Property Tax Caps—Giving With One Hand and Taking With the Other


In states where property owners are finding themselves on the receiving end of high property tax bills, lawmakers are being called upon to answer taxpayer demands for relief. Some legislatures are looking to answer the call by imposing a property tax cap.

For example, in early February, Douglas County, Nebraska, residents’ pleas for help made news after property owners learned that their preliminary property values had risen in excess of 200 percent compared to last year. In response to public outcry, the county board proposed a 3 percent tax cap. The cap would prevent the county from increasing property values by more than 3 percent each year. However, the county assessor, Diane Battiato, concluded that the cap would cause valuations to fall short of state requirements and selected a 93 percent valuation (rather than 99 percent), according to the Lincoln Journal Star. For taxpayers in Douglas County, this year’s tax bill will be significantly higher than it had been in prior years.

Interestingly enough, the influence behind this year’s Nebraska valuation spike appears to be last year’s intervention by the state, which ordered the county to increase valuation in 2016. The order was motivated by continual property undervaluation in the county, according to the Omaha World Herald. Although an increase in valuation may have been expected in light of last year’s events, the 200 percent increase has Douglas County residents in shock and will keep discussions about a property tax cap on the table.

A tax cap limiting increases in assessed value can offer taxpayers some certainty by allowing them to estimate their anticipated property tax burdens more easily. On the other hand, tax caps on assessed value in particular can lead to tax disparities amongst homeowners in neighborhoods where market values are comparable, according to the Institute on Taxation and Economic Policy (ITEP). This disparity is likely to present itself when properties are subject to a change in ownership. In such cases when the property changes hands, the new homeowners will not benefit from the tax cap and when the property is assessed, they may be obligated to pay property taxes that are much higher than those of their neighbors and their predecessors. In cases where tax rates themselves are subject to a cap, ITEP has indicated that concerns arise over whether the local governments can provide constituents with “a consistent and adequate level of services.”

Despite the potential pitfalls of tax caps, Nebraska is currently considering a cap that will limit property tax revenue in school districts. Sen. Mike Groene (R) describes his bill, L.B. 640, as capping “all revenue sources, including state aid, federal money and even speeding tickets” at 60 percent for the property taxes that fund each of these districts.

New York currently has a similar tax cap in place to prevent property taxes imposed by local governments and school districts from increasing beyond the lesser of two percent or the rate of inflation. The measure was imposed in 2011 to prevent homeowners from being blind-sided by astronomical property taxes, although it was originally intended to be temporary. It may become a permanent fixture in New York’s property tax law if S.B. S2017, introduced by Senate Majority Leader John J. Flanagan (R), is passed by the state’s assembly. The cap has reportedly saved taxpayers billions of dollars since its enactment in 2011.

Although there seem to be both benefits and burdens associated with tax caps, hopefully state legislatures and local governments be able to find a balance that protects taxpayers from enormous property tax increases while allowing local governments to generate adequate property tax revenue.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn:  Do you thinks a tax caps are an appropriate measure to address concerns over rapidly increasing property taxes?

Get a free trial to Premier State Tax Library , a comprehensive research service that delivers deep, unique analysis and time-saving practice tools to help practitioners make well-informed decisions.