German Federal Fiscal Court upholds the constitutionality of Baden-Württemberg's state property tax act

The German Federal Fiscal Court (BFH) does not consider the Baden-Württemberg State Property Tax Act (LGrStG BW) – which will serve as the basis for assessing property values for the calculation of property tax effective January 1, 2025 – to be unconstitutional. The BFH announced its decision – rendered on May 20, 2026, following oral arguments on April 22, 2026 – in two cases (Case Nos. II R 26/24, II R 27/24) in a press release issued the same day. The full text of the judgments will not be published for several weeks.

In both proceedings, the LGrStG BW (1st version of November 4, 2020, Official Gazette of November 13, 2020, No. 40, p. 974 ff.) had to be reviewed for its compatibility with the general principle of equality under Article 3 (1) of the German Basic Law (GG). As the relatively simple ‘Land Value Tax Act’, it deviates significantly from the so-called federal model (see BDO Insight) in the valuation of real estate. The property tax value of the land is determined simply by multiplying the area of the land by the respective standard land value (BRW) for the corresponding BRW zone, as set by the municipal valuation committees. The product of this property tax value and the so-called tax assessment rate (0.91 per mille for standard residential plots) yields the property tax assessment amount, to which the assessment rate set by the respective municipality is then applied to calculate the property tax. As the (type of) development on the property to be valued is therefore irrelevant, the LGrStG BW does not distinguish between different types of property, and undeveloped and developed properties are valued equally; the financial return on the properties is therefore irrelevant. Although, upon application, a value other than the established property tax value of the plot may be applied (Section 38 (4) LGrStG BW, first introduced in its 2nd version of December 22, 2021). However, this presupposes that the value of the property being assessed differs by more than 30 % from that of the benchmark property at the time of the main assessment, and that the taxpayer can demonstrate the lower actual value by means of a qualified valuation report – there are therefore significant hurdles in this regard.

Against this background, it was necessary in both cases to determine whether it is constitutional to use a broadly categorised (mass) valuation method – namely, without taking into account the buildings standing on the property or any rental or lease income generated – for property tax purposes, thereby potentially failing to achieve a tax burden based on economic capacity in all cases.

In conclusion, the BFH is not convinced that the LGrStG BW is unconstitutional. It thereby confirmed the substance of the lower court’s rulings (Baden-Württemberg Fiscal Court, judgments of June 11, 2024, 8 K 1582/23 and 8 K 2368/22) and dismissed the appeals in both cases as unfounded. According to the BFH’s rulings, a referral to the Federal Constitutional Court (BVerfG) is just as out of the question as one to the Constitutional Court of Baden-Württemberg.

Background and development

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 (cases no. 1 BvL 11/14, 1 BvL 12/14, 1 BvL 1/15, 1 BvR 639/11, 1 BvR 889/12) 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 regulations for their state property tax laws that deviated from federal law. Deviating state law could be applied to the levying of property tax for the first time for the period from January 1, 2025 (Article 125b (3) GG in conjunction with Article 72 (3), sentence 1, No. 7 GG). The legislature thus ensured that, from a single date (January 1, 2025), property tax would 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, Thuringia) apply it unchanged and two (Saarland, Saxony) with different tax assessment rates, five federal states (Baden-Württemberg, Bavaria, Hamburg, Hesse, Lower Saxony) make use of their own state regulations for property tax.

Recent Decisions

The BFH confirms the property tax value correctly calculated by the tax office by multiplying the standard land value - determined by the relevant appraisal committee – by the total land area, regardless of both the actual use of individual portions of the property as built-up or green space and the individual characteristics of the specific property - such as, for example, impairment due to traffic noise, flood risk, or the specific development.

The BFH also considers the LGrStG BW to be constitutionally compliant in both form and substance: pursuant to an enabling clause in the Basic Law, the State of Baden-Württemberg had the legislative authority to enact comprehensive regulations governing property tax at the state level. Taking into account the established case law of the Federal Constitutional Court, the general principle of equality under Article 3 (1) of the Basic Law grants the tax legislature broad discretion in selecting the taxable object as well as in determining the tax rate, provided that the principle of tax fairness is observed. Generalizing, typifying, and flat-rate regulations are permissible even if not all special features are addressed in specific provisions and if, for practical reasons, this results in considerable uncertainty in valuation and determination. In accordance with these guidelines, the BFH considers § 38 of the LGrStG BW to be constitutional. This is because, according to the BFH, the taxpayer’s ability to pay is also reflected in the pure land value, which is decisive for determining the property tax value in Baden-Württemberg. The taxpayer may demonstrate a lower value through a qualified expert opinion if the standard-based property tax value is exceeded by more than 30%, in order to mitigate significant deviations.

The German Federal Fiscal Court addresses the following three points of contention separately:

According to the state legislature, the (new) property tax in Baden-Württemberg is based on two grounds: the ability to use municipal infrastructure services associated with the property, and the potential for profitable use of the property as reflected in the standard land values. In the opinion of the BFH, the combined designation of these equivalence and ability-to-pay criteria does not raise any constitutional concerns.

The constitutional limits on permissible standardization are not exceeded by the fact that the LGrStG designates only the standard land value of the reference property (so-called “zone value”) as authoritative, with the result that individual characteristics of properties within a standard land value zone are not taken into account. Differences in value between the standard land value and the actual land value of the respective property – which may deviate from it – are constitutionally justified due to the standardization and simplification inherent in mass appraisal procedures.

The BFH does not consider it a violation of the general principle of equality that existing buildings are not taken into account when determining the value of land under the LGrStG BW, and that undeveloped land is therefore valued in the same way as developed land. Within the scope of its discretionary authority, the state legislature has, in a manner permissible under constitutional law, based its approach on the fact that municipal infrastructure services are generally reflected primarily in the land value and not in the value of the existing buildings, which depends primarily on the owner’s private investments. The LGrStG BW even takes into account the actual use of a property for residential purposes when determining the tax assessment rate; this rate is reduced by 30% if the property in question is used predominantly for residential purposes.

Nor does the BFH see this as a violation of the principle of objective ability to pay (of the taxpayer). This is because the standard land values used in determining the land value reflect not only the influence of individual infrastructure services but also the potential development of a property. Thus, the standard land values indirectly reflect, in a proportionate manner, the type and extent of permissible construction use. The fact that owners of undeveloped land are taxed at a higher rate than their actual use warrants is a consequence of the standardized approach to yield potential.

Significance for practice

The BFH decisions announced for publication on May 20, 2026 (cases no. II R 26/24, II R 27/24) are relevant only to Baden-Württemberg. For this federal state, this decision therefore provides at least some certainty in terms of administration and planning until further notice. Ultimately, the decision affects not only property owners but also tenants, who will be charged this tax via a service charge.

In addition, the BFH plans to hold oral hearings in the pending cases against the state property tax models of Hamburg, Hesse, and Bavaria, likely in November 2026 and the first half of 2027, respectively.

Further information on the BFH proceedings heard orally on April 22, 2026 (cases no. II R 26/24, II R 27/24, preceding Baden-Württemberg Fiscal Court, decisions of June 11, 2024, 8 K 1582/23 and 8 K 2368/22):

In both cases, the owners of plots of land in Baden-Württemberg on which a detached or semi-detached house was built appealed against the issuance of property tax assessment notices under the LGrStG BW as at January 1, 2022. The Baden-Württemberg Fiscal Court rejected the constitutional objections raised. It held that it was compatible with the general principle of equality under the GG for the state legislature, contrary to the previous uniform valuation and also deviating from the new regulations at federal level and in other federal states, to levy property tax exclusively on the land itself without taking into account the buildings standing on it.

The relevant and constitutionally permissible basis for assessing the value of land for property tax purposes is the market value of the land. This reflects, on the one hand, the potential benefit of the land, influenced by the local infrastructure, and, on the other hand, the owner’s objective financial capacity: the higher the income that can be generated from the land, the higher its market value and, at the same time, the higher the owner’s objective financial capacity.

The use of the standard land values (BRW) derived by the expert committees with the aid of the purchase price database to determine the basis of assessment is logical, as the standard land value is intended to determine the market value and is therefore suitable for valuing the plots of land in a realistic manner relative to one another, as required by the BVerfG. The fact that this would result in properties that were significantly undervalued under the previous uniform valuation system being subject to a higher property tax is a consequence of the BVerfG’s decision and is constitutionally acceptable.

The BRW’s approach of applying a single zone to all properties within that zone, without taking into account the specific circumstances of individual cases, is constitutionally permissible, as any determination of market value is an estimate subject to inaccuracies; moreover, given the large number of properties to be valued, failing to do so would risk creating an insurmountable administrative burden in connection with the necessary periodic updating of values. The value corridor of plus/minus 30 % relative to the market value sought by this flat-rate provision is therefore constitutionally acceptable, and the so-called opening clause, under which property owners may, in individual cases, demonstrate a different market value through expert reports, provides for an appropriate exception.

The fact that the expert committees are accorded a margin of discretion when determining the BRW, and that the fiscal court’s review is limited to any shortcomings in the establishment of the facts, methodological errors and compliance with the relevant statutory provisions, is compatible with the right to effective legal protection.

The public interest in the reform of property tax ordered by the BVerfG outweighs the interest of property owners in the predictability of the property tax burden during the transitional period from the initial determination of the new property tax values by the tax offices until the first assessment of property tax by the local authorities. It is therefore not objectionable that the specific amount of property tax could not yet be quantified at the time of the respective tax court decision, as the local authorities had not yet determined the assessment rates applicable from January 1, 2025.