This week’s “Daily Journal” guest columnist is Chad Adams, Director of the Center for Local Innovation and Vice President for Development at the John Locke Foundation.
Nothing stirs the average citizen in North Carolina quite like a discussion on property taxes. They are enigmatic, confusing, illogical, and bizarre. The rates in our state range from $1.10 in Scotland County to 26 cents in Dare County. More confusing, the “effective tax rate” in Dare is actually at 21.54 cents due to things like the “sales assess ratio.”
But again, that makes my point. Sales and income taxes make sense; they’re logical and easy to understand. Even fees are easy to understand, but the property tax is rife with creative computations with respect to farm lands (which are tax-deferred) and percentages of value based on age (a partial tax exemption). They are recalculated every four to eight years at a tremendous cost to counties, and they’re rife with errors because all of the values are based on assumptions about worth in the free market.
Maybe it’s time to look anew at the odd world of property taxes. A 2006 survey by the Tax Foundation, a national nonpartisan think tank, found that the property tax was the single most despised tax in the nation. The actual phrase was “the worst” tax. In a fee society that can choose its method of taxation, it is probably time to find more favorable ways of paying for services.
On the one hand, property taxes attempt to appeal to our logic. If you have property you have a vested interest in protecting it, and paying taxes on it is relative to your ownership. But when owning 2,000 acres of property in the woods is tax exempt and the quarter-acre empty lot is not, one has to wonder if even that argument makes sense. When you buy a pair of shoes, you don’t expect to continue to pay taxes on the shoes for each year you own them – even though the shoes are “property.”
The entire concept of property taxes is based on the premise of speculation. Assessors look to see what property is selling for and estimate current values based on the configuration of your home or property. That then becomes your basis for payment at a rate to be determined. But in quickly changing markets such as Brunswick County, where coastal property values have skyrocketed more than 200 percent in the past four years, how does one prepare for future taxation? The short answer is, you can’t. This is particularly problematic for folks on fixed incomes. If land is your only asset, then the tax becomes a “net worth” tax repeated year after year.
Maybe it’s a good time for us to look at modifying our sales and income tax structures. Certainly these are far easier to understand. Income taxes are filed each year and are based on actual money being earned. Sales taxes are based on money being spent and are easy to track. We have a collection system already in place for those taxes. And we also have the mechanism in place to distribute those taxes. Furthermore, counties and cities alike would be able to plan their budgets with the same estimates made by the state and be able to rid themselves of their entire tax offices.
Without property taxes, the streamlining of collections would more adequately address continuing and capital expenses for school systems and the rest of local needs statewide. The tricky part of the new distribution of sales or income taxes would be distribution. If it were simply based on residency, then large cities might lose a great deal of revenue on their corporate tax base. But again, it would be a new paradigm that could take into account such potential disparities.
Equating ownership with wealth, which is what property taxes do, is not an accurate supposition. Sadly, according to the Tax Foundation, there is still no consensus as to whether property taxes are regressive, proportional, or progressive. Rather than consider reform the legislature is simply looking to other revenue options such as land transfer taxes, impact fees, and additional sales taxes for counties. Moving toward simplicity rather than complexity is what North Carolinians and businesses would like to see. With citizens’ disapproval of property taxes running at an all-time high, this is a great time to begin the debate about a better system. Resistance to change is a powerful force in the legislature. As such I won’t be holding my breath for the debate to rise above a murmur.