Ad Valorem Taxation (Property Tax) Definition literally means - PowerPoint PPT Presentation

Ad Valorem Taxation (Property Tax) • Definition literally means "According to \i: /\ /1\ • Value is typically "Market Value" I j \ 1', ! I \ Il\ / I / i \ I \ I I ! ! \ , I ! I • Based upon principle that a~o\Int of tax uld dep¢n(l i ,I on value of property owne~/ I \ • Once regarded as fairest possible 'tax • Major source of revenue for many local g 2

ayb~i Property Tax • Purpose of property tax: • A method which will provide!!(f!:~ method for sharing the bU«d;~'~f provl .A government services to pr~erty and p / I \ " J \ i / J \ i / r \ I ' i ! I i I \ • • Based upon premise that property wea IS a I \ i measurement by which/prppe~ty owne of the compared and asked to Ptly their fa· cost of government r'; 3

Property Tax • Rooted in the principle of "Market Value" • Market Value can be elusive, ,specially fl () "assessors" (\ IiI 11\ " I / j \ / i \ j \ f / I \ • Assessors asked to value prppef\~Y at mar but not given tools for the tequit~ment :' i , • Markets can be "volatile" from year to y • Assessors do not alwa available to perform t 4

ef~ d~i~a~n ~s Property Tax • Consequently, it is believed that the property tax, based upon a market value assessment, is unfair and ine 0 ategories d:l'~Ie1~ar~ • e assessors office /1\ , , \ I I \ I ! / i , do mean ­ncrease lin • Increases in assessed values usu~lI\ \ I! taxes / j . / , ! " • Even if mill rates are reduced they are\not r as some property assessments increase • There has been legislation aimed at correcting o d ­ ­to b t () perceive Inequi les, u '. ." .~~':I;,;;;~.mor 5

!~r~ Property Tax • Does "Equity" in tax burdens truly exist? • Market values vary for different property cat assessors lacks tools necessary t~;8j~~; - 1 L .• sales of • Market Analysis is determined by~past /1'\ ' I j \ I ! ' • Sales of residential property ar~ num ~e~erally / !' I \ ' i I mut;:h fewer • Sales of commercial property i ' , • The assessor may receive information on man sales, but not commercial sales • Commercial property sho .",.9 t ···'flot and expense data which -- 6

'f~'"ide :I~EI Property Tax • Although the assessors attempts to value all property at market value, it is not an eas • Property owners complain a150ut the inc assessed values every year /1\ Ii" \ I)' ! \ !, '. ! < j I i I \ i • Most residential properties/cke\assessed market value than com metcija I property \ \ • Residential properties are assessed a of 90%­95% of market value statewide to • Commercial propertie" assessed between 65 7

inh~ren~ Property Tax • The primary difference between residential and commercial Rroperty assessment ratios is the availability of data y . that t re IS an • However, the difference ind~ates d inequality between/I~pmmercial residential property assess~e~ts . I \ , ! \ / ,1 1 /: \ • This inequality cannot be/'cqrrected unle existing system is changed, Ichange b · mandatory disclosure system forresi sales data and commercial incom!e and expen datij 1/ • Neither is likely to ha 8

,~\ Are There Problems with the System? • Some believe there are problems, because assessments constantly rise causin .. , /\ 1\ /. 1\ • The Market Value concept fot property essmento/ subject to the volatile mark¢~ activity in ska I / \ , I I \ I I , , I I ., I \ \ l i I ! I / ,! \ i I swill also!1 that t • During rising markets mO$t wo~ry . rise ; • During market declines some worry thati,a:txes will not decline with the market ' ... • Both worries have so 9

Are There Any Alternatives? • Legislation similar to California's Proposition 13 was introduced in the legislature last sessio , • This would cap assessments;at no more1llan a 2% /1 \ increase per year 'J ' /! \ I I \ 'i \. 'i \ , \ \ /, • Sounds good, but it will a,ctually\ create i and may tax lower income people mo • The proposed legislation also does not afllllW " "f k II · reca ptu re 0 mar e!J!\,,,~\: se s 0, "",','k," / \,/" , '{ ~a ti!l~!IIJ!!I/f;,;\~l\I~':ll\!!\,\zio pel~1IV 10

Background • Rapid uncapped increases in assessed values caused many to have to sell or lose ho~e • 5 Years preceding Prop.13/f'e'Sl~(fential ues /1\ I ! \ 1\ increased 76% but tax rat~ were only wered 2°/~ ! ! j • Prop 13 adopted in Calif in/~\g78 , I I i , / i . ! I ! • Mand.ates a property tax tva.ite\Of 1 % (1~.~. ills) • Requires property be asse~sed\ at mark. Value at time of sale, therefore;" , • Requires mandatory sales disclosure • Allows assessments to rise no more th year until next sale 12

Prop 13 Limits • Acquisition value based (Market Val • 1 % tax rate,y • 2% maximum increase fr~m base var. per year \Qr bonds • 2/3 vote to increase tax/~ upon c • Reappraisal (to market/~~Iu~) ownership or new con$tr~cti~n r < / J \ • Ownership change exCludes certai members (between spouses, childre grandparents-grandchildren if p'arent 13

l~ Negative Impacts of Prop 13 • Local governments had to get creative to find revenue to replace lost property tax revenue fees, exactions/" • New investment is heavily taxed (full mar~~"\;i\iC mitigation, dedications and easements)·········,····, I / I \ pe rty owners/ i ' • Anti­competitive ­ new buyers are taxed h~avier than curren I \ /1 I I / I I j / ! I • No equity of tax burden exists between ~lrpilar properties I \ I \ ! • New investment does not generate sufficient revenues for 10 pay for itself over long term \ \ • Therefore, politics becomes anti­growth, since growth ca ems and does not pay for infrastructure or improvements • Consequently, "big box store" developments are more welco generated 14

Negative Impacts of Prop 13 cant. • Change in ownership is more a loophole than tax owners look for ways to stall reassessme • Business property easier to find loo~holes than residjtitial property 11\ who can • The tax burden then shifts to hom~b~\ners loopholes as easily / I \ I \ ! !' \ / \ ­' I' , • Because it fails to cover costs fqr gbverhment, relia taxes, such as sales tax, is increas~d \\ • Younger, 1 st time homebuyers pay a disproportion property taxes 15

Ii~ Positive Impacts of Prop 13 • Ma ny homeowners who did no sell were saved from h,a:vin Y. foreclosed upon or ha~1 ng to sel /1 1\ / I a\measur • It does give taxpaye/~ certainty of their pr~p~rtY taxes /! '­, • Saved average homeowner thou dollars in property tax over the 16

68.7%~o PROPERTY TYPE AS A PERCENT OF THE TAX ROLL Source: Santa Clara County Assessors Office 80.0% " ­­­­­­- 70.0% I 69.1% 67.1% I 60.0% , 60.0% 60.0% PERCENT OF TAX ROLL 49.8% I 50.0% I 50.2% 48.0% I 40.0% 40.0% 40.0% 30.0% I -..... I 31.3% 30.9% 20.0% +1­­­­­­­­­,­­­­­­­­,­­­­­­­­­,­­­­­­­­­,­­,­­­­­­­­­­­­­­, 1975 1980 1985 1995 2 r"

ALAMEDA COUNTY CALIFORNIA PARCELS BY BASE YEAR Source: Office of the Assessor, Alameda County, 2007­2008 Annual Report 16.00% .--~~~~~-r~~~--~---r---~~-~~I~--~~I--~~~-~T--~~~I 14.00% +­­­­­­­­+­­­­­­­­­­+­­- 12.00% I ........... ".... 7' I 2006 Base Year 7.78% ofthe parcels pay 1975 Base Year 14.86% of the taxes 10.00% 13.05% of the parcels pay 2.15% of the taxes I- Z W 8.00% 0 0::: W a. • 6.00% • • • 4.00% I / I ...... I • • • • • • • ; : 2.00% • : & • • • • • 0.00% I 1975 1980 1985 • PERCENT OF TOTAL PARCELS. PERCENT OF TOTAL VALUE 18

Selected Excerpts from Warren Buffett's Response To the Wall Street Journal November 3, 2004 Yet there was no mention in the story of my second house in Laguna nor any mention of the tax inequities within California. Instead, the headline, the body of the story and quote made it appear as if I was only talking about the difference in taxes between Omaha and California. market property taxes as Index taxes share of value 2003 market value,'; Laguna Beach $4,000,000 $2,264 ' 100 (purchased early 19705) Laguna Beach $2,000,000 $12,002 1060 (purchased mid 19905) Omaha $500,000 $14,401 For example, the statement in the editorial's second paragrap billionaires in Chico will appreciate Mr. Buffett's generosity with th make no sense if the writer had understood that I was criticizing t California. My sympathies are clearly with the "non­billionaire 300 000 house in Chico toda th ,(i .r. es m >,",'. 0R those borne b this non­resident 1)1u . lilion This family, because of Proposition 1 ,nas beet e ected to

Cap Assessments or Something Different? • Since the assessment process is primarily used for sharing the burden of government services, does it matter whether the vafue represen.L­ " not? j\ 71\ / I \ / r \ nd the / I \ • Since the "market" is som~W.!I' hat volatil termine /th!e assessor is not given the ~~~t tools to ; I /! \ i market, and; ! , / f \ i \ " \ irttlerent ,luitybuilt • Since there appears to .be ~n into the current system between co aland residential property, without additional formation; (; • An assessment cap . 20