PROPERTY TAX REFORM ISSUES IN STATES

THAT PERIODICALLY REASSESS RESIDENTIAL PROPERTY FOR TAX PURPOSES

 

I. THE PROBLEM(S)

 

A.     Property tax liabilities can increase significantly without any increase in the ability to pay.

 

 

1.      The increased popularity of particular neighborhoods, or entire cities, can drive up property values and property tax assessments enough to force someone to move.

 

 

 

2.      Do-it-yourself improvements and repairs can increase property values enough to force someone to move because of higher taxes. Such repairs may be necessary to properly maintain a property.

 

 

B.     The current policy of increasing taxes whenever properties are repaired or refurbished greatly increases the cost of such improvements, and thereby discourages them. In older neighborhoods, the resulting neglect often amounts to gradual demolition.

 

 

 

 

 

C.     Accurate assessments are especially difficult for certain homes and neighborhoods, especially older homes and historic neighborhoods.

 

 

 

 

 

II. POLICY REFORM PROPOSALS - choices, so that the politics is left to the politicians.

 

A.     Except when major additions (including structure replacement) to the property occur, limit the increase in the appraised value used for tax purposes to 3% per year or inflation, whichever is less, until the property is sold.

 

1.      The 3% per year cap should not apply when 'improvements' like new structures or structure expansions occur.

 

 

 

 

2.      'Improvements' like repairs and paint, should not invalidate the 3% per year cap.

 

 

OR

B.     Except in the case of major additions, wait to collect taxes on property value increases until a property is sold.

 

 

 

1.      Discussion of formula, including inflation adjustment, and interest rates.

 

 

 

 

 

 

2.      Property owners can choose this option.

 

 

 

 

 

3.      To choose this option, property owners would have to disclose the purchase price, and contractually promise to disclose the selling price.

 

 

 

 

 

 

4.      To avoid penalizing improvements near the time of sale, property owners can pay for an appraisal prior to such 'late' improvements.

 

 

 

 

 

OR

 

C.     No Property Tax or No School Property Tax

 

 

1.      Other States Have Done This

 

 

 

 

 

2.      Replacement Revenue Source?

 

 

 

 

III. CRITICAL EVIDENCE - DISCUSSION

 

A.     Property Tax Policy Innovations in Other States

 

 

 

 

 

B.     Revenue Implications

 

 

 

1.      Some Short-Term Adjustment Costs

 

 

 

2.      Evidence of Long-Term Revenue Losses, If Any

 

 

 

 

3.      Reason(s) to Expect Long-Term Revenue Increases - Higher Property Values Because of the Reduction in the Existing Improvement Disincentives

 

 

 

4.      Other Benefits

 

 

 

a.       Better Property Maintenance

 

 

 

b.       Neighborhood Diversity

 

 

 

 

c.       Historic Preservation

 

 

 

 

 

 

 

 

 

 

C.     Fairness Issues

 

 

1.      Trade-offs - Under each of the property tax reform proposals, people with identical properties will often not pay the same property tax. That is unfair, but to attempt to avoid that introduces other types of unfairness, as well as inefficiencies and appraisal difficulties. Pursuit of that unattainable definition of fairness produces unacceptable costs.

 

a.       Other types of unfairness.

 

 

 

         Families forced to make major sacrifices or forced to move because of higher taxes: comparable properties have suddenly increased in value.

 

 

 

         People on fixed incomes can't keep up with tax increases that result from property value increases.

 

 

 

 

         Necessary repairs increase the appraised value so much that families must make major sacrifices to pay the increased taxes, or they are forced to move.

 

 

 

 

         Families will pay higher taxes when poor negotiators buy comparable properties.

 

 

b.       Appraisal Difficulties - comparable taxes on comparable properties is a noble principle, but implementing it can often be quite difficult.

 

 

         There are often few, if any, comparable properties, and fewer still that have sold recently.

 

 

 

 

         Appraisal District personnel cannot observe key Property Value Determinants, like the condition of plumbing and electrical systems, and inside improvements.

 

 

c.       Inefficiencies

 

         Discourages property maintenance and improvement

 

 

 

         Reduces home ownership

 

 

         Uncertainty About Future Tax Liabilities

 

 

 

 

         Huge Ownership Hurdle: Even a tiny tax on Value Can Be a Huge Tax on the Property Owner's Equity.

 

 

 

 

         The Costs of the appraisal and protest processes

 

 

 

 

2.      U.S. Supreme Court said identical properties didn't have to be taxed identically.