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This article was written by
German Public Auditor, Certified Tax Advisor, Member of the Executive Board
Senior Consultant, National Office Tax & Legal
The German Federal Fiscal Court (BFH) held oral hearings today, November 11, 2026, in two appeal proceedings concerning the constitutionality of the Hesse and Hamburg State Property Tax Acts. In the respective federal states, the Hesse area-factor model and the Hamburg area/residential-location model are used to value property as the basis for calculating property tax from January 1, 2025. Both models deviate from the so-called federal model and place greater emphasis on standardized assessment bases that are independent of property values. However, no decisions have yet been announced. According to a subsequent press release, these are not due to be announced until December 10, 2026.
Both proceedings concern the compatibility of the respective state provisions with the general principle of equality under Article 3 (1) of the German Basic Law (GG). Unlike the value-based federal model (see BDO Insight), both models take the land and building areas as their starting point: these are generally multiplied by EUR 0.04 per m² of land and EUR 0.50 per m² of residential and non-residential floor space, respectively. The tax assessment rate for residential floor space is 70 % under both models.
In Hesse, the initial amount calculated on this basis using the respective tax assessment rates is multiplied by a location factor. This is calculated by raising the ratio of the property's standard land value to the municipality's average standard land value to the power of 0.3, thereby reducing the impact of differences in location.
Hamburg, by contrast, takes residential location into account through a further 25 % reduction in the tax assessment rate for residential floor space in ‘normal’ rather than ‘good’ residential locations; the tax assessment rate for non-residential floor space is 87 %. The municipal assessment rate is then applied to the respective property tax assessment amount to calculate the property tax.
In particular, it must be determined whether these area-based models, which incorporate location factors in different ways, reflect the underlying rationale for the tax burden in a manner consistent with the principle of equality, even though they do not directly refer to market value or the rental and lease income generated. The Hamburg proceedings concern the determination of property tax values, not the residential-location reduction granted only at the subsequent assessment stage.
The previous uniform valuation method used to calculate property tax was unconstitutional according to the decision of the German Federal Constitutional Court (BVerfG) of April 10, 2018 (case no. 1 BvL 11/14, among others) and could only continue to apply on a transitional basis until December 31, 2024.
As of January 1, 2022, all real estate in Germany was therefore revalued according to its value and use on that specific date (main assessment). Through an opening clause, the federal states were granted independent legislative authority and were able to adopt valuation and property tax provisions in their state property tax laws that deviated from federal law. From the common date of January 1, 2025, property tax could be assessed and levied in all federal states in accordance with reformed law – whether under federal or state legislation.
Whilst the so-called federal model is currently applied unchanged in nine federal states (Berlin, Brandenburg, Bremen, Mecklenburg-Western Pomerania, North Rhine-Westphalia, Rhineland-Palatinate, Saxony-Anhalt, Schleswig-Holstein and Thuringia) and with different tax assessment rates in two (Saarland and Saxony), five federal states (Baden-Württemberg, Bavaria, Hamburg, Hesse and Lower Saxony) make use of their own state provisions for property tax.
The proceedings are of considerable practical significance for property owners in Hesse and Hamburg. If the BFH upholds the lower courts' decisions, this is likely to significantly increase legal certainty for the respective state models. If, however, the BFH is convinced that the provisions are unconstitutional, it must stay one or both proceedings and refer the respective question to the BVerfG. This would affect not only property owners but also, indirectly, tenants to the extent that property tax is passed on through service charges.
In practice, it is advisable to closely monitor pending objection or court proceedings concerning comparable constitutional issues and to take further developments at the BFH into account when determining procedural strategy. Where assessment notices have already become final, subsequent BFH decisions generally cannot readily be relied upon to obtain a change.
In pending proceedings, a suspension of proceedings under the general rules of tax procedure may be considered, in particular, if the relevant conditions are met.
In case no. II R 12/25, the appeal is against the decision of the Hesse Fiscal Court of January 23, 2025 (case no. 3 K 663/24). The owner of a plot of land on which a two-family house was built had challenged the notice determining the property tax assessment amount, which had been issued in accordance with the return filed. The court held that the Hesse State Property Tax Act was constitutional in both form and substance. In particular, it found no breaches of the requirement of legal certainty, the general principle of equality, the requirement of consistent taxation or the Constitution of Hesse. In the court's view, the area-based assessment adequately reflected the opportunity to use municipal infrastructure. The location factor complemented this approach without making the property's market value the basis of assessment. The use of standard land values determined by the municipal valuation committees and the limited consideration of property-specific characteristics constituted an appropriate simplification for a mass assessment procedure. Nor did the absence of an option to demonstrate a lower property value through an expert valuation report render the legislation unconstitutional: as the Hesse model was not based on market value, the court considered such evidence unnecessary.
In case no. II R 15/25, the appeal concerns the decision of the Hamburg Fiscal Court of November 13, 2024
(case no. 3 K 176/23). The owner of an owner-occupied apartment had challenged the notice determining the property tax value. The court held that the provisions of the Hamburg State Property Tax Act governing the issuance of that notice were constitutional. Its review covered the valuation stage, but not the reductions granted only when determining the property tax assessment amount, particularly the reduction for residential location. In the court's view, a tax on real property remains a property tax within the meaning of the constitutional rules governing public finance even if its assessment is independent of value. Justifying the tax by reference to public infrastructure expenditure did not turn it into a fee or contribution, as there was no direct link to a specific service provided in return to the individual taxpayer. Land and building areas were, in principle, suitable for taxing property ownership in a manner consistent with the principle of equality. Nor was there any objection to the equivalence coefficients giving building areas 12.5 times the weight of land areas. Even if an excessive tax burden arose in an individual case, this would not, in the court's view, render the valuation rules unconstitutional. Such a burden could be addressed at a subsequent stage through tax remission and other provisions, interpreted in conformity with the constitution where necessary.