Can you explain the proposed property tax increase for Knoxville, Tennessee?
Every week, Mansion Global poses a tax question to real estate tax lawyers. Here is this week’s question.
Q. Knoxville, Tennessee may implement a property tax increase next year. How would this affect landlords?
A. For the first time in years, the mayor of Knoxville, Tennessee is proposing a property tax increase.
The tax rate hike is small, but it could have a bigger effect on some homeowners in Tennessee’s third-largest city as their home values have risen rapidly.
Knoxville Mayor Indya Kincannon unveiled his proposed budget last month, which calls for a 50 cent increase in the property tax rate to $2.9638 per $100 of assessed value. For the average homeowner whose property is valued between $75,000 and $150,000, that means they would have to pay around $10.42 more each month.
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The increase comes as Knox County, the county in which Knoxville is located, completes state-mandated property reassessments. And county ratings will affect city ratings.
The revaluations have been “pretty steep,” said Lewis Howard, a real estate and business attorney at the Howard & Howard law firm in Knoxville. “I haven’t seen anything that indicates what the average increase was, but I suspect…they were quite significant based on property values now.”
And that means some homeowners will face higher tax bills regardless of the rate increase, said Howard, who works primarily in commercial real estate but is himself owner of Knoxville.
“The tax increase itself is negligible in my view,” Howard said. “But with revaluation, I think it’s going to be $30 to $50 to $60 a month, which is starting to make a difference for a lot of homeowners, especially with mortgage rates going up.”
The mayor is proposing the increase due to increased pressures on the city budget. Expenses have grown at an average rate of 3.62% over the past five years, although revenues have grown on average by only 2.41%. Supply chain costs and inflation didn’t help, according to the mayor’s proposal.
About 20 cents of the tax rate will go to servicing the city’s debt, and the rest will go to basic services and infrastructure, according to the mayor’s plan. About 80% of new revenue will specifically fund employee compensation.
With this increase, the city’s tax rate is two cents higher than the rate about a decade ago, after adjusting for inflation.
While no politician wants to be the one to raise taxes, Howard said it was something many people saw coming.
“Between Covid, spending and life in general, the tax rate is going to have to go up,” he said. “It’s not a big surprise.”
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