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Ad Valorem Taxation (Property Tax)

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Ad Valorem Taxation (Property Tax) To Cap, or Not to Cap, That is the Question 1 AdAd ValoremValorem TaxationTaxation (Property(Property Tax)Tax) DefinitionDefinition literallyliterally meansmeans ““AccordingAccording toto ValueValue”” ValueValue isis typicallytypically ““MarketMarket ValueValue”” BasedBased uponupon principleprinciple thatthat amountamount ofof taxtax shouldshould dependdepend onon valuevalue ofof propertyproperty ownedowned OnceOnce regardedregarded asas fairestfairest possiblepossible taxtax MajorMajor sourcesource ofof revenuerevenue forfor manymany locallocal governmentgovernmentss 2 PropertyProperty TaxTax PurposePurpose ofof propertyproperty tax:tax: AA methodmethod whichwhich willwill provideprovide aa fairfair && equitableequitable methodmethod forfor sharingsharing thethe burdenburden ofof providingproviding governmentgovernment servicesservices toto propertyproperty andand propertyproperty ownersowners BasedBased uponupon premisepremise thatthat ownershipownership ofof propertyproperty equatesequates toto wealthwealth andand isis aa measurementmeasurement byby whichwhich propertyproperty ownersowners maymay bebe requiredrequired toto paypay theirtheir shareshare ofof thethe costcost ofof governmentgovernment 3 PropertyProperty TaxTax RootedRooted inin thethe principleprinciple ofof ““MarketMarket ValueValue”” MarketMarket ValueValue cancan bebe elusive,elusive, especiallyespecially forfor ““assessorsassessors”” AssessorsAssessors askedasked toto valuevalue propertyproperty atat marketmarket valuevalue butbut notnot givengiven toolstools forfor thethe requirementrequirement-- nono disclosure,disclosure, etcetc MarketsMarkets havehave beenbeen ““volatilevolatile”” fromfrom yearyear toto yearyear AssessorsAssessors areare notnot givengiven thethe bestbest informationinformation availableavailable toto performperform task,task, therefore,therefore, equityequity problemsproblems existexist 4 PropertyProperty TaxTax Consequently, it is believed that the property tax, based upon a market value assessment, is unfair and inequitable Assessments rise and fall each year for different categories of property, depending on the data received by the assessors office Increases in assessed values usually do mean an increase in taxes Even if mill rates are reduced they are not reduced as much as some property assessments increase There has been legislation aimed at correcting these perceived inequities, but appear to create more problems 5 PropertyProperty TaxTax Does “Equity” in tax burdens truly exist? Market values vary for different property categories yet assessors lacks tools necessary to perform their duties Market Analysis is determined by past sales of property Sales of residential property are generally numerous Sales of commercial property are much fewer The assessor may receive information on many residential sales , but not commercial sales Commercial property should be valued using the income and expense data which the assessor will not get 6 PropertyProperty TaxTax AlthoughAlthough thethe assessorsassessors attemptsattempts toto valuevalue allall propertyproperty atat marketmarket value,value, itit isis notnot anan easyeasy tasktask PropertyProperty ownersowners complaincomplain aboutabout thethe increaseincrease inin assessedassessed valuesvalues everyevery yearyear MostMost residentialresidential propertiesproperties areare assessedassessed closercloser toto marketmarket valuevalue thanthan commercialcommercial propertyproperty ResidentialResidential propertiesproperties areare assessedassessed atat anan averageaverage ofof 90%90%--95%95% ofof marketmarket valuevalue statewidestatewide CommercialCommercial propertiesproperties areare estimatedestimated toto bebe assessedassessed betweenbetween 65%65%--90%90% statewidestatewide 7 PropertyProperty TaxTax TheThe primaryprimary differencedifference betweenbetween residentialresidential andand commercialcommercial propertyproperty assessmentassessment ratiosratios isis thethe availabilityavailability ofof datadata However,However, thethe differencedifference indicatesindicates thatthat therethere isis anan inherentinherent inequalityinequality betweenbetween commercialcommercial andand residentialresidential propertyproperty assessmentsassessments ThisThis inequalityinequality cannotcannot bebe correctedcorrected unlessunless thethe existingexisting systemsystem isis changed,changed, changechange beingbeing aa mandatorymandatory disclosuredisclosure systemsystem forfor residentialresidential salessales datadata andand commercialcommercial incomeincome andand expenseexpense datadata NeitherNeither isis likelylikely toto happenhappen 8 AreAre ThereThere ProblemsProblems withwith thethe System?System? SomeSome believebelieve therethere areare problems,problems, becausebecause assessmentsassessments constantlyconstantly riserise causingcausing higherhigher taxestaxes DuringDuring risingrising marketsmarkets mostmost worryworry thatthat taxestaxes willwill alsoalso riserise DuringDuring marketmarket declinesdeclines somesome worryworry thatthat taxestaxes willwill notnot declinedecline withwith thethe marketmarket BothBoth worriesworries havehave somesome meritmerit 9 AreAre ThereThere AnyAny Alternatives?Alternatives? LegislationLegislation similarsimilar toto CaliforniaCalifornia’’ss PropositionProposition 1313 waswas introducedintroduced inin thethe legislaturelegislature lastlast sessionsession ThisThis wouldwould capcap assessmentsassessments atat nono moremore thanthan aa 2%2% increaseincrease perper yearyear SoundsSounds good,good, butbut itit willwill actuallyactually createcreate inequitiesinequities andand maymay taxtax lowerlower incomeincome peoplepeople moremore TheThe proposedproposed legislationlegislation alsoalso doesdoes notnot allowallow forfor ““recapturerecapture”” ofof marketmarket valuevalue ifif thethe propertyproperty sellssells 10 CapCap AssessmentsAssessments oror SomethingSomething Different?Different? SinceSince thethe assessmentassessment processprocess inin primarilyprimarily usedused forfor sharingsharing thethe burdenburden ofof governmentgovernment services,services, doesdoes itit mattermatter whetherwhether thethe valuevalue representsrepresents ““marketmarket”” oror not?not? SinceSince thethe ““marketmarket”” isis somewhatsomewhat volatilevolatile andand thethe assessorassessor isis notnot givengiven thethe toolstools toto determinedetermine thethe market,market, and;and; SinceSince therethere appearsappears toto bebe anan inherentinherent inequityinequity builtbuilt intointo thethe currentcurrent systemsystem betweenbetween commercialcommercial andand residentialresidential property,property, withoutwithout additionaladditional information;information; AnAn assessmentassessment capcap willwill simplysimply createcreate moremore inequitiesinequities 11 TheThe CurrentCurrent MethodMethod ManyMany propertyproperty ownersowners andand manymany electedelected officialsofficials believebelieve thatthat thethe propertyproperty taxtax systemsystem isis brokenbroken ThisThis beliefbelief isis basedbased uponupon thethe factfact thatthat thethe assessorassessor followsfollows thethe lawlaw andand valuesvalues propertyproperty atat marketmarket valuevalue WhenWhen valuesvalues chanchanggee forfor variousvarious catecateggoriesories ofof propertyproperty wewe areare simplysimply shiftingshifting thethe taxtax burdenburden TheThe factfact isis aa municipalitymunicipality needsneeds aa predeterminedpredetermined amountamount ofof revenuerevenue toto functionfunction regardlessregardless ofof ““valuevalue”” 12 TheThe CurrentCurrent MethodMethod HereHere’’ss howhow thethe currentcurrent systemsystem works:works: Current Total Assessed Value $1,500,000,000 Current Year Budget Amount $ 15,000,000 Mill Rate $15,000,000 = 10 mills (.010) $1,500,000,000 13 TheThe CurrentCurrent MethodMethod You and your brother are electricians and make $65,000 per year. There is no chance of a raise for either of you for the next 5 years. You both live in very similar homes but in different neighborhoods. Your house current market value $210,000 Your current property taxes (210,000 X .0.10) $ 2,100 ACROSS TOWN Your brothers house current market value $210,000 Brothers current taxes (210,000 X .010) $ 2,100 14 TheThe CurrentCurrent MethodMethod NEXT YEAR Budget amount – Same $15,000,000 Total Assessed Value – Same $1,500,000,000 Mill Rate – Same 10 mills Your house current market value up 15% $241,500 Your current property taxes (241,500 X .0.10) $ 2,415 up 15% ACROSS TOWN Your brothers house current market value Dn 10% $189,000 Brothers current taxes (189,000 X .010) $ 1,890 Dn 10% 15 TheThe CurrentCurrent MethodMethod 2 YEARS OUT Budget amount – up 7% $16,050,000 Total Assessed Value – Up 5% $1,575,000,000 Mill Rate – (16,050,000 ÷1,575,000,000) = 10.19 mills Your house current market value up 5% $253,600 (rnd) Your current property taxes (241,500 X .0.1019) $ 2,584 up 7% ACROSS TOWN Your brothers house current market value No Chg. $189,000 Brothers current taxes (189,000 X .01019) $ 1,890 Up 2% 16 TheThe CurrentCurrent MethodMethod AdAd ValoremValorem MethodMethod SummarySummary ––TaxesTaxes InIn 22 yearsyears youryour taxestaxes wentwent upup 23%23% forfor thethe samesame services,services, yetyet thethe budgetbudget onlyonly increasedincreased 7%7% YourYour brothersbrothers taxestaxes wentwent downdown 8%8% inin thethe samesame timetime periodperiod forfor thethe samesame servicesservices WhileWhile thethe adad valoremvalorem methodmethod
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