As we approach another anniversary of the property tax-limiting
Proposition 2½, I'm happy to again celebrate its creation by
Massachusetts voters in 1980. But I've recently learned that since
the beginning of its July 1981 implementation I've misunderstood one
thing about it over the years.
Basically, the local
property tax levy for an individual city or town can increase by no
more than 2.5 percent a year. Regular, required revaluations of a
community can allow the tax on specific properties to increase by
more than 2.5 percent, and others to increase less; but the town as
a whole can levy only 2.5 percent more than it levied the year
before, plus a factor for new construction, and, of course, the cost
of successful overrides and debt exclusions.
So if you didn't vote
or voted in favor of overrides at a "special" town election, don't
come crying to me that "Prop 2½ doesn't work!"
IMAGE TO ENLARGE
So how is the value of
each piece of property determined?
The assessment of
commercial/industrial property can be complicated, but single-family
residential property seemed easy. I was told in the beginning that
the determinant is "full and fair market value," and for 30 years
I've thought I knew exactly what "fair market value" meant: What a
house is worth if sold by a willing seller to a willing buyer. That
made perfect literal sense, no one has ever contradicted me when
I've repeated it, and now that we have the Internet, Wikipedia also
uses that definition.
Then last fall my
partner, Chip Ford, who had been renting the house behind mine,
became a first-time homebuyer. The two small houses were once part
of the same property in a neighborhood that contained summer
cottages that have been converted to year-round or torn down and
replaced by larger homes. Because of limited frontage, our
connecting land can't be developed.
Chip's rented house was
on the market for a while, as interested young couples learned that
the "starter home" needed work to be livable for a family. (That
pile of wood in the yard isn't for romantic evenings by the
fireplace; it's for the wood stove in the kitchen, under the loft,
that is needed to heat the upstairs.)
So the little house
didn't sell at its original asking price, nor at its lowered asking
price. The landlord finally accepted a price that Chip could afford.
I suggested he
immediately tell the town assessors what he paid, so they would know
the actual, up-to-the-minute market value in time for the new tax
Actually, I didn't
think he needed to tell them. In the early years of state-mandated
revaluation, when the job was labor-intensive, assessors used to
update their assessments one section of town at a time. But in the
computer age, I assumed that as sales appeared in local newspapers,
the assessors would note the sale prices, type them into the
computer, and click on "adjust everyone's share of the property tax
levy, taking into account this new piece of information."
Our town's assessors
were very nice, and tried to explain how my simple assumption was
wrong. One of them came out to check the property, noted the
inadequate frontage, visible ledge, and necessary woodpile; and
after filling out the necessary paperwork, Chip did get an abatement
of his first property-tax bill. But his new bill is still based on
an amount quite a bit more than he actually paid for the property.
How is this possible?
He was a willing buyer at a certain price; his landlord was a
willing seller who wasn't under pressure to get rid of the property.
What part of "market value" doesn't everyone understand? Well, at
least I still "get" the annual car assessment.
Prop 2½ also cut the auto excise rate, from $66 per thousand
dollars of value to $25 per thousand. In this case, "value" is not
the market value of a car, fortunately.
Back when the auto
excise was the most hated tax in the commonwealth, the annual pain
was ameliorated somewhat by using not the sale price, but the
manufacturer's list price of the auto, which then depreciated
quickly to 10 percent by the fifth year.
Our auto excise is then
fixed at that amount. When I bought my used Honda CRV in 2004, it
was almost fully depreciated; starting the next year and ever since,
my excise bill has been $57.50.
Back in the mid-1980s
there was a proposal to assess the $25 on the "true market value" of
the auto. This was dropped after arguments that it would be hard to
determine this since assessors couldn't find most cars during the
workday to see if they were in top shape or had kids eating ice
cream and/or dogs throwing up as part of regular use.
So, a celebration
clarification: Our homes aren't necessarily assessed at their true
market value, and our cars definitely aren't. Let's just be glad
that there's a limit on the rates.
I'm also glad, by the
way, that overrides require a vote not only at Town Meeting, but on
the local ballot, which sometimes shows up unexpectedly. For
example, this year's Marblehead override election is on a
non-traditional Thursday, June 21.
The comments made
and opinions expressed in her columns are those of Barbara Anderson
and do not necessarily reflect those of Citizens for Limited Taxation.