To the Chairs and ranking Members of the House Property Tax Study Committee,

Earlier this year I had fun teaching a course in advanced civics at Bob Luddy’s three Thales High Schools. I had to bone up on my notes on all types of taxation. Here are some points that I hope the Study Committee will consider.

The property tax in North Carolina scores well on some basic principles of taxation to wit: transparency, stability, and fairness.

Transparency. It is transparent because every taxpayer knows exactly how much is being paid and to what level of government. This may be somewhat less true as to those who pay their property tax bill through an escrow with the mortgage company and don’t pay attention to it. But they can know exactly if they want to. Scoring at the bottom on these criteriaare tariffs and gambling taxes.

Stability. Property tax collections are up there at 98-99%  year in and year out. Even in the dozen or so counties that don’t have a local bill requiring that property taxes which are delinquent be paid at recording.

Fairness. The property tax is based on ability to pay. Although that is true as to wealth it’s not necessarily true as to income. There are people who are land rich and cash poor either because they are retired or disabled and some provision is made for them. Perhaps this should be broadened some. There are people who are not so poor or disabled but are on a fixed income or lower income for whatever reason. Perhaps they could defer payments for several years, say five or six years or upon sale or death. The 8% interest rate would discourage folks from using that unnecessarily.  

The property tax exemption for farmland and forests. In most cases it allows the taxable amount to be almost nothing, but the deferred value is due upon sale and requires repayment of the deferred tax for the current year and three prior years. I have represented hundreds of such sellers. I don’t think it would be amiss to make that five or six years instead of three to make up some of the lost taxation from other reforms you may consider.

The incidence of taxation is different than who pays it. Renters bear the incidence of property tax. It’s just included in their rent, either explicitly or implicitly. Some voters are unaware of that and prefer sales tax to catch “those people who don’t pay taxes.” “Those people” do pay property tax.

Property tax cannot be divorced from the subject of exemptions generally. Rural hospitals, normal churches and other charitable organizations don’t need to be paying property tax, if they follow all the other rules. Some act like for-profit businesses should.

My suggestion would be that property tax exemptions should be denied for entities that have all of the following characteristics: 1) they pay any employee more than $750,000 a year (details later) and 2) their gross revenue is more than $30 million/year. If the entity bills its clients or patients directly for services, then the $30 million/year should be slightly less. The $750,000 limit should apply to any family that cumulatively exceeds $750,000. That limit should include any family member contracting with the entity.

The Committee should be aware that many states have much higher property taxes however denominated e.g. millage notes.

I would be pleased to offer additional ideas to the Committee when you have some more concrete ideas.

Cordially,

Skip Stam

Letters:  Property Tax Ideas