By David Salzer, Director of Business Development, Catalis Tax & CAMA
Property taxation in the United States is primarily administered by local governments, with counties being the predominant jurisdiction, although in some regions, such as New England, it may be handled at the town level. This form of taxation holds significant importance as it contributes to approximately 30% of revenue, playing a crucial role in funding essential municipal services and public schools. The administration of property taxes involves four core processes: valuation, billing, collection, and distribution. Thousands of local governments across the country undertake these processes annually to support their operations. A well-functioning property tax system is built upon the principles of fairness and equitability, ensuring that tax burdens are distributed appropriately among property owners.
In addition to local governments, there is another critical level of government involved in the property tax process in nearly every state: the oversight body. This entity is typically housed within the state Department of Revenue or Taxation, although it may exist as a separate agency. The primary role of the oversight body is to safeguard the interests of local taxpayers, enforce standards, and ensure the implementation of fair and equitable taxation practices.
The framework for property tax oversight was initially modeled by the U.S. Advisory Commission on Intergovernmental Relations (ACIR) in 1963. This model included activities such as developing standards, assisting and counseling valuers, monitoring performance, enforcing laws and regulations (including equalization), and valuing certain properties where broader uniformity or high-level resources are required.
The International Association of Assessing Officers (IAAO) further advanced the property tax oversight process by developing numerous standards on oversight and related topics, including Oversight Agency Responsibility, Property Tax Policy, and Ratio Studies. These standards serve as the industry benchmark, providing state property tax officials with best practices that they can integrate with their specific statutes and rules.
Oversight vs. Administration
Although not specified by IAAO, it is best to define the role of the state oversight agency in two main categories: oversight and administration. Under this model, oversight processes encompass activities that evaluate the performance of local property tax practitioners and the valuations they generate. On the other hand, administrative processes involve collaborative efforts between the state and local governments to facilitate the functioning of a fair and equitable property tax system.
By distinguishing between oversight and administration, the state oversight agency can effectively monitor and assess the quality and accuracy of local property tax practices while also providing support and guidance to ensure compliance with established standards. This comprehensive approach helps maintain the integrity of the property tax system and ensures that taxpayers’ interests are protected through effective oversight and efficient administrative processes.
Oversight processes are critical in maintaining the accuracy, integrity, and uniformity of property tax assessments and valuations. Several key processes contribute to this oversight:
Ratio Studies: Ratio studies involve conducting sales-based statistical analysis to assess the performance of local property tax practitioners and the valuations they produce. By comparing assessed values to actual sales prices, these studies help evaluate the accuracy and fairness of property assessments.
Performance Audits: Regular performance audits are conducted to ensure accountability within the property tax system. These audits vary in procedures from state to state but typically involve a comprehensive analysis of the assessment roll, review of documentation and procedures, and sampling reviews to assess compliance and accuracy.
Equalization: Equalization is an important aspect of oversight that aims to achieve uniform treatment of different property classes. It involves normalizing differences in assessments to ensure fairness. Direct equalization involves adjusting values for specific property classes, while indirect equalization involves adjusting the summarized value of all real property within a jurisdiction.
Forced Reappraisal/Revaluation: As the ultimate enforcement mechanism, the state oversight agency has the authority to compel a local jurisdiction to conduct a reappraisal or revaluation of properties. This process ensures that properties are regularly reassessed to maintain fairness and accuracy in property tax assessments. The ability to compel a reappraisal or revaluation is typically triggered by the statistics determined from a ratio study. Jurisdictions that cannot meet statistical benchmarks set by the state are subject to corrective actions.
Levy Verification: State oversight sometimes extends into the calculation of mil levies. Some states may have more centralized control, where the state agency directly determines the mil levy rates. In contrast, other states may provide guidelines or oversight to ensure that local jurisdictions follow established methodologies and maintain consistency in their mil levy calculations.
Administrative processes carried out by the state oversight agency are essential for supporting the operation of a fair and equitable property tax system. These processes encompass various areas:
Centrally Assessed Valuation: Centrally assessed valuation involves determining property values for large, multistate industries, such as public utilities, airlines, oil and gas companies, telecommunications providers, and mining operations. State administrators use appraisals and asset filings to determine values, which are then provided to local administrators for billing and collection. In some states, large-scale industrial properties are also treated as centrally assessed property.
Education & Certification: The oversight agency plays a significant role in providing educational programs and resources to enhance the knowledge and skills of property tax practitioners. This includes offering training opportunities, workshops, and seminars aimed at promoting professionalism and proficiency in property valuation and assessment. Additionally, the agency may establish certification programs or recognize certifications provided by professional organizations to ensure that property tax practitioners meet certain standards of expertise and competence.
Technical Assistance: The state oversight agency offers technical assistance to local jurisdictions regarding taxation issues. This assistance involves addressing questions and providing guidance to resolve various circumstances that may arise, ensuring consistent and informed decision-making in property tax administration.
Legislative Response: The oversight agency actively responds to legislative changes and proposals related to property taxation. It provides input, recommendations, and expertise to policymakers to shape and improve property tax laws and regulations, ensuring that the system remains effective, efficient, and aligned with the needs of taxpayers and local governments.
Rule-Making: The oversight agency may engage in rule-making activities by developing and implementing administrative rules and guidelines. These rules aim to clarify and standardize processes within property tax administration, ensuring consistency and fairness across the state.
People: State oversight agencies are challenged with a transitioning workforce. As experienced employees retire or leave their positions, there is a risk of losing valuable institutional knowledge and expertise. This can hinder the continuity of oversight efforts and create gaps in understanding the intricacies of property tax administration at the local level.
Process: State oversight agencies may struggle to implement standardized processes and ensure consistent practices across jurisdictions when they themselves rely on manual or antiquated systems. The lack of technological advancement at the state level can hinder the efficient oversight of local property tax administration and potentially impede the enforcement of fair and equitable taxation practices.
Technology: The technology gap between local and state governments can pose challenges for state oversight agencies. With local governments utilizing more advanced technologies and systems for property valuation, it may be difficult for state agencies to obtain comprehensive and timely data from these municipalities. This limited access to data can hinder the state’s ability to oversee and evaluate local property tax assessments effectively.
How Can Catalis Help?
State oversight agencies play a crucial role in ensuring the accuracy and fairness of property tax administration. However, they face challenges such as workforce transitions and technology gaps that can hinder their effectiveness.
Catalis Property Tax Oversight (PTO) was designed to assist with these challenges and enhance the oversight process for state administrators. PTO empowers state administrators to overcome workforce transitions, bridge technology gaps, and enhance the accuracy and fairness of property tax oversight and administration. This supports state oversight in their mission to safeguard taxpayers’ interests and promote a transparent and equitable property tax system.