This point of sale compromise is the result of several years of debate between local governments and real estate interests. Throughout the process of the debate, our priority has been to mitigate the financial impact of any legislative change on the ability of cities and towns to provide the programs, services and amenities residents and businesses need and expect.
In addition, we worked to ensure the property tax breaks brought on by the 15 percent reassessment cap are not passed on to new property owners resulting in additional tax shifts to those owning properties with slowly appreciating values. We also worked to ensure more flexibility for local elected officials in the administration of the millage cap provision and millage rollback calculation.
The Municipal Association believes this compromise represents a fair settlement of the issue going forward.
Special thanks go to Senators Leatherman, Alexander, Hutto, McGill, Land, Odell and Nicholson who led the effort to broker a compromise that treats all interests fairly.
Highlights of the compromise
- No change for owner occupied (4 percent) residential property.
- At the point of sale, taxable value of commercial properties and second homes (6 percent properties) will be determined as follows:
- The new taxable value is based on a 25 percent exemption off the assessor's fair market value at the point of sale, but this new taxable value may not be less than the fair market value determined by the most recent assessment prior to the sale.
Example on 6 percent property:
- Current owner's taxable value is $700,000
- Current owner's fair market value is $850,000 (higher than taxable value because the value has been capped by the 15 percent reassessment cap)
- Property sells for $1,000,000
- New owner's taxable value is $850,000
Since 25 percent exemption off of $1,000,000 is $750,000 and the new taxable value cannot be less than the current owner's fair market value, the new owner's fair market value at point of sale is $850,000 and at the next reassessment can increase but not more than 15 percent due to the reassessment cap (or to $977,500).
- Flexibility to "bank" millage increases for future use, if needed
- Allows cities, counties and schools flexibility to raise millage in one year by up to the previous three years of increases allowed by law but not previously imposed by council. This will discourage the "use it or lose it" increase current law encourages.
- "Millage rollback calculation corrections
- Corrects the millage rollback formula for cities, counties and schools so that the increase in taxable value for all property sold in a reassessment year is treated the same in the year of reassessment as in all other years.
- Recognizes that 100 percent of property taxes billed are not collected.
- Clarification on calculating millage increases in multi-county cities.
Codifies current practice for calculating rollback millage rates in cities that cross multiple county lines