A looming tax increase for small business?
By: Dan Juneau
While opening your Christmas mail, you may have noticed something that did not leave you in the holiday spirit – your 2008 property tax bill. With this being a reassessment year, you also probably noticed your property values have increased.
Assessors are required to re-assess property at least every four years. During the last reassessment cycle in 2004, many taxpayers were unaware of the reassessment process and were shocked at the increases when they opened their tax bills in December. Hearing the concerns of the taxpayers, the Legislature in 2005 added a requirement that assessors provide taxpayers written notice of their reassessed valuations in sufficient time to properly contest their new valuations.
The reality of higher property values and larger tax bills will certainly, once again, stir up the discussion of increasing the homestead exemption. Raising the $75,000 homestead exemption, which is already one of the highest in the country, would cause renters, businesses, and other homeowners to pick up the tab for the tax savings given to some homeowners. Since businesses pay most of the property taxes, it would, to a large degree, be a tax increase on small business. Increasing the homestead exemption would also shrink the property tax base for local governments, making it more difficult for them to generate local revenue.
Another property tax benefit already on the books is for special level assessments. These special assessments allow certain homeowners the benefit of freezing their property values, which protects them from future property value increases. One of the special level assessments is for homeowners 65 years and older, provided they make less than $64,500. To get an idea of the prevalence of special assessments, the Tax Commission obtained the amount from a few parishes: East Baton Rouge Parish (18 percent of homesteads), Orleans Parish (20 percent), Lafayette Parish (10 percent) and Tangipahoa Parish (10 percent).
Property taxes are used to fund local necessities, such as schools, fire and police protection, as well as water and sewer infrastructure and related services. Even though these services benefit all taxpayers, about 50 percent of all homeowners still pay zero property tax.
The general business community, which pays over 80 percent of all property taxes, receives no exemptions or special level assessments. Businesses are re-assessed each year on all of their property (not just land and improvements), and are taxed at rates of 15 percent to 25 percent of fair market value, as compared with homeowners who are taxed at only 10 percent.
Rather than exemptions and special level assessments, the resolution of higher property tax bills needs to be properly focused on its root cause – property tax millage rates. When assessors perform their constitutional function of valuing property at fair market value, the higher property values result in an automatic roll-back of millages. Generally, the combination of higher property values and reduced millages rates have the overall effect of leveling off property tax bills, which benefits all taxpayers and not just a few select classes of homeowners.
However, following the automatic roll-back of millages, local taxing bodies are authorized under the state constitution and without voter approval to roll-forward its millage rate with only a two-thirds vote of the members of the taxing body. It is this subsequent rolling-forward of the millage rates, and not the reassessment of property to current fair market value, that produces the sticker shock property tax bills. Many of these taxing bodies that choose to roll-forward their millages are not even elected officials, but rather appointed members of boards that have the power of taxation.
Limiting the ability of taxing bodies to roll-forward millages, without voter approval, would give all taxpayers something to celebrate after the next reassessment cycle – lower millage rates.