Online comments by local citizens in response to some recent guest columns about city and county budgets and taxes have revealed some mistaken notions about the way property tax rates are established in Tennessee cities and counties. I want to set the record straight regarding a couple of misconceptions about property tax that I see being spread in recent public discussions.
On the Oak Ridge Today website, citizen Andrew Howe posted a comment saying:
“The property tax rate should NEVER have to increase. It is basically a percentage of the value of the home, right? And if the value of the home rises (as it should, in line with the cost of living), then the taxes will also rise.â€
I can’t quarrel with Mr. Howe’s logic, but his conclusions are wrong. This is because he makes an assumption that is valid in many states but isn’t valid in Tennessee.
Under Tennessee law, when properties are reappraised, state officials calculate—and publicize—the property tax rate that will give the local government the same total amount of property tax that it was getting from existing properties before the reappraisal. (This calculated rate is called the “certified tax rate.”) That’s the new baseline tax rate. If a local government in Tennessee wants to get more property tax revenue after a reappraisal, the governing body has to vote to increase the tax rate above the certified rate.
This means that property tax collections in Tennessee don’t automatically increase when property values go up (nor do they drop if property values go down, as happened in many areas a few years back when the bottom fell out of the real estate market). If the value of your home rises with the cost of living, your tax bill won’t automatically go up. (After any reappraisal, however, some people’s city tax bills do go up because their property values went up more than the city or county average.)
That law gives local officials an incentive to hold the line on property tax increases. Property tax revenues in Tennessee don’t rise along with property values—and probably don’t keep up with increases in the cost of living. In recent decades, property tax rates in Oak Ridge and across the state have generally trended downward—meaning that taxes are now a smaller fraction of property value than they used to be. After the last reappraisal in Anderson and Roane counties, in 2010, Oak Ridge’s certified property tax rate dropped from $2.77 to $2.39 (per $100 assessed value). Our city tax rate is still at $2.39, so the only increase in city property tax collections has been what came from new development. When you consider that the combined city-and-county property tax rate for the Anderson County part of Oak Ridge was $5.34 in 1997 but only $4.74 as of 2012—11 percent less than it was 15 years earlier, it should be clear that tax collections here don’t automatically track property values or the cost of living. (In a recent guest column, Myron Iwanski provided a graph showing how Oak Ridge and Anderson County property taxes have lagged the rise in the cost of living over the last decade.)
In another online comment, Mr. Howe put forth some more misconceptions about property taxation. He said:
“We also need to ensure that the appraisal values stay the same…If the city lowers the rate, but starts appraising higher, residents end up paying the same.â€
Those statements may have had some validity in the past and they may still be true in other places, but they aren’t true in 21st-century Tennessee. As I explained above, because of the certified tax rate process in Tennessee, reappraisals don’t give the city more property tax. Furthermore, city government has no role in property reappraisals (appraisals are done by the counties, under the direction of the elected county property assessors) and nowadays the appraisal process is supposed to be done according to uniform statewide rules and procedures for evaluating fair market value. Any property assessor who tried to “ensure that the appraised values stay the same” would be violating state law!
The property tax appraisal process isn’t perfect (that’s one reason why appraisals can be appealed to a board of equalization that’s made up of citizens who own property in the county), but it isn’t arbitrary either, and there’s no call for blaming its imperfections on local city politics.
You can read Ellen Smith’s blog here.
Mark Caldwell says
Thank you Ellen. Wish you were still on the city council.
Denny Phillips says
Excellent explanation. If ones property values drop are taxes lowered if they drop at a level that is below city averages?
Charlie Jernigan says
The property assessors can reevaluate ones property if its value changes for some substantial reason, either up or down.
The city averages are used to set the property tax rate after the periodic revaluation. If ones property value dropped more than typical, one should expect a larger than typical drop in valuation and a lower resulting tax.
If everyone’s property value dropped in tandem, then one should expect to pay roughly the same as before. If its value dropped less than typical, then expect to pay more.
Its all relative…
Nathan Worley says
How can a house that appraises for say 80,000 be property tax appraised for a 130,000 dollars?
Charlie Jernigan says
That is the whole point. It really doesn’t matter.
I assume you are thinking that the houses aren’t selling and when they do they are sold for less. That is true generally across the city. So your view is that the property are worth less.
If the County Assessor dropped all property assessments by 1/3 at its revaluation, it would just automatically raise the tax rate by 1/2 to compensate, according to state law.
Ck Kelsey says
So Nathan there you have it. One stinking way or another they are going to TAX you at whatever amount they want. That’s why I told Myron Iwanski in another post that “Revenue Neutral” is simply a SCAM. Thanks for making that point so clear Charlie.
Charlie Jernigan says
But Curt, that is the actual definition of revenue neutral. The money the city gets just after revaluation is the same as it got just before.
Ck Kelsey says
So your Tax can only go up but will never go down right. Isn’t the game still rigged against the property owner so bigger government can continue to get bigger? “Revenue Neutral” reminds me of what a man said once about these sort of things,”A bell is not a bell until you ring it”
Charlie Jernigan says
No,you have it backwards, kind of. Revenue neutral reassessment means that on the day that the reassessments are announced, your property tax rates are adjusted so that you (as a whole city or county) do not pay more (or less) property taxes than the day before.
Ways to lower property taxes include:
– Lower the value of your individual property.
– Reduce the services that the government provides.
– Increase the sales tax receipts.
The first is generally foolish, the second is politically difficult and often foolish, while the third has great potential here in Oak Ridge, IMO.
Ellen Smith says
Charlie’s answer isn’t correct. In fact, the appraised value of a house for property tax purposes should be reasonably close to the market value as of the county’s official date of appraisal, which for us is currently January 1, 2010.
The county assessor is required to use actual data for free-market property sales (that is, not transfers to family members, foreclosures, and similar transactions that may not reflect the true market value of the property) and make adjustments (for market changes after the dates of the sales used in the appraisal process, sizes of buildings, and other factors) to arrive at estimates for the values of specific properties in the area. Market changes since January 2010 might cause some tax appraisals to be a lot higher or lower than the current market value.
Mistakes are made, though, and if a property appraisal is way off, there is an opportunity for appeal. Some appeals are resolved by staff in the assessor’s office, but many are heard by a county equalization board (consisting of your fellow citizens) Equalization boards can and do lower people’s assessments (but sometimes they raise them) based on the information they review.
Ck Kelsey says
So it’s like taking your dog to a veterinarian that is also a taxidermist. No matter whether he helps your dog get well or not, they make sure you get your dog back . LOL
Charlie Jernigan says
Ellen said: “Market changes since January 2010 might cause some tax appraisals to be a lot higher or lower than the current market value.”
That was my intended explanation for Nathan’s example. Sorry if that wasn’t clear.
But the fact remains, if the swings between appraisals are market wide, on next reappraisal, you (on average) should expect to pay about the same according to state law.
Johnny Beck says
Charlie, I think you missed Nathan’s point.
His point was that if a house was professionally appraised at $80,000, how can the tax assessment be $130,000. He’s not asking about averages for the area or city tax income and adjusted tax rates.
I’m in the same position. My home was professionally assessed at $150,000 at the same time that the tax assessment was bumped up to $183,000. The difference in what I pay for taxes wasn’t enough to make me want to appeal it, but it is a significant difference. And like Nathan said, this seems to be a common complaint in both Oak Ridge counties.
Ellen Smith says
If you have information that indicates that your county appraisal is way off the mark, you should contact the county assessor’s office. If they can’t satisfy your concerns, they should help you file an appeal to be heard by the county board of equalization.
I think many property owners decide (like Johnny Beck did) that the difference in taxes isn’t enough to make it worth the bother of appealing. However, it gives complaints a lot less credibility if the complainer knew he had an opportunity for an appeal and didn’t take advantage of it.