Published Sunday, September 2, 2007
What state needs is a taxpayer revolt
Bob Stevens
Be Our Guest
The Henderson County [North Carolina] Board of Commissioners decided to place a referendum on the November ballot concerning a proposed transfer tax which will be paid by sellers when they sell their properties. The proposed tax will at least help seniors because they aren't "playing the housing market" like many of their neighbors.
The real issue that should be addressed is the basic inequity of the ad valorem property tax.
Just because others in Henderson County are making money by selling their homes for high prices, others who don't plan to sell are victimized by an increase in the assessment of their homes.
If the present trends continue, seniors who have either lived here all their lives or moved from other states are confronted with the same dilemma which faced home owners in California in the mid-'70s.
If a stock increases in value, the owner is not required to pay any tax on the increased value until and unless the stock is sold. Then the stock will be taxed at the appropriate capital gains rate.
For some homeowners who had the good (bad) fortune to be living in highly appreciated real estate, the bad news was that California intended to take its pound of flesh every year, no matter how high the property taxes rose and regardless of the intention of the owner to sell the home or the ability of the homeowner to pay the increased taxes.
Home prices appreciated wildly in much of California, resulting in a windfall for home sellers and those in the real estate-related industries (brokers, title insurers, property insurers) but which forced some homeowners living on fixed incomes to consider selling their properties in order to pay the rapidly increasing property taxes, which were based on comparable sales in the area.
This situation became intolerable for many people in California. What became known as the "tax revolt" rocked California. The chief rebels were Howard Jarvis and Paul Gann and the initiative they sponsored was known as Proposition 13.
On June 6, 1978, nearly two-thirds of California voters passed Proposition 13 which reduced property taxes on homes, businesses and farms by about 57 percent. The tax assessment year was rolled back to the 1975-1976 tax year and the assessment was set at 1 percent of the 1975-1976 valuation. There was immediate relief for all property taxpayers. Please note that prior to the passage of Proposition 13, 100 percent increases in property taxes were not unusual.
The amendments to the California constitution mandated that property tax rates couldn't exceed 1 percent of the property's market value and future increases couldn't exceed 2 percent per year, thereby giving predictability to future property taxes. This system is still in effect and will remain so until and unless the state constitution is amended.
In the days leading up to the referendum, gloomy forecasts predicted the decline and ultimate demise of public education and a precipitous decline in public services offered by the state.
Opponents of Proposition 13 claimed that $6 billion to $7 billion in property tax revenue would be lost. Since counties and schools depended heavily on property tax revenues, there was an understandable outcry from all quarters about the elimination or decline in essential local services, such as police and fire. Education which was funded almost exclusively by property taxes was certain to collapse. But California survived.
A lawsuit by Stephanie Nordlinger made its way to the U.S. Supreme Court (Nordlinger v. Hahn). Nordlinger alleged that the 1 percent valuation provision in Prop 13 was unfair because it resulted in neighbors paying wildly disparate property taxes, sometimes five times more than the "older" neighbor.
The Supreme Court upheld the judgment of the court of appeal, and the 1 percent rate is still the law in California.
New purchasers pay more than their neighbors. Property taxation is predictable and not subject to the whims of elected officials.
What can be done to avoid the California situation? First, the county should freeze assessments for seniors (65 to 70) at the current level. Second, we need a North Carolina Jarvis and Gann to lead our citizens in a "tax revolt." Third, we must acknowledge that it is unlikely that our elected officials will act on their own to shut off the flow of easy money. Finally, spending at all levels be must be controlled by some sort of cap.
I hope we can find the right leaders for these difficult times.
The real issue that should be addressed is the basic inequity of the ad valorem property tax.
Just because others in Henderson County are making money by selling their homes for high prices, others who don't plan to sell are victimized by an increase in the assessment of their homes.
If the present trends continue, seniors who have either lived here all their lives or moved from other states are confronted with the same dilemma which faced home owners in California in the mid-'70s.
If a stock increases in value, the owner is not required to pay any tax on the increased value until and unless the stock is sold. Then the stock will be taxed at the appropriate capital gains rate.
For some homeowners who had the good (bad) fortune to be living in highly appreciated real estate, the bad news was that California intended to take its pound of flesh every year, no matter how high the property taxes rose and regardless of the intention of the owner to sell the home or the ability of the homeowner to pay the increased taxes.
Home prices appreciated wildly in much of California, resulting in a windfall for home sellers and those in the real estate-related industries (brokers, title insurers, property insurers) but which forced some homeowners living on fixed incomes to consider selling their properties in order to pay the rapidly increasing property taxes, which were based on comparable sales in the area.
This situation became intolerable for many people in California. What became known as the "tax revolt" rocked California. The chief rebels were Howard Jarvis and Paul Gann and the initiative they sponsored was known as Proposition 13.
On June 6, 1978, nearly two-thirds of California voters passed Proposition 13 which reduced property taxes on homes, businesses and farms by about 57 percent. The tax assessment year was rolled back to the 1975-1976 tax year and the assessment was set at 1 percent of the 1975-1976 valuation. There was immediate relief for all property taxpayers. Please note that prior to the passage of Proposition 13, 100 percent increases in property taxes were not unusual.
The amendments to the California constitution mandated that property tax rates couldn't exceed 1 percent of the property's market value and future increases couldn't exceed 2 percent per year, thereby giving predictability to future property taxes. This system is still in effect and will remain so until and unless the state constitution is amended.
In the days leading up to the referendum, gloomy forecasts predicted the decline and ultimate demise of public education and a precipitous decline in public services offered by the state.
Opponents of Proposition 13 claimed that $6 billion to $7 billion in property tax revenue would be lost. Since counties and schools depended heavily on property tax revenues, there was an understandable outcry from all quarters about the elimination or decline in essential local services, such as police and fire. Education which was funded almost exclusively by property taxes was certain to collapse. But California survived.
A lawsuit by Stephanie Nordlinger made its way to the U.S. Supreme Court (Nordlinger v. Hahn). Nordlinger alleged that the 1 percent valuation provision in Prop 13 was unfair because it resulted in neighbors paying wildly disparate property taxes, sometimes five times more than the "older" neighbor.
The Supreme Court upheld the judgment of the court of appeal, and the 1 percent rate is still the law in California.
New purchasers pay more than their neighbors. Property taxation is predictable and not subject to the whims of elected officials.
What can be done to avoid the California situation? First, the county should freeze assessments for seniors (65 to 70) at the current level. Second, we need a North Carolina Jarvis and Gann to lead our citizens in a "tax revolt." Third, we must acknowledge that it is unlikely that our elected officials will act on their own to shut off the flow of easy money. Finally, spending at all levels be must be controlled by some sort of cap.
I hope we can find the right leaders for these difficult times.
Bob Stevens was a licensed lawyer in California for two years and a licensed real estate broker for 24 years. Since moving here [Henderson County, N.C.] in 2003, he has taught business law courses at A-B Tech and an introductory business law course at Mars Hill College.
