Socioeconomic inequality in property tax assessment and protest
Increasing property values are usually a good thing, but there is an instance in which it’s not desirable: property tax appraisal. Every year, homeowners experience shock when receiving their tax notices.
And more often than should, the county-appraised property value varies dramatically from the home’s fair market value. For property owners already strained, the increased tax burden feels unfair – and, in many cases, their sentiment is justified.
Property taxes represent a significant expense for any homeowner. Nonetheless, they fund many of the amenities and services a community’s residents enjoy, including public schools, road maintenance, and other crucial infrastructure. Property taxes are a necessary civil cost that directly benefits taxpayers.
The system appears fair: taxes are calculated based on a fixed percentage of the home’s appraised value. However, property tax appraisals frequently show stark inequalities. But resilient as ever, taxpayers are finding ways to fight economic discrimination.
Property tax discrimination widespread in the U.S.
According to a recent study by Christopher Berry from the University of Chicago, lower-priced homes across the country are consistently and significantly over appraised. Meanwhile, higher-end properties frequently receive below-market valuations.
Consequently, the tax rate is effectively higher in the poorest neighborhoods. Berry confirmed the disparity, noting, “a property in the bottom price decile pays an effective tax rate that is more than double that paid by a property in the top decile within the same jurisdiction, on average.”
Most of the over-valuing issues result from the design of the valuation system. Assessors do not usually get access to the interior of the property. As a result, they are not aware of crucial data regarding factors that influence the house’s value, including interior condition, amenities, and functional utility.
Additionally, many counties use automated systems that employ standardized data. These programs do not account for changing factors, such as the neighborhood’s desirability or the job market, amplifying discrepancies between the county’s appraisal and market value. And some communities lack industry standards: property values are not reviewed often enough, or the existing standards are not enforced.
Furthermore, lower-income homeowners are less likely to protest their tax bills compared to their more prosperous neighbors. They may not be aware of the procedures to appeal their tax appraisal, don’t have access to the data required to make an effective appeal, or can’t afford (or aren’t aware of) tax professionals that can help.
Paths to lower tax bills
Every county allows property owners to appeal their new property tax appraisal. Conditions and deadlines for appeal depend on the locality. If they are fortunate enough to have the funds, property owners can hire tax protest professionals to file on their behalf. Unfortunately, this is typically not a viable option for low-income homeowners struggling to pay the mortgage and stay afloat, reinforcing economic disparity.
Homeowners can also file on their own. But to present a strong case, property owners need to provide supporting evidence that the property is overvalued, such as comparable sales data or pictures that capture damage and deteriorating condition.
Some states have put in ‘caps’ limiting how much the assessed value can grow on a year-over-year basis. Homeowners can appeal if the county raises the value over the limit. If the county valuation increases over the threshold, the appraisal can qualify for revision, even if the market value supports the county’s opinion – as in a hot real estate market. The appraisal review board then considers the appeal and renders its decision.
Property owners are also utilizing property tax protest services that incorporate machine learning and AI into their methodology. The application of this technology reduces the time and expense involved in preparing the supporting data for the protest, allowing these firms to pass on the savings and offer lower fees to homeowners.
The most vulnerable homeowners can also lower their tax bills by applying for tax relief programs. Some jurisdictions offer tax exemptions for seniors, veterans, people with disabilities, and lower-income households. Primary residences may also qualify for a homestead exemption, with rules that vary by state.
Toward a fairer property valuation system
Property tax discrimination intensifies the burden of ownership in lower-income neighborhoods. Struggling property owners are contending with effective tax rates that are considerably higher than their more affluent counterparts’.
Yet, homeowners are entitled to protest unfair property taxes. By questioning and fighting inflated values, homeowners are supporting economic equality in their communities.