07/04 - Property Taxes
How are your property taxes spent?
After seeing a background video about property taxes and how property is assessed, the 20 citizens selected to participate in this month’s program will discuss the issue and come up with questions to ask this month’s experts. They are Lafayette Parish Assessor Conrad Comeaux, Jefferson Parish Assessor Lawrence Chehardy and Bossier Parish Assessor Bobby W. Edmiston.
Reasons for Taxes
Taxes are an unwanted, but necessary, part of everyone’s life. They are collected by federal, state and local governments to help pay for needed services, such as law enforcement, education, fire protection, libraries and roads – all of the operations of government that we depend on.
The Three Main Types of Taxes
Corporate and personal income taxes are pegged to the amount of money earned by individuals and businesses. Usually, the more money earned, the higher the tax rate, and the higher the total amount of taxes paid. Individual income taxes are the second largest source of revenue for the state.
Sales taxes are charged to the buyer at the time of sale. Even though they are not income-based, sales taxes tend to impact the poor to a greater extent than the wealthy. This is because, relative to a rich person’s income, a greater proportion of a poor person’s income is expended for sales tax. Sales taxes are the state’s largest source of revenue.
Land and buildings (sometimes called immovable property) are subject to taxation at different rates based on usage: 10% of fair market value for residential, 15% for commercial, and 25% for public service. The actual tax bill is computed by multiplying the assessed value times “the millage.” The millage is based on an archaic monetary unit called a mil. One mil equals one thousandths (.001) of a dollar. The average millage among Louisiana’s 64 parishes is 101 mils. The state does not collect property taxes. The state does not levy a property tax.
Louisiana Property Tax System
Local taxing authorities collect about $2 billion a year in property taxes in Louisiana. Parish millages vary from a low of just over 43 mils to a high of nearly 176 mils in Union Parish and St. Tammany Parishes, respectively (2002). Municipalities also collect property taxes. Millage taxes are based on budget requirements set by local governments and are voted on by the taxpayers in the local communities. Parish assessors, elected to four year terms, have the responsibility of overseeing the proper assessment of properties within their jurisdiction. Under Louisiana state law, all properties within a parish are supposed to be re-assessed every four years in order to ensure accurate, up-to-date valuations. The Louisiana State Tax Commission is responsible for certifying that parish tax rolls are accurate.
Comparison to Other States
On a per capita basis, Louisiana’s local property taxes are 45th highest in the nation. It is mainly due to our property tax structure that Louisiana is considered a “low-tax” state for individuals. Louisiana’s homestead exemption, instituted during the Great Depression in the 1930’s, is among the highest nationally. It shields the first $7,500 of assessed value from the tax collector. On residential homes, assessed value equals ten percent of fair market value. A homeowner living in a $75,000 home would pay no property tax (except for municipal property tax). About two-thirds of the homes in Louisiana are fully exempt from property tax.
Although Louisiana’s property taxes are low, we are actually slightly below the national average when considering the total state/local tax burden. In Louisiana, the state and local governments partially make up for reduced property revenue through above-average use of sales taxes. Overall, Louisiana is eighth highest in the nation in sales taxes. At the state level, only California levies higher general sales or use tax on consumers.
Given that taxes are unavoidable, having a fair and equitable system in place is a concern to many citizens. Recently, articles in the Baton Rouge Morning Advocate and the New Orleans Times Picayune revealed apparent failures in the system.
The Picayune reported that the average sales price of a home sold in Orleans Parish in 2003 was 70% higher than its assessed value. One estimate places lost revenue at as much as $52 million a year.
The Morning Advocate found that incomplete record-keeping in the East Baton Rouge Parish Assessor’s Office meant that there was no way to distinguish between all commercial properties and all residential properties (except for those with homestead exemptions). Since commercial property is assessed at 50% more than residential property, not being able to identify commercial property means lost revenue to the parish.
The newspaper reported that more than half of the residential records did not have square footage measurements – a key means of estimating property value. A recent legislative auditor’s report indicated that about half of the audited properties had outdated assessments.
In one glaring example of uneven assessments, a Baton Rouge resident claimed that his tax bill was 230% more than his neighbor’s, even though the homes were similar in age and appearance and had the exact same floor plan and square footage.
When properties are not re-assessed in a timely manner, these inequities tend to affect recent home buyers more than people who have owned their homes for a long period. These long-time residents enjoy all the services provided by local government, but are not paying their fair share. This situation, often due more to poor assessment practices than anything else, erodes public confidence in government, while reducing the government’s ability to provide needed services.
In a state where households pay less than the national average in state and local taxes, it’s not surprising that businesses would be paying above the national average, especially given the level of capital intensive industry, and the large number of low-income families here. Though Louisiana’s well-publicized 10-year property tax exemption benefits a number of industries, businesses still pay about 88% of all property taxes in Louisiana. This is a large problem for parishes which don’t have much commercial/industrial property to tax. With many residential properties sheltered from taxes by the homestead exemption, local taxing authorities are forced to rely more and more heavily on sales taxes.
Automatic Roll Back
When a taxing district proposes a millage, it is based on a prepared budget amount. For example, a school board may decide it needs $1 million to carry out its functions of paying teachers and staff, maintaining buildings, buying computers, etc. The parish assessor determines the assessed value of local properties and the numbers of mils it will take to produce the target figure of $1 million. The voters approve the millage and the budget is met. But over time, new properties are put on the rolls, values increase, homes are improved, and the total assessed value of property in the parish goes up. The millage stays the same, but homeowners’ tax bills edge upward as their homes are re-assessed. The result: the school board’s revenues increase.
The Louisiana Constitution has a provision for automatic roll backs of millages when assessments increase. A lower millage would make such changes in assessments revenue-neutral, and the school board’s revenue would go back to $1 million. There is also a provision for local tax authorities to hold a public meeting to vote to “roll back up” the millage to the original amount. The roll back up is often passed in these meetings, because school boards, fire districts, etc. cite inflation and other increases in operational costs as a basis for keeping the additional money.
Some critics feel that rolling back up a millage is the same as a tax hike, and therefore should be put before the voters of the community.
The exemption works like this: $7,500 of the assessed value of a home is free from taxes. A private home with a fair market value of $100,000 would be assessed at the residential rate of 10%, which would be $10,000. The $7,500 homestead exemption would be subtracted from the assessed value to give a total of $2,500.
Value of Home
Residential Tax Rate
Taxable Assessed Value $100,000
The taxable assessed value would be multiplied by the local millage to arrive at the amount of tax owed by the homeowner.
TIF [Tax Increment Financing] - A TIF is a method of financing private business using public money. Taxing authorities, like the state, local school boards, municipalities, etc., agree to forego a percentage of future taxes that a selected enterprise would normally pay. This revenue (usually sales taxes) goes, instead, to pay off bonds sold to raise capital for the costs of development. These costs may include things like construction of buildings and infrastructure to support the new enterprise.
TIFs are controversial. Some opponents say that taxes approved by the voters for one purpose – schools, for instance – should not be spent on anything else without a vote of the people. Others contend TIFs are unfair because it puts the government in the position of picking winners and losers. Some businesses will benefit directly, while others receive no economic incentives.
Those in favor of TIFs say they are powerful tools for developing local economies by attracting other businesses, and by adding to a community’s payroll. Though the property of the TIF business cannot be taxed until the bond is paid off, other businesses that open nearby as a result of the new enterprise, are subject to assessment. Thus, some of the revenue lost in sales taxes could be recouped in property taxes.
One of the most often cited hopes for improving the quality of property assessments in Louisiana is technology. For several years some parishes have been using the Internet to make the property rolls more accessible to homeowners, and to provide a greater sense of transparency. A new pilot program passed by the legislature this year, will promote the use of on-line property databases in most parishes. The public for inspection will be able to easily see their assessment, as well as the assessments of their neighbors.
Other high-tech approaches include updating antiquated computer systems – some decades old – with modern hardware and software that will allow more accurate and more timely valuations.
Click here to view the LSU Before and After Survey Results
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The actual tax bill is computed by multiplying the assessed value times “the millage.” The millage is based on an archaic monetary unit called a mil. One mil equals one thousandths (.001) of a dollar. <a href=“http://lucidpublicrelations.com/santa-monica-pr-firm/”>Santa Monica Public Relations</a>
Posted by Santa Monica Public Relations on 02/13 at 11:10 AM
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