(The Center Square) – A new Beacon Center report shows that while Tennessee’s Tax Truth Act creates transparency in the property tax assessment process, it lacks the power to prevent large increases in property taxes.
Tennessee was the first state to have a tax truth requirement, but is now one of four states that does not cap property tax increases.
Truth in Taxes in Tennessee requires that local governments notify residents of any property tax rate increases and that local entities consider ways that do not increase property taxes in conjunction with rate or levy increases.
Overall taxes in Tennessee have fallen 1% per year since 2000, but property taxes have increased an average of more than 5% each year during that time, according to the Beacon Center.
“Economists and governments often prefer property taxes because they provide a stable source of revenue for localities,” the Beacon Center report says. “Furthermore, while many other forms of taxation pick winners and losers, property taxes tend to be economically neutral and more akin to a ‘user fee’ than most other taxes.”
Beacon Center singled out Nashville as a location where the current law has been used in an effort to confuse voters.
Nashville residents have been impacted by a 34% increase in properties in 2020 and property values have increased in early 2021.
Nashville Mayor John Cooper then touted a corresponding drop in the property tax rate. Since the properties were worth more, they would have to pay a similar or higher total amount, even though the tax rate would be lower.
Cooper presented it as a lower tax rate, but his opponents labeled this misinformation and accused Cooper of trying to confuse.
Beacon Center pointed out that due to the Tax Truth Act, higher assessment values cannot automatically result in higher property taxes. Each local entity should compare the two amounts and vote the increase.
“While the recent 34% tax hike in Nashville is perhaps the most notable, large property tax hikes are a statewide phenomenon,” the report said. “Using 2019 as an example as the last year before the COVID-19 pandemic, the Beacon Center has identified over $208 million in proposed or enacted property tax increases statewide.”
The three options for property tax caps are property assessment caps, rate caps, and tax caps.
“All three types of limits provide some protection to taxpayers, but none independently provides them with complete protection,” the report said.
Only 13 states use one of the limits and 25 states use two varieties of limits. Eight states use all three limits.
“Tennessee policymakers should consider updating the Truth in Taxation Act’s disclosure clause to require local governments to send letters to landowners, like Utah’s law, and implement a tax trigger. referendum on property tax revenue growth,” Beacon Center concluded. “It would allow property tax revenues to grow by a certain percentage per year and collect more if voter approval is given, like Tennessee’s wheel taxes.”
A bill introduced in 2020 that would have capped property tax increases at 2% plus inflation failed after local governments spoke out against the proposal. Senator Mike Bell, R-Riceville, sponsored the bill in the Senate, and Beacon Center supported the measure.
Senator John Stevens, R-Huntingdon, said he would support Bell’s measure, but the property tax problem in his district isn’t a big increase like Davidson County’s, it’s the process by which tax rates are determined and then reported. .
Stevens said homes are reassessed on a regular basis, and then local governments, such as counties, come up with a certified tax rate that essentially gives the government the same amount of taxes it received the previous year, regardless of what be the evaluations.
Local governments can then tout a lower tax rate despite taxing residents at a higher level, Stevens said. He believes there should be a non-partisan source of information for residents to know their taxes and tax rates from year to year.
“It’s a very complex rating system that’s really hard to explain to people,” Stevens said.