Tennessee Taxpayers Association

Taxpayers Pay Extra Taxes for Appeals Loss Allowance – But Unused Portion is Never Returned

After a county has completed a reappraisal, each local taxing jurisdiction is required to reduce its tax rate in order to generate the same revenue that was produced the prior year.  By keeping the same tax rate, local governments are kept from enjoying a windfall increase in revenues from the increased values .  

Prior to this requirement, local governments could leave the tax rate the same as the year before and claim they did not raise taxes, yet in fact they actually did through the valuation increases.

This reduced rate in Tennessee is called the “Certified Tax Rate”.  In most states it is referred to as the “Truth in Taxation” law.  

If the local governments need additional revenues, they must first lower the rate to the certified amount and then increase the rate.  This lets taxpayers know if a tax rate is increased.  

The system worked fine in Tennessee until the State permitted the local governments to add an estimate of refunded tax dollars to the reduced certified rate. The estimate is what the local government may have to pay to the taxpayers if  the appeals are successful.  

For example, in Shelby County this year the County reduced the tax rate from $4.04 to $3.81 due to the increases in assessments from the reappraisal.  The County then added back an estimated amount of $.21 to anticipate losses due to successful appeals. At this time, we have been unable to obtain the allowance for Nashville and the tax rate has not been set for Knoxville .   We will follow up on these.

This tax rate allowance was based upon estimated assessment losses of over $1.06 billion that will be reduced by appeals.   This amounts to over $40,000,000 in tax dollars estimated to be lost in appeals to the County Board of Equalization.  

That is believed to be well overestimated.   According to the Memphis Daily News, some members on the Commission expressed that everyone knew what was really going on.

The amount which is excessive and not reduced by the appeals should be returned to the taxpayers the following year. 

Our Association was present in the Legislature when the law was proposed to permit the local governments to add the expected tax loss from appeals to the certified rate. 

We recognized that this would be just another way of increasing the tax rate without the local government taking responsibility for the increase.  This was  because there was no provision requiring the local government to return the overestimated losses to the taxpayers.   

Therefore, this Association successfully added the following amendment to the statute permitting this loss estimate:

The state board of equalization shall order recapture of an excessive adjustment in the following year if the certified tax rate is found to have been overstated due to overestimation of the appeals adjustment, and in these cases the jurisdiction may exceed the recapture rate only after public hearing.  TCA § 67-5-1701(a)(5)

This amendment was meant to keep the estimates from getting out of hand. 

We could see that if there was no provision for return or accounting the next year, then there was great incentive to overestimate tax losses and increase local revenues without a visible tax rate increase.

It is the responsibility of the State Board of Equalization to order that the excessive adjustment be recaptured.  If the jurisdiction is going to exceed the recapture as ordered, there must be a public hearing on the matter so the public will know they are not going to receive a return of the overestimated tax losses and that the tax rate is actually being increased, all a part of “Truth in Taxation” as it should be.

This Association will be expecting enforcement of this law in Tennessee cites and counties at the proper time.

 copyright – Tennessee Taxpayers Association – July 2, 2009

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