Property taxes represent a significant source of revenue for many governments, particularly local governments. Property taxes recorded in a governmental fund should be accounted for as an imposed nonexchange revenue using the modified accrual basis. When a property tax assessment is made, it is to finance the budget of a particular period, meaning that the property taxes are intended to provide funds for the expenditures of that particular budget period. The revenue produced from any property tax assessment should be recognized in the fiscal period for which it is levied, provided that the “available” criterion of the modified accrual basis of accounting is met. (Available means that the property taxes are due to the government or past due and receivable within the current period, and are collected within the current period or expected to be collected soon enough thereafter to be used to pay current liabilities.) Property taxes due must be collected within sixty days after the period for which they were levied. For example, if property taxes are levied for a fiscal year that ends on June 30, 20X1, property taxes that were assessed and due for this period (and prior periods) can be recognized as revenue as long as they are collected by August 29, 20X1.

If unusual circumstances justify a period of greater than sixty days, the government should disclose the length of the period and the circumstances that justify its use. For example, in unusual circumstances, a government may be able to demonstrate that property taxes received after sixty days would be available to pay current liabilities if the current liabilities will be paid sometime after sixty days after year-end. Thus, there are two criteria that must be met before property tax revenue is to be recognized.

1. The property taxes are levied to finance the expenditures of the budget period reported.
2. The collections of these property taxes must take place no later than sixty days after the end of the reported period.

Taken From : Governmental Accounting Made Easy

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