Tuesday, September 2, 2014

How Georgia ended up with 40 percent property tax assessments

I've been somewhat surprised by the number of times I've been asked over the years why property tax assessments in Georgia are generally 40 percent.  To answer that question, we have to go way back...

According to Georgia State University’s Fiscal Research Center, property owners in Georgia reported the value of their own property for tax purposes throughout the 1800s. There were no property assessors. As you can imagine, this led to under-reporting of property values. Counties adopted millage rates as high as 60 or 70 mills and applied assessment ratios of varying amounts in order to balance their budgets.

The state began collecting its own share of property tax revenues in the 1900s by imposing a 5-mill rate, which was later reduced to one-quarter of a mill, and is currently being phased out altogether.  The state's share is collected by the counties and turned over to the state.

The problem with these two circumstances—varying assessment ratios coupled with a statewide property tax—was that they resulted in the state receiving taxes at non-uniform rates depending on the county where you owned property. This violated the legal principle of uniformity in property taxation. In 1965, property owner Alex McLennan sued on that basis in Fulton County superior court. The court agreed and ordered ratios to be equalized statewide.

At that point state officials basically had to pick a number. Dozens of Georgia counties already had assessments close to 40 percent on the books, so that was deemed the least disruptive approach. County ratios were set at 40 percent by state law in 1968.

While using a rate other than a full market or cash value of 100 percent may seem somewhat unusual, it’s actually pretty common in the United States. Only about half of states use a standard assessment ratio of 100 percent according to data from the Lincoln Institute of Land Policy. Some states have less than Georgia’s 40 percent, such as Arkansas’s 20 percent and Illinois’s 33 percent.  Several have more (even in excess of 100 percent) such as Maine which can range from 70 to 110 percent and Massachusetts which can range from 65 to 150 percent. Many states apply variable rates based on the class of the property being taxed.

More on city assessment ratios in Georgia later this week.

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