Do tax exemptions create unfair burden?
Published on Alaska Dispatch News (http://www.adn.com)
Barbara Ramsey, Clair Ramsey
May 17, 2015
In a recent mayoral debate, the candidates were questioned about tax-exempt properties. They were asked if
laws should be changed to do away with property tax exemptions for nonprofits and church property. With state
government and local agencies struggling with budget deficits, the real question might have been: “Am I paying
more than my fair share of taxes?”
Anchorage taxpayers can find good news and bad news. The good news, according to a 2013 Nationwide
Comparison of Tax Rates and Tax Burdens, is that Anchorage’s tax burden is less than most other cities in the
The comparison looked at 50 cities (one major city in each state) and Washington, D.C. The 2013 report compared four
major taxes (income, property, sales and auto) and ranked taxes paid by a hypothetical family of three at five income
levels: $25,000, $50,000, $75,000, $100,000 and $150,000.
The study found that Anchorage taxes consistently were among the lowest in all but one income bracket. Only in the $25,000 income bracket did Anchorage jump to 37th. In the other income brackets, Anchorage was comparable to the five bottom cities, including Cheyenne, Wyoming, Memphis, Tennessee, and Las Vegas.
In all income brackets, Anchorage was also slightly below the national average for housing values. In the residential tax rate comparison, Anchorage’s $1.56 per $100 was only slightly higher than the national average of $1.52 per $100.
However, there is bad news. Since we don’t have an income or sales tax, we rely heavily on property taxes to pay for needed community services. Anchorage’s property tax base is divided among residential (65 percent), commercial (27 percent) and personal property (8 percent). Clearly, homeowners carry the majority of the burden.
So when tax exemptions are added to the equation, how do you determine a fair amount? Finding specific tax-exempt information was difficult. We finally found an estimated breakdown in the Municipality of Anchorage Budget Advisory Commission 2014 Report on Property Tax Assessments and Exemptions.
The report outlines the cost to taxpayers in simple terms starting with the following analogy: If dinner for 10 costs $500 (revenue), each would pay $50 (tax). However, if four people are exempt, dinner for the remaining six taxpaying diners increases 67 percent to $83.33.
Whether you are the diner or taxpayer, you might want to know why you are paying more. Why are the other four diners excused from paying their share of the dinner? On what basis are taxpayers given tax exemptions?
Tax-exempt status falls into three categories. The first is governmental mandatory exemptions: federal, state, municipal, Native claim and housing authority. The second is nongovernmental exemptions: nonprofits, religious, charitable, hospital, education, cemetery, the reduction in assessed valuation ($150,000 maximum) for seniors and disabled vets, fire suppression, utility and veteran organizations.
The third is optional tax exemptions for nonprofit properties used for community purposes (a law enacted by the city) or the 10 percent or $20,000 (whichever is less) residential “homestead” exemption approved by voters in 2005.
When a tax-exempt property is removed from the tax rolls, the lost value is shifted to the nonexempt taxpayer.
Below is an exemption breakdown showing the value of the shift.
However, Payments in Lieu of Taxes from federal agencies (the military and Interior Department), state agencies and other entities helped offset approximately $2,633,603 in 2013.
Since we can’t control federal governmental exemptions, the only ones that may be adjustable are those mandated by
the state and optional ones mandated by the city. A possible breakdown is below, though what is included under each
category is unclear:
With budget deficits looming on state and municipal levels, revising the rules and guidelines for tax exemptions may help spread the tax burden more evenly. Or at the very least we will know why we are paying a larger than expected “dinner” bill.
Barbara and Clair Ramsey are local associate brokers specializing in residential real estate. Their column appears every month in Alaska Dispatch News. Their email address is email@example.com.