THE PROPERTY TAX in ALABAMA: Its Historical Development and Current Impact
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THE PROPERTY TAX IN ALABAMA: Its Historical Development and Current Impact Ira W. Harvey, Ed.D. Retired Educational Consultant CEO of Decision Resources, LLC June 2012 Center for Leadership and Public Policy Alabama State University Montgomery, Alabama FOREWORD As is the case across the United States, many Alabamians believe that they are taxed heavily and that their tax burden is unreasonably high. In reality, Alabama competes for the lowest tax burden overall in America and it is well-entrenched as the 50th ranked state in terms of property tax levies. In this report, the author documents the historical precedents for this situation. Importantly, the report also indicates the action that can be taken to modify the property tax so that it can play a more equitable role in funding government services than is the case currently with the heavy reliance on a sales tax that is highly regressive in its impact. The author of this report, Ira W. Harvey (Ed.D., Auburn University), is considered one of the foremost authorities on taxation and education finance in Alabama. He is currently self- employed as an education finance consultant as president of Decision Resources, LLC. In his long career, he has held senior finance positions with the University of Alabama at Birmingham, the Alabama State Department of Education, and the Alabama Department of Finance. In addition, he has had consulting affiliations with Alabama Association of School Boards, the Alabama Commission on Higher Education, the Alabama Higher Education Partnership, and the University of Alabama and Auburn University systems. He has also advised committees and commissions established by governors George C. Wallace, Fob James, Guy Hunt, Don Siegelman, and Bob Riley. Beyond this research on the property tax in Alabama, the Center for Leadership and Public Policy is committed to publishing additional studies on a number of key issues confronting the state. These studies include ones on social entrepreneurship in Alabama’s Black Belt, national and international best practices that can impact reading and mathematics education in Alabama, unmet health care needs in Alabama, access to transportation in Alabama’s rural areas, and an assessment of the need for home rule in Alabama local governments. Earlier this year, we published two studies: The Three Legs of the Stool: Trends and Consequences of Alabama Aging Policy and A Slow Journey for Local Government Reform in Alabama: City Managers and City Administrators. Copies of both publications are available for these persons who may have any interest in them. We hope that this report and others in this series will bring about needed visibility and dialogue for these important public policy issues. If you have any questions or comments about this report as well as any other programs or activity of the Center for Leadership and Public Policy, please do not hesitate to contact me at 334-229-6015 or [email protected]. Thomas Vocino, Ph.D. Executive Director Center for Leadership and Public Policy Property Tax in Alabama: Its Historical Development and Current Impact 1 TABLE OF CONTENTS EXECUTIVE SUMMARY ................................................................................................. 3 INTRODUCTION ............................................................................................................. 6 DEVELOPMENT OF THE AD VALOREM TAX IN ALABAMA ........................................ 7 Northwest Ordinance of 1787, Federal Interest in Public Education ..................... 7 Alabama’s Constitutions, the Ad Valorem Tax, and Public Schools ..................... 7 Amendment 582 – State Courts Cannot Order Expenditures ............................. 10 CONSTITUTIONAL LIMITS ON THE AD VALOREM TAX ............................................ 11 Constitutional Limit on State Ad Valorem Taxation by Rate ............................... 11 Constitutional Limit on County Ad Valorem Taxation by Rate ............................ 11 Constitutional Limit on Municipal Ad Valorem Taxation by Rate ........................ 13 Constitutional Limit on School Ad Valorem Taxation by Rate ............................. 14 Amending the Constitutional Limit for New Ad Valorem Taxes........................... 16 LEVYING THE AD VALOREM TAX IN ALABAMA ........................................................ 18 Steps Utilized in Levying the Ad Valorem Tax .................................................... 18 Appraising the Value of Property for Ad Valorem Taxation ................................ 19 Assessment of Property in Alabama for Ad Valorem Tax Purposes ................... 20 COLLECTING THE AD VALOREM TAX IN ALABAMA ................................................ 28 Timeline of Events .............................................................................................. 28 Quadrennial to Annual Reappraisal .................................................................... 28 Assessment of Property Tax .............................................................................. 29 Special Fee on Forest Land: Amendment 511, 1990 ........................................ 30 CALCULATING THE AD VALOREM TAX IN ALABAMA .............................................. 31 Tables of Sample Calculations ........................................................................... 31 Department of Revenue Report of Total Mills by County .................................... 31 CONSTITUTIONALITY OF ALABAMA’S AD VALOREM TAX ...................................... 35 Conclusion of the Court in the Weissinger Line of Cases ................................... 35 Conclusion of the Court in Lynch v. Alabama ..................................................... 35 The Federal Courts and Alabama’s Ad Valorem Tax Laws ................................ 36 RECOMMENDATIONS FOR POTENTIAL CHANGES ................................................. 37 Critical Issues to Be Considered ......................................................................... 37 Steps to Be Taken .............................................................................................. 37 Conclusions ........................................................................................................ 39 BIBLIOGRAPHY ........................................................................................................... 41 2 Property Tax in Alabama: Its Historical Development and Current Impact THE PROPERTY TAX IN ALABAMA: Its Historical Development and Current Impact Ira W. Harvey, Ed. D. Retired Educational Consultant CEO of Decision Resources, LLC EXECUTIVE SUMMARY At statehood, Alabama in 1819 accepted the politics work to regain control of the state political proposition that the ad valorem tax on property machinery. was both a reasonable and politically palatable Republican Reconstruction ended in means of raising governmental revenues. The Alabama in 1874 when Democrats regained only constitutional limitation was that land would control of the legislature and governor's office be taxed in proportion to value. Issues and and, in the next year, rewrote the state provisions relating to the administration of the ad constitution. The 1875 Constitution became the valorem tax were left to the prerogative of the first Alabama constitution to be voted on and Legislature. A further incentive to utilize property adopted by the citizens of the state. A primary wealth as a major source of taxation was the component of this constitution was to enroll granting of federal lands, particularly the sixteenth provisions to forever prevent the excess of section land to benefit public schools. Early taxation and debt that had marked the period of legislative actions included the realization that reconstruction. A special target of constitutional such wealth was not uniformly distributed and that restraint was the ad valorem tax since real the state should equalize these endowment property was still the primary means of wealth revenues from the sixteenth section lands to and the production of income. If a tax were not provide an equal per student apportionment. authorized in the constitution, it was not to be The Civil War interrupted the steady progress permitted by legislation. And these limitations toward a statewide system of public schools and would continue to appeal to the voters and accompanying growth of local communities taxpayers of Alabama over the next 137 years. around centers of commerce. The aftermath of Described by historians as being designed to the Civil War and the disruptive influence of freeze the status quo, the 1901 Constitution not Reconstruction led to dramatic increases in the only restricted suffrage but also did little to make amount of state and local taxation and redefined government more responsive. The 1901 who would benefit from that taxation. Slaves, Constitution was more a code of laws than a once the property of planters on which they paid framework for government which could not be property tax, became the beneficiaries of a easily changed. While support for the 1901 general government and educational system that Constitution came from the Black Belt counties, provided greatly expanded opportunities. illegalities in the ratification vote for this Unfortunately, these expanded opportunities also document were widely reported. It was also came with virtually unbridled power of state and supported by business interests in the state. local government to impose both taxation and These groups wished to disfranchise most of the debt. Corruption