OKPOLICY.ORG
Property taxes are unpopular in Oklahoma. And an ill-advised initiative petition proposal, State Question 843, would eliminate property taxes on homesteads without replacing the funding for schools, cities, and counties. So, it’s not a surprise that House Speaker Kyle Hilbert, R-Bristow, and Senate President Pro Tempore Lonnie Paxton, R-Tuttle, want to offer voters an alternative property tax cut.
The fair cash values of property can rise significantly in some years and only slightly in others. Over the past five years, annual property values have increased as much as 15 percent to 18 percent. In response, Paxton and Hilbert have introduced Senate Joint Resolution 39, which would cap annual taxable fair cash value increases at 3 percent instead of the current 5 percent on all property except homesteads, and 1 percent instead of the current 3 percent each year for homestead property — regardless of any real increase in fair market value. The bill passed the Senate on deadline day last Thursday.
Oklahoma’s property tax system has always been a mess, with the primary goal of keeping property taxes low.
Property tax assessment is a three-step process. First, the county assessor must determine the property’s fair cash value. Then, the property is “assessed” for tax purposes at no less than 11% nor more than 13.5 percent of the fair cash value. This percentage or “assessment ratio” cannot be increased except upon approval by a majority of voters in a county. Finally, the applicable tax rate, most of which is set in the Constitution, is applied to the assessed value, which is the “taxable fair cash value.”
Historically, most elected county assessors valued property at less than fair cash value. In addition, in many counties in those days, the taxable fair cash value was never updated on tax rolls until the property changed ownership. When the property was sold, the sale price became the new fair cash value. This practice created an intolerably inequitable system in which long-time property owners paid far less in taxes than newer owners for property with the same fair cash value.
To improve equity in the property tax system, the Legislature in 1988 enacted a computer-assisted mass appraisal system requiring annual computer appraisals of each property, with physical inspections required every four years. However, as property taxes increased with more accurate appraisals, the Legislature in 1996 reversed course and submitted a constitutional amendment (SQ 676) to limit the annual increase in taxable fair cash value to the current 5 percent. In 2012, the legislature submitted a constitutional amendment (SQ 758) that reduced the cap on the maximum annual tax valuation increase for homestead properties and agricultural land from 5 percent to 3 percent..
These approaches were a mistake. They should have changed the Constitution to allow the assessment ratio to be lower than 11 percent and not tampered with the fair cash value. By artificially limiting the fair cash value, the property tax system is returning to the old, unfair system where new property owners pay taxes at the current fair cash value, while long-time owners pay based on an artificially reduced fair cash value. SJR 39 would aggravate this problem by further artificially reducing the taxable fair cash value of property.
If the goal is to keep property taxes low, so be it. But the goal should also be to keep property taxes equitable and fair between taxpayers. If legislators continue to artificially limit the taxable fair cash value, the system will soon be as inequitable as it was before, with new homeowners getting a raw deal. No one likes to pay taxes. But they hate to pay unfair taxes.
