That rumbling roar you hear building in volume around the county is the collective outcry of taxpayers opening property tax assessments recently mailed out by the county.
For many, the new values assigned to their homes, businesses and property are painfully higher.
Welcome to the world of “value” after an extended boom in the housing market.
The immediate reaction from many homeowners is a determined “this can’t be right!” quickly followed by “who’s to blame for this?”
Whether the appraisals are right or not is a question for tax assessors and ultimately the board of appeals; but blame, if it must be assigned, belongs to the state legislature.
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State law requires that property in Georgia be assessed for tax purposes based on “fair market value,” which means you are taxed on what your property likely would be worth were you putting it up for sale. It doesn’t matter that you are not interested in selling it.
Housing and property prices have skyrocketed over the past year, and while it seems inevitable that the bubble will have to burst at some point, tax assessments must by law be based on what the potential value is now. And when the bubble does burst, don’t expect assessment values to decrease as rapidly as they increase.
The state defines fair market value as: “the amount a knowledgeable buyer would pay for the property and a willing seller would accept for the property at an arm’s length, bona fide sale.” So the fact that you bought your home eight years ago for $250,000 has less to do with how it’s taxed than does the fact that if you were to put it on the market you likely could sell it for $400,000, which is what other similar properties are selling for now.
When property values explode, as they have in recent months, then so do property evaluations.
The result for many local homeowners is that they just received notices from the county that the value of their home is up by double digit increases over just a year ago. The average increase, according to county officials, is about 20%, but some will see assessments that are much higher than that compared to last year, such as 40% and 50% jumps, or even more.
Determining market value requires comparing properties to similar properties that have sold and then attempting to assign a reasonable value to the property that is not for sale and has not recently changed hands. If you have a home in a neighborhood where neighboring properties are selling for inflated prices, your property evaluation is going to increase as well, regardless of your plans for the property.
There obviously is subjective application of criteria in the evaluation, which is why there is an appeals process that allows you to challenge the value put on your property by the county’s tax assessors. But the mandate to assess property for tax purposes based on its market value regardless of whether it’s actually on the market begins and ends with the state government, not local officials.
Are there better options for taxing local property owners? We think there are some options that are at least worthy of discussion.
One thing legislators could do is limit the amount a property assessment can increase, or decrease, in a given period regardless of what is going on in the housing market. For example, your neighbor’s house may have sold for twice what it was worth, but the value on your property can only increase 15% in a year’s time, no matter what.
Similarly, limits could be placed on how much a property value can be increased for the purpose of taxation over a period of years, i.e. over a five-year span value cannot increase more than 40%, and then can’t be increased again for another three years.
Another option for reform might be a formulaic approach to tying tax assessment to actual public services being used. In such a case, a new community requiring the addition of services such as water, sewer, police/fire and new schools could be assessed at a higher rate than an older neighborhood that has already paid for those services for years.
More focus on actual uses of undeveloped land versus its potential if developed might make sense, or a provision that allows for a percentage cap on all residential property assessment increases whenever average home sale prices increase by more than a certain amount over a 12-month period.
Any such changes would require serious legislative study and creative thinking by lawmakers, but the “fair market value” approach that has been the standard for decades doesn’t work well when the market explodes as it has over the past year.
In any case, homeowners should keep in mind that there is a difference between tax assessments and a tax levy. State law sets the standard for how assessments are done, but locally elected officials determine the millage rate that ultimately decides how big your tax bill will be based on the assessment you’ve received.
If your property values go up, your taxes will go up as well as long as millage rates do not go down, and in some cases taxes will go up even if millage rates do go down. Ultimately, the decision on what you will pay in taxes comes down to how much money county commissioners and school board members decide they need to fund government operation.
If those elected officials with the responsibility of setting millage rates do not lower the tax levy to offset evaluation gains in the total tax digest, the roar to be heard when tax bills are mailed later in the year will be even louder than the current uproar over assessments.
If you want to try and keep your tax bill reasonable, lobby local officials to cut the millage rate. If you want to change how property values are determined for tax purposes, lobby state officials to change the law.