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April 16, 2014

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Bill pending in Legislature could result in higher property tax bills

Image

Steve Marcus

An aerial view of homes in the southwest part of the Las Vegas Valley taken from a helicopter May 21, 2012.

Your property taxes could increase under a bill before the Nevada Legislature aimed at changing the state's property tax structure.

But the bill does not call for a straight rate increase.

Here’s how and why your bill could change:

As a house ages, the state gives property owners a 1.5 percent discount every year until a property is 50 years old. This is called “depreciation.”

It compounds, so every year for 50 years a property owner gets an increasing discount.

The bill in the Legislature would lower that rate to 1 percent for new homes and improvements to existing property, meaning the effective tax rate paid by property owners wouldn’t drop as quickly each year.

The winners in this scenario are the state’s school districts, counties and cities, the primary recipients of property tax revenues.

The losers, some who testified at a hearing Tuesday, would be the homeowners footing a slightly higher tax bill than they would have if the change hadn’t been made.

Decreasing the rate would amount to an average property tax increase of 0.28 percent for all properties in Clark County when using data from 2011-12, Jeremy Aguero, analyst with Applied Analysis, said in a presentation to the Assembly Taxation committee.

A property would still get the full discount, but it would take 75 years instead of 50 years to get there.

Confused?

“We have the most complicated tax system for property in the United States,” said Carole Villardo, president of the Nevada Taxpayers Association. “When I try to explain how we derive a (property) tax bill over the phone, I can almost see somebody’s eyes glaze over.”

Nevada is the only state that uses a depreciation rate for property taxes.

The practical effect is that two neighbors with the same acreage and same model of home — one built 50 years ago and one built one year ago — can receive a dramatically different property tax bill.

That’s because the older property has a 75 percent depreciation discount compared to no discount for the newer property.

Granted, inflation and rising home values still can produce an annual dollar-over-dollar increase in property taxes for both properties, but one homeowner would essentially get a bigger discount than the other.

One man testifying at a legislative hearing on the bill said that’s the equivalent of driving to McDonald’s, watching a neighbor pay $0.25 for a cheeseburger and then paying $1 for a cheeseburger yourself.

Furthermore, the same two neighbors who send their kids to the same school, drive on the same county roads, use the same library and access the same city sewer lines pay disparate costs for the same services, he argued.

“The system of taxation in this state is broke,” said William Birke, a private citizen testifying before the Legislature. “We all use the same city services and state services. Every resident should pay the same tax.”

This bill would not fix that inequity.

The Legislature first created the discount rate in 1981 and set the rate at 2 percent.

“It was because of the concern that individual residents who stayed in their properties for any length of time, with the increasing (property) values, would have a harder time finding the money to repair those properties,” Villardo said.

The Legislature then lowered the rate to 1.5 percent in 1983.

The recession and housing crisis cut Nevada property values by 42.7 percent during the past five years, Aguero said. Making matters worse for government tax collections, the Legislature passed a property tax relief law in 2005, capping annual property tax increases at 3 percent or 8 percent depending on the property.

So, in a state of no growth and with an annual depreciation discount that builds up over time, the state’s schools, counties and cities lose the property tax money they need to provide services.

“There’s a reason why depreciation has been eliminated in other states,” Aguero said.

Assemblywoman Dina Neal, D-North Las Vegas, said this leads to an overreliance on new construction — read, 100 percent full tax bill — to offset depreciated homes that get a 75 percent depreciation discount.

This bill does not change that problem, but it lessens it, establishing a longer timeline over which a home depreciates.

Several Carson City and Washoe County residents testified against the bill, largely using the argument that tax increases create an undue burden on the citizenry.

Speaker Marilyn Kirkpatrick, D-North Las Vegas, challenged them to find ways to pay for services they use.

“When times were good and we put in property tax situations to help folks, folks didn’t want to pay either, so I would love to hear your solutions,” she said.

One way to structure property taxes would be to eliminate “arbitrary” depreciation rates and tie the property tax rate to the market value of property, Geoffrey Lawrence, deputy director of policy at the Nevada Policy Research Institute, a free-market research group, said at the hearing.

The cities of Las Vegas, North Las Vegas, Reno and Henderson testified in support of the bill.

The committee took no action on the bill Tuesday.

“It is not a comprehensive fix,” Aguero said of the proposal. “This is the beginning as opposed to the end.”

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  1. Nevada's property tax system is based on a replacement cost system using Marshall and Swift standards. The whole system is flawed and is the only system of its kind in use today in the U.S.

    As soon as you purchase your property/home the local county assessor discards the (market value) actual price you paid and the monkey business begins by valuing your home at what it would cost to replace your property/home using the Marshall and Swift insurance replacement cost instead of the real market value that you paid.

    I along with a good friend D. Queen have proposed (since 2010) and submitted to Esmeralda County Board of Equalization and NV State Board of Equalization a Simple Fee property tax system to replace or try in Esmeralda County on a experimental basis to rid the blatantly unconstitutional Nevada property tax system currently in place that is a license to steal as the county and state add value(s) to your property that does not exists...

    The real value of your home according to Nevada tax commission/U.S. Census is much higher than the market value or the value printed on Notice of Assessed Valuation Card you receive in December every year...the replacement cost system fails the property owner by charging for something you do not have...a new replacement home contrary to the market value you paid and will receive when you resell your property/home.

  2. Nevada is ripe for a new property tax system one based in reality like a simple fee market based system.

    Instead of cutting costs, county and state officials want/need more property tax money.

    When you or I don't have enough money we cut back on expenses. Local and State government must cut back.

    A good place to start is allowing the public into public employee labor negotiations that are conducted behind closed doors"

  3. One of the reasons the state next door (Utah) is in much better financial state is the structural differences in taxing. Until those issues are addressed at the core level, Nevada will continue to struggle financially.

  4. Here's a brain-twisting idea: Fair Market Value. Calculate taxes as a percent of FMV--which takes into account depreciation, older designs, condition of real estate. Enough with the complex calculations. I can do the math and almost any other math they can devise, but WHY BOTHER?

  5. The reason that Utah's tax base works is because everyone there pays. They have personal income tax.

    They do use FMV on property tax minus 45% to set the tax base. You can not use condition because that would mean inspectors reviewing each and every property each year. They keep it simple though.

    They also have sales tax on everything including food in Utah.

    They don't depend or demand that one industry picks up the tab for everyone living there.

    They also provide a lower level of service to the residents. The residents of Utah have to take more personal responsibility for their own lives. The folks there depend on each other instead of demanding everything from the government.

  6. I wish my income rose faster than these elected officials think of ways to take it away. Underwater in so many ways and getting more so every day. Did these guys give themselves a raise yet this year.

  7. While I think we are fortunate the Carson City Clowns meet only once every 2 years, to whine about property taxes in the LV area is preposterous. In the Badger State, which I fled more than a quarter of a century ago, many pay, every month, what I pay for the entire year. That's one reason I moved here. Also, we pay no state income taxes and, best of all, no snow to shovel. Grow up! Quit whining! Count your blessings!

  8. I agree with the idea that everyone should be treated equally. So get rid of the depreciation scale completely but I want something in return like a lower cap on the maximum property tax rate and we keep the 3% (or 8% for rentals) max annual tax increase.

    And give the public complete access to negotiations with the public employees and unions.

  9. Sqeeze the Homeowners - while Gold Mining pays a pitance to Nevada.

    Barrick Gold Mining paid just $47.3 million in local and state General Fund taxes on Cortez, for an effective General Fund tax rate of 1.1 percent.

    End Nevadas Corporate Welfare. If they unwilling to pay their fair share - show them the exits.

    - See more at: http://www.lvrj.com/business/nevada-s-co...

    http://www2.8newsnow.com/docs/mining_tax...

  10. C'mon can't we all just trust the state to tax our property as fair as possible?. The folks up north in the state capitol wouldn't do anything to cause us the voters any discomfort in our wallets would they?. Oh by the way I just bought some ocean front property in Arizona .