[Vision2020] Assessment of the Property Tax

Sat Apr 9 09:53:30 PDT 2005

Jeff,

So then for example CJ's is for sale for $1.3 million then his assessment would be based on that amount using a formula you have worked which probably has one formula for business and another for residential? In accordance to the freedom of information law then someone could go in and see what they are paying in taxes.

Dick Schmidt

----- Original Message ----- 
  From: Jeff Harkins 
  To: vision2020 at moscow.com 
  Sent: Saturday, April 09, 2005 9:10 AM
  Subject: [Vision2020] Assessment of the Property Tax

  As many of you have commented, the Tax Assessment Rate may not be a good measure of the tax burden for a particular county.  And yes, you are absolutely correct.

  The real driver for the assessment of property tax on residents of a county is the level of budgeted expenditures for that county.  As many of you are aware, the determination of the tax rate is derived by identifying the amount of revenue needed to fund the budgeted expenditures for the year.  Then, given the level of assessed valuation subject to the tax, the tax levy rate is determined by dividing the required revenue (to be funded by property taxes) by the total assessed valuation or:

  Required revenues / Total assessed valuation = Tax levy rate

  But as is obvious, while the budgeted expenditures (required revenues) are driving the amount of taxes that will be assessed on property owners, it is the assessed valuation that determines the amount of tax that will be paid by each property owner.  And there are numerous and inherent problems with the assessment process.  In Idaho, the approach is to attempt to provide "uniformity" to achieve fairness in the assessment process.  Below is a quote from the 2004-05 Ratio Assessment Manual ( http://tax.idaho.gov/propertytax/pt_ratiostudy.htm):

  MEASURING ASSESSMENT UNIFORMITY
  Uniformity determines the quality and inherent equity of property
  assessments. Although both the appraisal and the market transaction
  are subject to distortion on any individual property, if the
  magnitude of this distortion is consistently large, taxes paid by
  similar properties in the same area will differ widely. The goal of
  a fair assessment program is to reduce inequity of this type.
  There are two overall types of inequity that can occur:
  1. Inequity between categories.
  2. Inequity within a given category.
  In the first case, inequity results when the assessment level is
  lower in one category than another. This situation becomes apparent
  when level indicators from different categories are compared.
  In the second case, the distortion is entirely within one category
  and is not indicated by measurements of level.

  I don't really like the property tax as a vehicle for funding public programs - not because I don't want to support public programs - but because the property tax is an extraordinarily difficult tax to administer.  The overhead necessary to manage an equitable property tax system is enormous.  Without getting into a diatribe or dissertation on administering a property tax system, consider the following elements of the system" 
    a.. Must maintain an online-realtime system of all real property transactions 
    b.. Must maintain a persistent and consistent real property assessment system 
    c.. Must maintain a means of adjudicating or resolving individual property assessment complaints 
    d.. Must maintain a system of oversight that monitors and assures that the systems operated by taxing jurisdictions in the State is fair and equitable 
  The property tax is an expensive tax to manage.  For example, in Latah County, we levied about $5.8 million in property tax for 2003.  Give or take a few $10's of thousands, the amount spent in Latah County for management of the Property Tax System was above  $1,000,000 for 2003.  This number is not readily available from the County's financial statements because the system is managed across more than one County department (Assessor's Office, Collector's Office, etc.), but the Revaluation program (administered by the Assessor's Office) spent $457,011 just on the revaluation program.  From my memory (always a dubious source) the normal operating cost of the Assessor's office, in addition to the revaluation program) was about $700,000 for 2003.  Thus, if these numbers are at all reliable, about $.20 of every dollar collected in property taxes was spent in administering the tax.  Of course, this does not include any costs incurred by the tax collectors office nor, at the state level, for their oversight responsibilities.  Also, my numbers do not include the cost of having our elected County Commissioners serve as the local adjudicating body for appeal of property valuations.  If you scrutinize the agendas for last year, you may be surprised at how much time was spent hearing tax appeals.

  And, by the way, even though we spend a lot of money on trying to assure that the property tax is fair and equitable, those that received their property tax assessment notices for 2005 know that the system occasionally requires significant adjustment.  Again I would refer you to the 2004-05 Ratio Assessment Manual for details about how the assessment oversight works.  Here is that link again - http://tax.idaho.gov/propertytax/pt_ratiostudy.htm.

  As you dig into the details of the ratio study and the application of that technique to properties in Latah County (as well as other counties) you might want to refresh your statistical analysis tools - especially the difficulties of small samples.  I noted that for 2003, in the assessment of Rural Residential properties ( http://tax.idaho.gov/propertytax/PTpdfs/rpt_03_county_ratio_study.pdf ) that Latah stats were generated from 11 sales for that year.  A sample this small can be problematic.

  This concludes my thoughts on property tax assessment and the tax burden on Latah residents.  For me, the conclusion is pretty straightforward - our property taxes are rather high and the level of tax probably influences many potential businesses and individuals from living here.  The fact that the Moscow - Lewiston region was the only sector of Idaho that did not report growth for the year is some indication of that.  

  My next post on taxes will address the question of property tax exemptions and the impact of exemptions on tax receipts, fairness and equity of the tax exemption, etc.  It will be a few days - I have some yardwork to do.

  Hope this was helpful.

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