July 19, 2005

Unclaimed Property Tax Relief in Arkansas

The Arkansas Democrat and Gazette reports that a progressive Arkansas property tax break is frequently not being claimed by the low-income homeowners who need it most. The credit, which was enacted through a vote of the people in the fall of 2000, gives every Arkansas homeowner a $300 credit against their property taxes-- if they apply for it. A July 17 article (only available to paid subscribers on-line, sorry) says that many homeowners who are eligible for the credit simply aren't applying for it.

When the $300 credit was enacted in 1999, it was a mixed blessing: the enabling legislation gave a generous property tax break to homeowners--but gave nothing to renters, who pay rent indirectly in the form of higher property taxes. And the 1999 legislation specified that the $300 credit would be paid for by a half cent sales tax hike. When the funding source is taken into consideration, this is no longer a very progressive move for homeowners-- even if everyone who's eligible applies for the credit. (For renters, of course, it's a flat-out regressive tax hike.) If we guess that low-income homeowners are disproportionately likely to not apply for the $300 credit, this tax swap seems, in retrospect, to be a pretty raw deal for Arkansas tax fairness.

This is an object lesson for state lawmakers who want to enact progressive targeted tax relief, whether it's an Earned Income Tax Credit, a sales tax credit, or a property tax credit: if lawmakers value tax fairness enough to enact such a credit, they need to think about implementation. At the end of the day, someone has to be in charge of running an outreach program to tell people across the state that they might be eligible for this thing-- and lawmakers need to appropriate enough money to make an effective outreach program possible.

The state's Assessment and Coordination Division (the state agency that keeps track of total property value and property tax statewide) has this on their website for those intrepid enough to find it. Their advice for those with questions about their eligibility? "Contact your local assessor's office." No obvious hints are given about how one might do that.

The Democrat and Gazette article provides anecdotal evidence that the people who ought to know things about this credit just don't, including:

1) The taxpayer: "'I didn’t know it existed,' said David Cameron, the Siloam Springs city administrator and one of the Benton County homeowners who isn’t receiving the credit. 'I’ve never heard of such a thing as a $300 tax credit.'"

2) The tax administrator: "...assessors believe thousands of homeowners are still missing out. 'It could be 1,000 people, or it could be 10,000 in this county,' said Lee Ann Kizzar, the Washington County assessor. 'It’s one of those things that I can’t tell.'"

The article also notes that some local tax administrators clearly don't think it's their job to do PR on this:

"In Carroll County, Assessor Zelah McCollough said she no longer tries to track house sales to inform new owners about the tax credit. It’s too expensive to send notices, she said. 'I think the taxpayer needs to be responsible to make sure they get that,' McCollough said."

This view shouldn't be allowed to carry the day. Taxes are complicated, and tax administrators (and lawmakers) should do what they can to ensure that those who are eligible for tax breaks are aware of them.

Targeted tax credits are absolutely the right way to deliver inexpensive tax relief to the low- and middle-income taxpayers who need it most. But lawmakers choosing to follow this path should learn from the lessons of Arkansas.


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