December 02, 2005

Prop. 13 Light

Nevada lawmakers have been grappling with how to provide property tax relief for its residents in the wake of rising home values. This is a laudable goal, however, not the way Nevada lawmakers are thinking of doing it. Lets call it the Prop. 13 Light Plan:

State legislators say Nevada's property tax limit law is better than California's Proposition 13 because when a home is sold, the new buyer gets the same tax relief as the former owner.

"It makes it in my view a better deal than Proposition 13," Assemblyman Joe Hardy, R-Boulder City, said Tuesday.

Hardy and other members of the Subcommittee to Study the Taxation of Real Property will have several meetings during the next year as they review Nevada's AB489, passed in April, which limits property tax increases on owner-occupied homes to 3 percent per year. The new law also places an 8 percent limit on commercial and other types of property.

Hardy lauded the new law after Douglas County Assessor Doug Sonneman explained how the it differs from Proposition 13, imposed by California voters in 1978.

Sonneman noted a home in his county had an assessed value of $162,500 last year and then was reassessed up to a value of $245,000. But because of the 3 percent limit, the property tax on the home went up $37, rising to $1,278 a year from $1,241 per year.

But, he added, the assessed value of most property today is far less than what the property sells for on the open market. The home in Douglas County sold in November for $357,000.

If that home had been in California, Sonneman said the new owner would pay $3,570 a year in property taxes. Under Proposition 13, property taxes can be increased by no more than 2 percent a year, but when the property is sold it is taxed at 1 percent of the fair market value.

In contrast, the Nevada law allows the new owner "a long time to enjoy" the property tax savings, Hardy said.

Under Nevada's Prop 13 Light Plan, lawmakers solve the issue of the inequity caused by resetting property taxes when the house is sold. No one disagrees that it would be unfair if two homeowners with identical homes in identical communities paid two different amounts of property tax solely because one them has lived there longer than the other. However, the Prop 13 Light Plan creates an inequitable system of property tax relief in another way.

Say you have two homeowners, Homeowner A and Homeowner B. Homeowners A & B have identical homes however they live in different communities. Homeowner A lives in a tight housing market with rapidly growing home values. Homeowner B lives in an area that doesn't have rapidly raising home values, perhaps a rural county. Under the Prop. 13 Light Plan, Homeowner A will receive more property tax relief than Homeowner B because the 3% cap will be more restrictive in fast-growth areas compared to low-growth areas. Think about it. If Homeowner A's property tax goes up by 5% in a given year, Homeowner A receives relief in the amount of 2%. On the other hand, if Homeowner B's property tax increases by 1%, Homeowner B wouldn't receive any relief because the cap is set at 3%. So, with a straight 3% restriction, Nevada's Prop. 13 Light Plan discriminates between people who live in fast-growth areas against those that don't. Regardless if Homeowner A needs more property tax relief than Homeowner B, Homeowner A is going to receive more because of geography. Ability to pay, not geography, should determine the amount a homeowner receives in property tax relief.

Additionally, Nevada's Prop. 13 Light Plan isn't cost effective because it grants property tax relief to people who don't even need it. Because the 3% restriction applies to all homeowners, regardless of their incomes, the Prop. 13 Light Plan will force Nevada residents to pay more in taxes than they have to. From millionaires to elderly widows living off their Social Security, they're all covered by the Prop. 13 Light Plan. Why should Nevada residents pay for property tax relief that goes to homeowners that don't need it? It's just wasteful. In order to be cost effective, property tax relief should be targeted to those they truly need it: low- and middle-income homeowners for whom property taxes are really a burden. Furthermore, what about renters? Nevada's Prop. 13 Light Plan provides absolutely no direct relief to renters at all.

Nevada's Prop. 13 Light Plan inequitably provides more tax relief to homeowners in fast growth areas compared to slow growth ones and provides property tax cuts to all homeowners regardless of their ability to pay. Nevada's Prop. 13 Light Plan is just simply inequitable and wasteful.


At 9:18 PM, Blogger Lower Property Taxes! said...

And, in Florida, permanent residents who enjoy homestead exemptions have an annual $25,000 reduction in their assessed values. In addition, assessed values may not increase more than CPI or 3% per year, if the status of the property remains the same. Does that mean property taxes cannot rise more than 3% annually. NO! Millage rates are not tied to the homestead cap.

At 1:36 PM, Blogger w00t said...

However, your scenario does not seem to take into account that Homeowner A will hit the cap more often due to his higher assesments in his market. Over time, he will be paying more taxes.

As for ability to pay, how does one talk of equity if a high income individual has a small home and a low income individual has a much larger one elsewhere?


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