Residential Property Taxation: Is Periodic Reassessment worth it?

John Merrifield and Yong Bao
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John Merrifield: The University of Texas at San Antonio
Yong Bao: The University of Texas at San Antonio

No 3, Working Papers from College of Business, University of Texas at San Antonio

Abstract: Most of the states that tax residential property determine the tax base through a periodic reassessment (PR) of properties based on sales of comparable properties. Two states replaced the PR approach with assessment based on acquisition value (AV = purchase price) with an annual inflation adjustment. Many others continue to periodically reassess, but have directly or indirectly set low caps on the growth rate of taxable value. The research tested the null hypothesis that the PR approach yields no more taxable residential value than an AV approach, which costs less to administer and eliminates the threat that rising property values could evict someone from their home. The econometric analysis of an unbalanced panel from 31 states pver the period 1979-2005 yielded mixed results. Consisten with conventional wisdom, terminating PR in favor of an AV approach can have a significant short-run impact. But the short-rum finding is not robust. It is driven by the data for Oregon, and disappears or weakens significantly if the Oregon data are adjusted for for Oregon's late-90's assessment rollback. Consistent with the presence of long-term offsetting factors, subsituting AV for PR has a smaller or zero effect on taxable residential property value in the long-run. The regressions omitting Oregon failed to reject the null hypothesis that assessment based on PR does not yield significantly more taxable value than an AV approach, or approximations of an AV approach through a cap on assessed value growth.

Keywords: Periodic reassessment; acquisition value; residential property tax (search for similar items in EconPapers)
JEL-codes: H21 H71 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2007-02-02
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