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Property Tax Assessment Limits

Written by Dr. Isabel Warner
Published on February 27, 2024
Research Highlights

Reducing property assessment frequency causes unexpected increases in taxes following reassessments.

Reducing assessment frequency increases disparities in home assessments and results in newer and lower value properties paying more than their fair share.

Caps on assessment increases shift the tax burden to newer homeowners and cause delayed homeownership in younger generations.

Property taxes are calculated using a percentage of the home’s market value.

Property taxes are calculated using the “assessed value” of a home. The assessed value is a percentage of the market value, or the dollar amount for which the house could be reasonably sold, which is determined by the county assessor. The assessment value is then multiplied by the local tax rates levied by entities such as school districts, fire protection services, and other local public services, to determine the property taxes owed. More information about factors influencing property taxes is available in the Property Taxes & Home Values Science Note.

MO property tax bills are among the lowest in the nation (Pacquin et al., 2020), . Other states have instituted less frequent assessments and assessment caps to limit the growth of property taxes.

 

Less frequent assessments shift the tax burden to newer homeowners and lower value properties.

Currently, 37 states assess property at least once every 3 years, with 27 of those states assessing property annually. Some counties in PA do not reassess property at all (Paquin et al., 2020). Property owners in these counties pay taxes on the value of the property as determined at its last assessment in either the early 1970s or 1980s, depending on the county. Newer homes are assessed the year they are built (PA Legislative Budget and Finance Committee, 2010). These less frequent assessments have significantly reduced local revenue and create a greater tax burden on newer and lower-value properties (Weber et al., 2010; McMillen & Singh, 2020).

Less frequent assessments also result in unexpected increases in tax bills when properties are reassessed (Alm et al., 2016). This is especially impactful if the assessment is inaccurate. More frequent property tax assessments, especially in areas where property values increase quickly, reduce assessment disparities between similar properties and ensure that low value properties do not pay disproportionate property taxes (Hou et al., 2023). Currently, ‘inexpensive’ properties pay almost 50% higher effective tax rates than ‘expensive’ homes nationwide as a result of flawed valuation methods and infrequent reappraisal (Amornsiripanich, 2022).

 

Capping assessment increases overburdens newer, rural, and lower value homeowners and delays homebuying among younger generations.

Other states have created limits on the amount a home’s value can increase for tax purposes (Figure 1).

have shown that property tax caps result in systems where lower earners pay a disproportionately high amount of their income in taxes.  In CO under the Gallagher Amendment, researchers found that taxpayers in 74 of 178 school districts (42%) paid more in property taxes because of the property tax cap. In addition, rates of taxation were higher for already highly tax burdened populations, including lower value and rural homesteads ( to fund basic services, which disproportionately impact lower income communities, regardless of homeownership status (California Budget Project, 1997; Shires, 1999).

Because assessment values are reset when the home is sold, newer homeowners pay significantly higher taxes than their neighbors (Denny, Levin, and Parsons, 2022). Relatedly, many homeowners become “locked in” as home values rise – they cannot afford the market adjusted property taxes on newly purchased property, even to downsize. This immobility negatively affects housing stock, contributing to increased market values, and causing younger households to delay or forgo homeownership (Wasi and White, 2005).

Figure 1. Map of states that have caps on the amount an assessed value can increase. Yellow states have caps on property assessment increases, blue states do not. CA has the strictest cap at a maximum of 2% per year for all property (CA Constitution XIIIA §2(b)), followed by FL with a 3% cap on homestead value increases (FL Admin Code 12D-8.0062). CT, MD, and LA institute phase-in periods and reassessment freezes for large increases in home value. NY and SC forbid assessment increases over 20% and 15% within a 5-year period (Collins et al., 2019).

 

References

Alm, J., et al. (2016). Property tax delinquency and its spillover effects on nearby properties. Regional Science and Urban Economics. 58: 71-77. https://doi.org/10.1016/j.regsciurbeco.2016.02.006

Amornsiripanitch, N. (2022). Why Are Residential Property Tax Rates Regressive? Federal Reserve Bank of Philadelphia. https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2022/wp22-02.pdf

California Budget Project. (1997). Proposition 13: Its Impact on California and Implications. California Budget Center. https://calbudgetcenter.org/app/uploads/2018/09/Issue-Brief_Proposition-13-Its-Impact-on-California-and-Implications_04.1997.pdf

California Constitution. Article XIII A §2(b). https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CONS&division=&title=&part=&chapter=&article=XIII%20A

Collins, et al. (2019). Vox Populi: Voters Weigh in on School Finance and Property Taxes. Viewpoint: State Tax Notes. Lincoln Institute of Land Policy. https://www.lincolninst.edu/sites/default/files/sources/events/collins-kenyon_-_vox_populi_voters_weigh_in_on_school_finance_and_property_taxes.pdf

Colorado Senate Concurrent Resolution SCR20-001. Repeal Property Tax Assessment Rates. https://www.coloradosos.gov/pubs/elections/Initiatives/ballot/contacts/2020.html

Denny, J., Phil Levin, and Susannah Parsons. Burdens and Benefits: Investigating Prop. 13’s unequal impacts in Oakland. San Francisco Bay Area Planning and Urban Research Association (SPUR). Tax Fairness Project. https://www.spur.org/sites/default/files/2022-02/SPUR_Burdens_and_Benefits.pdf

Florida Administrative Code 12D-8.0062. (2022). Assessments; Homestead; Limitations. Department of Revenue. https://www.flrules.org/gateway/RuleNo.asp?title=ASSESSMENT%20ROLL%20PREPARATION%20AND%20APPROVAL&ID=12D-8.0062

Hou, Y., et al. (2023). Assessment frequency and equity of the property tax: Latest evidence from Philadelphia. Journal of Policy Analysis and Management. https://doi-org.proxy.mul.missouri.edu/10.1002/pam.22555

McMillen, D. and Ruchi Singh. (2020). Assessment Regressivity and Property Taxation. The Journal of Real Estate Finance and Economics. 60: 155-169. https://doi.org/10.1007/s11146-019-09715-x

Missouri State Constitution. X, Section 18. Limitations on taxes which may be imposed by general assembly – exclusions – refund of excess revenue – adjustments authorized. https://revisor.mo.gov/main/OneSection.aspx?section=X++++18&bid=32054&constit=y

Missouri State Tax Commission. (2023). State Tax Commission Definitions. https://stc.mo.gov/definitions/

Paquin, B.P. (2020). State-by-State Property Tax at a Glance: Full Volume 2020. Lincoln Institute of Land Policy. https://www.lincolninst.edu/sites/default/files/gwipp/upload/files/tax_digest/PTAAG_Full_2020.pdf

Pennsylvania Legislative Budget and Finance Committee. (2010). Fiscal Impact of Preferential Assessment of Farm and Forest Land (Clean and Green Program). House Resolution 2009-334. https://www.legis.state.pa.us/WU01/LI/TR/Reports/2010_0086R.pdf

Resnick, P., Charles Brown, and Deborah Godshall. (2015). Measuring the Impacts of Tax and Expenditure Limits on Public School Finance in Colorado. Lincoln Institute of Land Policy. https://www.lincolninst.edu/publications/working-papers/measuring-impacts-tax-expenditure-limits-public-school-finance-in

Shires, M.A. (1999). Changes in State and Local Public Finance Since Proposition 13. Public Policy Institute of California. Issue #18. https://www.ppic.org/wp-content/uploads/rs_archive/pubs/rb/RB_399MSRB.pdf

Wasi, N., and Michelle J. White. (2005). The Lock-in Effect of California’s Proposition 13. National Bureau of Economic Research (NBER). https://live-nber.pantheonsite.io/sites/default/files/2019-08/apr05.pdf

Weber, J.A., et al. (2010). Pennsylvania County Property Reassessment: Impact on Local Government Finances and the Local Economy. Center for Rural Pennsylvania: Pennsylvania General Assembly.  https://www.rural.pa.gov/getfile.cfm?file=Resources/PDFs/research-report/county_reassessment_2010.pdf&view=true

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