Home prices in Michigan are the lowest they have been since 1994. Local property taxes that are collected based on the value of the property are, of course, at their lowest in many years. The rise and now the fall of property taxes have placed many local budgets in a crisis. That is why there should be no property taxes based on the value of the structure for individuals or for businesses.
As an example, in Wisconsin, they are running into trouble on the taxes placed on property based on the value. In 2008, a Wisconsin state law allowed local communities to place a limit on the type of challenges that individuals and businesses can make on their property taxes. Local communities were allowed to limit the challenges to the local Board of Review only. But, a large rental property owner sued to have a court review its assessment. The state’s supreme court recently rightfully ruled that individuals and businesses have a right to challenge the tax assessment beyond the local board of review, in support of due process. This means that communities in Wisconsin and around the country are going to have difficulty preparing budgets because there will be challenges to the revenue stream.
Property taxes are one of the most arbitrary taxes we pay. The amount of the tax is based solely on what a local Board of Review thinks the property is worth. The value of any property can’t truly be determined unless it is sold or is used to generate income. But even after a sale, the value of the property may change dramatically from year to year based on issues that are market driven and out of the control of the property holder.
Additionally, those that pay the highest property taxes; homes with high value, homes that have been improved or property that generates income; are those that help the community maintain the overall property values of the community the most. To tax them more, based on arbitrary values, is counter productive.
Communities need stable revenue sources to provided needed services. Even the most minimum of services, like police and fire, will have a consistent cost from year to year, rising with inflation and other factors. Over the last few decades, property values have increased enough to provide communities with a growing revenue source that kept ahead of inflation. But in the past couple of years, that has all changed. Property values are now falling, forcing down the amount of tax revenue received.
Local communities need to base the taxes collected for local services based on another idea. The way to approach this might be on “unit” collection. All property would be valued not on market value, but on size and type of property. All vacant property would have one tax based on the size of the property. Residential housing would have another value based on the size of the lot and the square footage of the structure. The larger the structure, the more tax. Commercial, retail and industrial would have the same concept perhaps just different numbers and taxes.
Details do need to be worked out. But, a stable revenue source for communities would mean that services won’t be cut just because revenues are down. Property owners in a community would also know from year to year what their obligation will be. If the value of their property rises, they will not suffer because of it. Finally, an improvement in the individual housing or business unit property wouldn’t mean that there will be an increase in taxes.