VOL. 125 | NO. 71 | Tuesday, April 13, 2010
Local Officials Overestimate Tax Rates
By Andy Meek
Memphis and Shelby County governments collected more property tax revenue than they needed in 2009, according to new figures from the Shelby County Assessor’s office.
Officials from both governments guessed too high when forecasting how much they’d lose to property owners appealing last year’s new appraisals and winning reductions. And state law doesn’t require governments that guess too high to give the money back.
The countywide reappraisal – which happens once every four years – always results in some unhappy property owners. If they challenge their new values and win, it means a lower tax bill.
That’s good news for the property owner, but problematic for governments trying to build their budgets around a revenue stream that could change down the line.
To help offset that, Shelby County included a 21-cent appeals allowance in its 2009 tax rate to mitigate an expected appeals-related loss of more than $1 billion in tax value.
So far, the county has only burned through 9 cents of its appeals allowance, according to the assessor’s figures. That means the tax rate for county property owners last year ($4.02) was 12 cents higher than it needed to be.
Memphis officials did a little better with their estimate.
The city included a 16-cent appeals allowance in last year’s tax rate. That allowance was supposed to ease the anticipated blow of losing a little more than $604 million in appeals-related tax value.
But the city has only used up 9 cents of that allowance so far – meaning last year’s city tax rate ($3.19) was 7 cents too high.
Those overestimations mean someone who owns a $150,000 home in Memphis (where property owners pay city and county taxes) paid $71 more on their combined tax bill last year than both governments needed.
Someone with a $200,000 home in Memphis paid an extra $95.
State law allows governments to include those estimations in the tax rates they establish during reappraisal years.
It’s understood the allowance in the tax rate will probably not reflect how the appeals ultimately shake out. Meanwhile, state law does not require governments to refund extra tax money.
An official from the state board of equalization has to sign off on the local governments’ figures before they’re included in the next tax rate.
The response from city and county governments to what’s been their historical over-estimation for appeals is usually twofold.
There’s no way to guess down to the penny how much revenue will be lost to successful appeals, they counter.
“I suggested we over-budget for appeals,” said Shelby County Commissioner Mike Ritz, “because I was concerned that, frankly, the commercial (property) owners would be very successful (in their appeals).”
The other common response from local governments after the first year is appraisals will be challenged for at least a couple of years after the reappraisal is over.
That means there’s a chance the government could still burn through more of its appeals allowance.
Looking back at how much both governments over-budgeted in 2009, though, still has to be done this year.
Before setting their 2010 tax rates – which they’ll do in another couple of months – both governments have to disclose the over-budgeting they did last year because of appeals.
And they have to identify what the tax rate would have been without that excess in it.
“The (County Commission) has to vote to accept that, and then they can set the tax rate this year at whatever they want to,” said county deputy finance director Mike Swift. “But they have to acknowledge that first.”