Stealth tax increases
The two certainties in life, the old adage has it, are “death and taxes.”
Whether it’s income taxes, sales taxes, or property taxes, it’s hard to escape frequent reminders that the government takes a sizable chunk of our resources. Some, like sales taxes, are continuous — occurring virtually every time we spend money — but they can be easily overlooked for that reason. Others, like income and property taxes, while annual events, are often paid in advance, over time, through things like payroll withholding or monthly escrow payments associated with mortgages. That can soften the blow by making them less obvious, but most are still keenly aware that they’re paying them.
When governing bodies of cities, counties, and school districts decide what your taxes will be over the next year, you have the opportunity to pay attention, even protest if you disagree.
When the Legislature meets (in North Dakota, every other January in the odd-numbered years), it’s also a time when much public attention is focused upon taxation. In recent years, much of that focus has been upon property taxes, which is largely misplaced at the legislative level. Property taxes are not state taxes. They’re local taxes.
While the Legislature can limit, through state law, maximums on the level of taxes local governments can ultimately assess, through mill levy limits or, as occurred this year, by a limit on percentage growth in what many referred to as “caps”, it is decisions by local government bodies which actually control the level of property taxes.
What many don’t know is that they often increase, without a vote and with little notice.
Can your taxes be increased without you knowing it?
“Stealth tax increases” regularly happen. Property taxes can easily be (and regularly are) increased without any elected government official actually voting to raise them.
“How can that be?” you may ask — by another government official simply deciding that your home is worth more than it was last year.
Property taxes are calculated through a needlessly complicated formula called mills. Simplified, it’s essentially a calculation of what portion of the value of your property will translate into the tax you pay on it. If you’re wondering why they aren’t simply calculated on a percentage basis, you’re asking the right question. They easily could be and should be—perhaps a topic for another day.
The problem with valuations, for tax purposes, is that many question the fairness or accuracy of the process and, simply by determining that your property is worth more, local government officials can, essentially, increase your property taxes without elected local government officials ever voting to actually increase your tax rate.
The confusion this has led to is predictable. Citizens, concerned about high property taxes, have often complained to those they elect to represent them at the local level, only to be told that their property taxes haven’t been raised. When they’ve compared their tax bill to previous years and noted an increase, that’s obviously quite confusing.
The reason is the “stealth tax increases” which regularly occur by the valuation of property being increased. The new valuation, then, becomes the basis upon which property is taxed at the mill levy rate. Unless local officials then vote to actually lower the tax rate (a very rare occurrence, to be sure) the amount you pay will be higher.
They can “honestly” say that they didn’t raise your taxes because they didn’t take the action necessary to prevent them from going higher. If that sounds like double-talk or smoke and mirrors, welcome to the world of “stealth tax increases”.
The next time the tax assessor comes around or you receive something in the mail indicating that your property is now worth more, it may be wise to see it as a friendly reminder that local governments are about to tax you more without ever voting to do so.