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Commercial Property Tax Reform: The Impact on Property Owners and Local Governments

Commercial Property Tax Reform: The Impact on Property Owners and Local Governments. Jeff Robinson – Legislative Services Agency, Fiscal Division June 6, 2013. Rollback History – Assessed value subject to tax.

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Commercial Property Tax Reform: The Impact on Property Owners and Local Governments

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  1. Commercial Property Tax Reform: The Impact on Property Owners and Local Governments Jeff Robinson – Legislative Services Agency, Fiscal Division June 6, 2013

  2. Rollback History – Assessed value subject to tax DRAFT

  3. Right now, a commercial property pays almost twice the property tax of a residential property of the same market value (FY 2014) DRAFT 3

  4. Over the past 24 years, the tax gap widened but now is closing DRAFT 4

  5. But……Over those 24 years, revaluation of existing property has differed considerably between the two classes – Residential property has appreciated far more than commercial property DRAFT 5

  6. A $100,000 residential property in 1988 is now worth considerably more than a $100,000 commercial property DRAFT 6

  7. During the most recent five years, the taxable value gap between residential and commercial has narrowed substantially DRAFT 7

  8. City Property Taxable Value Share – History and Projection (prior to SF 295) DRAFT 8

  9. Property Tax Provisions of SF 295 Division I: Creates a new property tax credit available to properties classified as commercial, industrial, or railroad. A standing State General Fund appropriation is created to fund the new credit. The appropriation is equal to $50.0 million for FY 2015, $100.0 million for FY 2016, and $125.0 million for FY 2017 and after. Projected “Credit Base”: FY 2015 = $ 33,000 FY 2016 = $105,000 FY 2017 = $144,000 FY 2018 = $154,000 The Credit Base is applied on a “unit” basis. Contiguous properties with the same or similar owners are included as a “unit” when calculating the property tax credit. DRAFT 9

  10. Property Tax Provisions of SF 295 Division II: Commercial, industrial, and railroad property is assigned a “rollback” of 95.0% for assessment year (AY) 2013 and 90.0% for AY 2014 and after. A rollback is the percent of a property’s value that is subject to tax. Division II: Creates a standing General Fund appropriation, beginning FY 2015, to reimburse local governments for the property tax reductions resulting from the new rollback for commercial and industrial property. Prior to FY 2018, the appropriation is a standing unlimited appropriation. Beginning FY 2018, the standing appropriation cannot exceed the actual FY 2017 appropriation amount. DRAFT 10

  11. Property Tax Provisions of SF 295 Division III: Creates a new property tax classification for human habitat commercial property (apartments, nursing homes, assisted living facilities, etc.). The new classification begins AY 2015. Property included in the new classification is assigned a rollback percentage of 86.25% for AY 2015, and that percentage declines 3.75 percentage points each year through AY 2021. Beginning in AY 2022, the multi-residential classification is assigned a rollback equal to the residential rollback each assessment year. Multi-residential property does not benefit from the Business Property Tax Credit. DRAFT 11

  12. Impact on a $250,000 commercial property with a statewide average commercial tax rate ($36.98 in FY 2014) DRAFT 12

  13. Impact on a $25 million commercial property with a statewide average commercial tax rate ($36.98 in FY 2014) DRAFT 13

  14. Impact on a $250,000 commercial apartment building with a statewide average commercial tax rate ($36.98 in FY 2014) DRAFT 14

  15. Impact on local government revenue (assumes SOME of the revenue is recovered through tax rates) DRAFT 15

  16. Impact on local government revenue (assumes NONE of the revenue is recovered through tax rates) DRAFT 16

  17. Even if cities recover none of the reduced revenue resulting from SF 295 through setting higher tax rates, they will still see property tax revenue growth. DRAFT 17

  18. Things to note: The rollback to 90% for commercial and industrial is permanent and does not require any future law change or appropriation for owners to continue to benefit. The same is true for the multiresidential rollback. If the Legislature fails to fund the reimbursement to local governments, then the local governments will experience reduced revenue and they may set higher property tax rates or raise other revenue sources. The new Business Property Tax Credit will have an application process. You will only have to apply once and that will last until the property is sold. If the Legislature does not fully fund the Business Property tax Credit, the owner will not fully benefit from the credit. DRAFT 18

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