Like many homeowners I recently received my property tax assessment. It showed a huge increase in my home’s value. My reaction was that of excitement thinking about the growth of my home equity. For others, this type of news could lead to deep fear believing a massive property tax bill will soon follow. For reasons we’ll discuss, this isn’t necessarily the case.
Property taxes are an important part of the tax base for school districts, local governments, and many states. Though based on a relatively straightforward calculation, they are among the least understood taxes by taxpayers. Although there are variations in each state, the general formula for property taxes is the value of the property multiplied by the tax rate.
Too often taxpayers focus on assessed values instead of the spending decisions made by government officials when considering their property tax burden. With record property tax assessment increases occurring in states like Idaho, Montana, Washington, and Wyoming, homeowners are concerned about the potential impact on their property tax bills.
First, it is important for taxpayers to know that assessments are just a part of the calculation. The main driver of property taxes is spending increases approved by policymakers and voters themselves through levies. The assessor is not responsible for any property tax increase, the budget writers are.
This is why efforts to restrict property assessments are often misplaced and lead to other problems. The better way to control property tax increases is on the spending side and/or with levy restrictions. One way to help bring greater transparency to the fact spending is the main cause of property tax increases is with a reform called Truth in Taxation.
To bring more transparency to property tax increases, Utah was the first to adopt Truth in Taxation in 1985.
Here is how the Utah Legislature describes the tax transparency process:
“The basic concept of the system is that taxing entities may only budget the same amount of property tax each year, unless they have ‘new growth’ (not just change in value on existing properties) or go through a very public process of notifying the public and holding a public hearing on the proposed revenue increase. To achieve this, as taxable values change, the tax rate automatically adjusts to provide a constant amount of revenue. When values increase, the tax rate adjusts down to provide the taxing entity the same amount of revenue as it received in the prior year. When values decrease, the tax rate adjusts up to provide the same amount of revenue.”
Utah’s Property Tax Division further explains:
“Property Tax increases require a Truth in Taxation process of public disclosure. Taxing entities are required to follow a series of date specific steps, including notification to the county, newspaper advertisements, parcel specific notices, and a public hearing, before adopting a property tax rate above a calculated certified tax rate. The timeline is different for a fiscal year taxing entity (budget cycle July 1 to June 30) and a calendar year entity (budget cycle Jan 1 to Dec 31).”
Before moving forward with property tax increases, government officials in Utah need to first fill out a “Tax Increase Checklist” and comply with the “Tax Increase Requirements” details under Truth in Taxation.
Along with Utah, Truth in Taxation currently exists in Iowa, Kansas, Nebraska, and Tennessee.
Montana Governor Greg Gianforte succinctly explained the need for policymakers to focus on property tax transparency when he said:
"To ease the property tax burden, we must reform our system and bring greater transparency, accountability, and responsibility to local spending."
Even though Idaho doesn’t have a statewide property tax and the legislature recently enacted property tax rebates to help with the local tax burden, Truth in Taxation is still needed to help empower taxpayers to better engage and understand their property tax burden and the connection to spending.
With the cry for property tax reform getting louder, policymakers in Idaho, Montana, Washington, and Wyoming should focus their efforts on improving transparency and voter engagement with Truth in Taxation.