Alexander Aitken moved from a suburb of Washington to a small Virginia
town in 1997, partly to escape soaring property taxes. The American Airlines
pilot built a $350,000 home on 10 acres and saw his taxes drop from about
$4,000 to $1,700.
But as more people joined him in rural Culpeper County, the assessed value of
his house skyrocketed. So did his taxes. By last year, Aitken's four-bedroom,
two-story home was assessed at $616,300, and his taxes had more than tripled
to $5,600. He expects his bill to hit $6,500 this year. (Related story:
Homeowners Can Expect Bigger Property Tax Bite)
People "will say, you live in a $616,000 house, you ought to pay taxes on it,"
says Aitken, 56. "But I didn't buy a $616,000 house. I bought a $350,000 house.
I'm able to afford what I bought."
Aitken's sticker shock over the taxes on his home is being repeated in many
metropolitan areas across the USA as a sizzling real estate market pushes
prices higher and tax assessors follow suit by increasing home valuations.
That often means higher property tax bills even though local governments
aren't raising their tax rates.
"Property taxes are higher than they've been in the past two decades," says
Pete Sepp, spokesman for the National Taxpayers Union, a taxpayers
rights group. "Not since the mid-'70s have property taxes been so burdensome."
Historically, states have helped keep property taxes low by giving local
governments money for schools, parks and other needs. But states have faced
budget shortfalls in the past several years, and many have cut aid to cities
and counties. That makes many local governments reluctant to roll back
property taxes.
Last year, the nation seemed poised for the most fundamental change in the
property tax system since 1978, when California voters approved Proposition
13, which capped property taxes and started a nationwide tax revolt. More
than half the states considered property tax limits or cuts last year.
"The revolution fizzled � in almost every state," says David Brunori,
who teaches state and local tax law at George Washington University in
Washington. "The watershed event was in Maine, where there was a Proposition
13-like measure on the ballot to radically cut property taxes. It was defeated
by a 2-1" ratio.
Undaunted, Aitken is seeking property tax relief for Virginians. He helped
form Virginians Over-Taxed on Residences, an organization that is lobbying
to change the way the state levies property taxes.
Like many other states, Virginia assesses taxes based on the appraised value
of a home, business or land. When that value goes up � because of a hot
housing market, improvements or other reasons � the taxes increase.
Aitken's group wants legislators to amend the Virginia Constitution to roll
back assessed property values to levels of two years ago and to limit future
annual increases to 2% or the rate of inflation, whichever is less. When a
property is sold, it would be taxed at the new assessed value.
Getting anything done can be difficult. Aitken says he has not found a
legislator to sponsor his group's proposal. "It's fairly radical for
Virginia," he says.
Among tax relief efforts in other states:
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Illinois is expected to consider a 6.5% tax on services ranging from movie
tickets to attorneys' fees. The measure would provide $2.4 billion in property
tax relief.
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Iowa Gov. Tom Vilsack has begun meeting with legislators in an effort
to devise a fairer property tax system. Criticism centers on complaints that
commercial and industrial property is overtaxed compared with residential real
estate.
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In Maine, which Brunori says ranks second in the nation behind Connecticut in
state and local taxes as a percentage of income, the Legislature is debating
Gov. John Baldacci's plan. It would limit property taxes to no more
than 6% of annual household income, providing relief to homeowners on fixed
incomes.
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In Nevada, the Legislature will debate temporarily freezing property taxes at
2003 levels and limiting annual increases to no more than 2% for owner-occupied,
single-family homes.
Brunori, contributing editor of State Tax Notes magazine, says sweeping
changes by state legislators in their property tax systems are unlikely this year.
"The beautiful thing from a political perspective is there's not a lot of
incentive to do anything," he says. "The politicians aren't raising property
tax rates, but they're getting new property tax revenue (because of rising home
values). That kind of system is the gift that keeps giving to politicians."
The proposal Maine voters rejected in November would have capped property taxes
at 1% of the assessed home value.
"It was too drastic," says Les LaFond, state president of Maine AARP,
a lobbying group for seniors that opposed the proposal. "The state would have
lost $530 million a year in revenues, resulting in a 30%-60% annual loss to
municipalities."
His organization supports Baldacci's plan. "This is the top issue in this
state," LaFond says. "People that bought shore property 20-30 years ago for
$30,000-$35,000, it's now valued at $400,000. Now, they're retired on fixed
incomes. Instead of facing taxes that were what they were when they purchased,
they're now facing taxes on a $400,000 home."
