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Reforming the Local Property Tax in Oregon: A Proposal to Adopt the Land Value Taxation System. An LVT primer. Key provisions of an LVT statue. Prepared by Common Ground – Oregon / Washington January 2013. PROGESSIVE PROPERTY TAX REFORM. CURRENT TAX CAPS.

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Reforming the local property tax in oregon a proposal to adopt the land value taxation system
Reforming the Local Property Tax in Oregon:A Proposal to Adopt the Land Value Taxation System

An LVT primer

Key provisionsof an LVT statue

Prepared by Common Ground – Oregon / Washington January 2013


PROGESSIVE PROPERTY TAX REFORM

CURRENT TAX CAPS

REAL MARKET VALUE ASSESSMENTS

LAND VALUE TAX

Constitutional limits on tax rates andassessed values(M5 & M50)

Constitutional changeallowing RMVand differential tax rates

55% LVT 75% LVT

Phase-in periodgraduated split rates


COMPARISION OF TWO PROPERTY TAX SYSTEMS

Method of Calculating Tax Bills for Individual Properties

CONVENTIONAL UNIFORM AD VALOREM TAX

Total

Value

Tax

Rate

X

=

Tax Bill

TWO-RATE LAND VALUE PROPERTY TAX

Bldg.

Value

Bldg.

Tax

Rate

X

+

=

Tax Bill

Land

Value

Land

Tax

Rate

X


The land value tax rate differential split rates applied to land and improvement values
The Land Value Tax Rate DifferentialSplit Rates Applied to Land and Improvement Values

Land

Improvements


COMPARISION OF TWO PROPERTY TAX SYSTEMS

Method of Calculating Tax Rates for a Jurisdiction (combining taxing districts)

Example:Multnomah County2002-03

Revenue

Required

Total

Value

Tax

Rate

/

X 1000

=

$1.6 billion $74.6 billion 21.45

TWO-RATE LAND VALUE PROPERTY TAX – revenue neutral

Land Rate

Ratio

Land

Tax

Rate

X

75%

=

39.05

Total

Effective

Rate

52.06

Bldg. Rate

Ratio

Bldg.

Tax

Rate

X

25%

=

13.02

Land

Tax

Rate

Land

Value

Revenue from

Land

X

=

Combined Revenue

$22.9 billion 39.05 $894 million

=

Bldg.Tax

Rate

Bldg.

Value

Revenue from

Buildings

=

$1.6 billion

X

$51.7 billion 13.02 $674 million


The land to total value ratio
The Land-to-Total Value Ratio:

Building Value Land Value L-T-V Ratio

SALEM CITY

Land comprises 30% of the total Salem City assessment*.

$3.96 billion $1.68 billion .30

Typical single familyL-T-V ratio:

$54,800 $36,100 .40

Typical multi familyL-T-V ratio:

$216,000 $48,800 .18

* 1997-98 RMVassessments


  • The LTV Ratio is a fulcrum for tax shift

    • The universal land-to-total value ratio is the pivot point at whichpositive / negative tax shift occurs on individual properties in the transition from a conventional tax to a land value tax.

> .30

.30

< .30

The LTV ratio determines the direction of tax shift:

Properties with a high L-T-V ratio will experience an UPWARD shift in property taxes.

Properties with a low L-T-V ratio will experience a DOWNWARD shift in property taxes.

where land value makes up…

moreless

than 30% of the total assessment.


Expected land use impacts of a land value tax
Expected Land Use Impacts of a Land Value Tax

Generally….

  • Building-intensive uses will experience a

    decreasedtax burden

  • Land-extensive uses will experience an

  • increasedtax burden

Low L-T-V Ratio

High L-T-V Ratio


Key provisions of an lvt statute allowing a land value tax
Key Provisions of an LVT StatuteAllowing a Land Value Tax:

  • Requires a popular vote to adopt a local option LVT

  • Exempts the LVT from M5 & M50 limitations

  • Changes the tax base to RMV assessments

  • Requires all properties be taxed at same differential rate

  • A multi-year phase-in gradually increases the land tax rate


Why do m5 limitations on tax rates not work with lvt
Why do M5 limitations on tax rates not work with LVT?

When the building tax rate is reduced, the land tax rate must rise to achieve revenue neutrality

Example:

CONVENTIONAL PROPERTY TAX

TWO-RATE PROPERTY TAX

This rate exceeds M5 limits

Land

Tax

Rate

= 26.76

Tax

Rate

= 13.89

Bldg.

Tax

Rate

= 8.92


Thus any tax limitations imposed by law should apply to revenues not rates
Thus, any tax limitations imposed by lawshould apply to revenues, not rates.

This will allow “variable tax rates”:high land tax ratesand low improvement rates.

Nevertheless, the constitutional principle of UNIFORM TAXATIONis still valid…

Thus:

“Under the site value tax system, all taxable properties shall be taxed at the same differential rate”.

“The ratio of land rate to improvement rate may be adjusted from year to year”.


Why do m50 maximum assessed values not work with lvt
Why do M50 Maximum Assessed Values not work with LVT?

  • MAVs counteract the positive incentive effects of LVT.

  • MAVs are inequitable, and do not reflect market realities.

Since the introduction of taxable value limits (based on 1995 assessments) tax burden has shifted off ofrapidly appreciating properties…ontolower value properties.

See the following example of M5 & M50 regressivity…


Consider salem s central business district following 6 years of mav assessments
Consider Salem’s Central Business Districtfollowing 6 years of MAV assessments:

  • Taxes on …

  • Multifamily apartments increased by 9.3%

  • Commercial services properties increased by 15.3%

  • Surface parking lots decreased by 4.2%

  • Vacant lots decreased by 16.1%

  • … compared to what they would have been under revenue neutral RMV assessments.

  • These effects counteract the anti-sprawl objectives of the state’sUrban Growth Management Act


What are the tax shift effects of a change back to rmv assessments under a land value tax
What are the tax shift effects of a change back toRMV assessments – under a Land Value Tax?

  • Taxes on Salem’s Central Business District’s…

  • Multifamily apartments would decrease by 5.8%

  • Commercial services properties would decreaseby 10.7%

  • Surface parking lots would increase by 7.2%

  • Vacant lots would increase by 22.6%

  • … compared to what they would be under a revenue neutral Land Value Tax* using MAV taxable assessments. (*75% LVT)

  • These effects reinforce the objectives of the state’sUrban Growth Management Act


Why adopt a phase in period when introducing lvt
Why adopt a phase-in period when introducing LVT?

  • Features:

  • First-year revenue neutrality, followed by…

  • a gradually increasing land-to-building rate differential

  • Rationale:

  • It will minimize economic dislocation resulting from a sudden tax increase on some properties.

  • It will allow property owners time to anticipate tax changes and adjust their investment decisions.


Example of an lvt tax rate structure during a phase in period
Example of an LVT tax rate structureduring a phase-in period

Multnomah CountyLocal Option

Projected annual growth in LAND values: 6.8%Projected annual growth in BUILDING values: 6.6%Allowable annual growth in tax revenues: 6% (pre-M5)

Phase-in Combined Land Rate Land BuildingYear: Tax Rate: Ratio: Tax Rate: Tax Rate:Yr. 1 21.00 55% LVT 24.03 19.66Yr. 2 60% LVT 27.14 18.09Yr. 3 65% LVT 30.48 16.41Yr. 4 70% LVT 34.10 14.61Yr. 5 75% LVT 38.01 12.67


Example of combined tax rates within a county
Example of Combined Tax Rates within a County

TAXING DISTRICTS:

City 7.35School District 5.86Water District 0.46Sewer District 3.06Fire District 1.90Library District 0.08Transit District 0.76Education Service District 1.09

Combined tax rate: 20.56

Land

Tax

Rate

Bldg.

Tax

Rate

Within a jurisdiction adopting the LVT, all “taxing districts” would be subject to the differential rate set by the jurisdiction.


Possible amendments to an lvt statute
Possible amendments to an LVT statute:

  • Tax burden relief provisions to accompany a local option LVT

  • Why? Because of the cumulative inequities resulting from M-50 limits, some homeowners might be overburdened by a change to RMV.

  • Provisions:

  • A property tax deferral, targeted to elderly and low-income homeowners.

  • A farmstead exemption on assessed land values.

  • A universal exemption on improvements (an alternative system to the split-rate method that produces similar incentive effects, but is more advantageous to lower value residential properties).


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