Two of the six state questions on November’s ballot deal with ad valorem or property tax issues.
State Question 766, if approved, exempts all intangible personal property from ad valorem taxation. State Question 758 would apply to all property taxes.
If approved, the measure would limit annual increases in property taxes to 3 percent. The current cap is at 5 percent.
Educators are concerned about the impact that these ad valorem bills would have on school funding.
“I think the capping of ad valorem — which is an important local revenue to the district — is significant, but it is really significant in the light of all of the other revenue shortfalls we’re experiencing,” Norman Schools Superintendent Joe Siano said.
“My real concern is if you take the state question on the ad valorem cap and you add the state question on intangible value, and you add on what appears to be a very dedicated movement toward eliminating or reducing the state income tax, we seem to be creating a significant revenue hole without hearing any options of how that hole is going to be filled.”
Ad valorem taxes are based on the fair cash value of property. Under state law, the county assessor’s staff must do a physical inspection of property every four years. The Oklahoma Tax Commission requires each county to set up a plan for these inspections, Cleveland County Assessor David Tinsley said.
To accomplish this, the county is divided into quadrants, and one quadrant is inspected each year. In addition to the physical inspections, the assessor’s office re-examines the market annually.
“We look at the market by analysis every year,” Tinsley said.
That analysis includes the prices of similar properties sold in the same area.
SQ 758 will not affect the market value assessment of properties, but it will affect how much tax can be collected on property each year.
Currently, there is a 5 percent cap on property tax increases. That means if a home or business increases in value by 15 percent in a given year, the property value cannot go up the full amount. Instead, property value will only increase by 5 percent annually until it reaches the fair market value. Many people misunderstand this law and believe their taxes automatically go up by 5 percent.
When a property is sold, the new owner automatically is taxed at the full fair market value.
SQ 758 would further restrict that annual increase by lowering the amount the tax can go up each year to 3 percent instead of 5 percent.
The purpose of this restriction is to protect property owners from large, sudden increases in property taxes.
“People, if their value is going up, are not surprised, but the increase is steady each year,” Tinsley said.
Restricting ad valorem collections further could have some serious implications for entities depending on that revenue source, however. In addition to impact to the schools, the restriction could affect the recent bond measure passed by the city of Norman.
“When they figure those bonds, they look at the values in the county,” Tinsley said.
If the new cap limit is approved, the reduction in what can be collected might force a higher millage.
Millages, the tax levy in various counties, cities and school districts are determined in a number of ways and are not set by the county assessor’s office. The assessors only determine the values of properties then apply the appropriate levy.
In Cleveland County, about 70 percent of property tax supports schools and is determined by the state legislature, Tinsley said.
When schools or cities pass general revenue bonds to be paid by ad valorem, those become part of the sinking fund. Judgments against an entity as a result of a lawsuit can also be collected from property taxes through the sinking fund levy, Tinsley said.
The county receives about 10 percent of property taxes, the county health department gets around 3 percent and in Cleveland County the multicounty library — Pioneer Library System — gets about 6 percent, Tinsley said.
In the case of most bond measures, because older bonds are being paid off, often property owners won’t notice much, if any, increase. That’s likely to be the case in the Norman bonds recently passed, he said.
Property in Cleveland County turns over at a relatively high rate with only about 35 percent of property collections coming in under value, Tinsley said. Those properties, which are still under value, have had the same ownership for a long time and may be subject to homestead exemptions or the senior freeze. Exemptions and freezes, along with the current 5 percent cap, keep ad valorem taxes below fair market value on some homes.
The proposed 3 percent cap will further reduce the amount of revenue the public schools, library, health department and county receive on property.
“It (SQ 758) will make a difference, but not as much as in the rural counties where they don’t have a lot of turnover,” Tinsley said. “There’s good and bad. We have to determine which one outweighs the other.”