax
Housing Market Impact
Vacancy taxes aim to tackle housing shortages by encouraging owners to use their properties better. When too many homes or commercial properties sit empty, prices climb, making it harder for first-time buyers and renters to find affordable places to live and for small businesses to find a home.
By discouraging long-term vacancies, these taxes help put more homes on the market, easing affordability issues.
Community and Economic Goals
Cities also use vacancy taxes to keep neighborhoods lively and businesses thriving. Empty homes and commercial spaces can lead to blight, lower foot traffic for businesses, and even safety concerns.
Some municipalities funnel the revenue from vacancy taxes into affordable housing programs or community improvements. For commercial properties, these taxes encourage landlords to lease rather than wait for higher rents, making business districts more dynamic and accessible.
Differences Between Vacancy Taxes and Other Real Estate Levies
Property Tax vs. Vacancy Tax
Unlike property taxes, which apply to all properties based on assessed value, vacancy taxes only apply to unoccupied ones. Property taxes fund services like schools, law enforcement, and roads, but vacancy taxes are designed to prevent long-term empty properties and encourage active use.
Overlap With Other Levies
Vacancy taxes sometimes stack up alongside other taxes, including:
Short-Term Rental Taxes: Jurisdictions regulating short-term rentals (like Airbnb and Vrbo) may have extra taxes based on how often a place is occupied.
Second-Home or Speculation Taxes: Some areas tax secondary properties more heavily if they aren’t primary residences. Or the property doesn’t qualify for a homestead exemption.
Commercial Vacancy Penalties: In some areas, empty storefronts face higher tax rates to push landlords toward leasing sooner.
Parcel Taxes: These fund specific community needs like a new road or sewage line and tax a parcel of land so lot size and property characteristics don’t influence them.
Local Variation in Terminology
Different cities and regions call vacancy taxes by various names, but they all work the same way:
Vacant Property Tax (VPT): Various U.S. cities
Empty Homes Tax (EHT): Vancouver, Toronto
Speculation and Vacancy Tax (SVT): Certain Canadian provinces
No matter what they call it, the goal is the same: to keep properties in use and ensure they contribute to the local economy.
How a Vacancy Tax Works
Defining "Vacant"
Most cities define a property as “vacant” if it sits empty for six months or more in a given year. Some places track vacancies through utility usage, self-reporting requirements, or inspections.
Tax Assessment Formulas
Vacancy taxes can be calculated in a few different ways, including:
Percentage of Assessed Property Value: Commonly 1%-3% annually.
Flat Fee: Some cities charge a set annual fee, regardless of the property’s value.
Example Scenarios
Scenario 1: Percentage-Based Vacancy Tax
A homeowner in a city with a 1.5% vacancy tax has a vacant property assessed at $500,000.
Their tax bill for the year would be: $500,000 × 1.5% = $7,500
Scenario 2: Flat Fee Vacancy Tax
A commercial property owner in a city with a flat $10,000 vacancy tax leaves their storefront empty for over six months. They must pay the entire $10,000 fee regardless of the property’s market value.
Penalties and Enforcement
Property owners who don’t comply with vacancy tax rules could face steep fines or even liens on their property. Some cities also conduct random audits or cross-check utility data to confirm compliance.
Exemptions and Special Circumstances
Not all vacant properties are taxed equally. Many cities allow exemptions for certain situations. Here are some common reasons a property might be exempt:
Common Exemptions
Renovations: Properties undergoing active construction or substantial renovations.
Medical or Personal Hardship: Owners who face long-term illness, family emergencies, or other significant hardships.
Estate Settlements: Properties left vacant due to probate or legal disputes.
Seasonal Use: Homes used part of the year, such as vacation homes.
Pending Sale or Lease: Properties actively listed for rent or sale may qualify for exemptions.
Each city has its own rules and documentation requirements, so property owners should check their local laws to see if they qualify for an exemption.
Appealing a Vacancy Tax
If a property owner believes they have been wrongly assessed a vacancy tax, they may have the right to appeal. Note that, in most cases, you can only appeal your assessed value. Thus, if it’s a flat rate, you’d likely need legal assistance to show your property wasn’t vacant. The process for assessed value appeals varies by area, but in general, appeals must be filed within a set timeframe, usually within 30 to 60 days of receiving the tax notice.
If a property's assessed value is too high, the owner may pay more in taxes year after year. This can make keeping a vacant property even more expensive over time.
Grounds for Appeal
Incorrect Vacancy Classification: If the property was occupied but mistakenly deemed vacant.
Exemption Eligibility: If the owner qualifies for an exemption due to renovations, medical hardships, or active sale or rental efforts.
Administrative Errors: If the tax was miscalculated or shouldn't have been applied.
Appeal Process
Gather Documentation: Owners should collect utility bills, lease agreements, renovation permits, or any other proof of occupancy.
File a Formal Appeal: The appeal must be submitted to the local tax authority, often online or through written submission.
Attend a Hearing (If Required): Some jurisdictions require a hearing where the property owner presents their case before an appraisal review board (ARB).
Wait For a Decision: After review, the tax authority will issue a ruling, either granting or denying the appeal. If you still can’t come to an agreement, in most counties, you can bring your case to arbitration or before a superior court.
Common Myths and Misconceptions
Property owners often misunderstand vacancy taxes. Let’s clear up some of the most common ones.
"It Only Affects Vacation Homes"
Many people assume vacancy taxes only apply to second homes or seasonal residences, but that’s not always the case.
Depending on the location, commercial properties, investment properties, and even unoccupied primary residences may be subject to these taxes.
"Exemptions Are Automatic"
Some owners believe they’re automatically exempt if they’re renovating, dealing with a personal hardship, or trying to sell. However, most taxing authorities require property owners to apply for exemptions and submit proof, such as construction permits or medical documentation.
"I Won't Get Caught"
While some think they can avoid the tax by keeping their property off the radar, many cities track vacant properties using utility records, self-reporting requirements, audits, and even neighbor complaints. Getting caught could result in fines or back taxes.
Conclusion
Vacancy taxes are becoming more common as cities look for ways to address housing shortages and encourage active property use. These taxes can significantly impact property owners, increasing costs and requiring careful tax planning.
Property owners can navigate vacancy tax requirements and reduce their financial burden by staying informed, keeping accurate records, and working with professionals.
Proactively managing occupancy through long-term rentals, short-term leases, or creative property uses can also help avoid costly taxes and maintain property value.
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