Taxpayers in Tennessee Pay Large Extra Taxes for Appeals Reductions

August 6th, 2009

Taxpayers in Memphis & Shelby County Pay Extra $61 million in Taxes to Allow for Appeals.

Our original article dated July 2, 2009, Truth in Taxation in Tennessee: It Needs to be Enforced, contained information about the allowance for decreases in assessments and taxes that local governments are permitted to charge taxpayers in the tax rates for estimated tax losses due to taxpayer appeals.

Local governments are required to reduce the tax rate in a reappraisal year to compensate for the value increases the Assessor gives them in increased property values for assessments. However, there is one loophole. The governments may add to the reduced tax rate an allowance for estimated tax reductions resulting from appeals of the assessments and taxes.

It was reported in the July article that Shelby County had estimated that over $40 million (actually now over $42.8 million) in County taxes would be lost through appeals. We pointed out that we thought the estimate was excessive and just another way for a hidden tax rate increase.

We now have learned that the City of Memphis has provided in its tax rate an extra $18.5 million ($.16 of its tax rate) to allow for anticipated tax losses due to taxpayer protests and appeals.

This means that taken together over $61 million in extra taxes are being collected from Memphis and Shelby taxpayers to allow for tax appeals reduction estimates.

We do not yet have the Knoxville and Knox County allowance for tax appeal losses, but we do have that information for Nashville and Davidson county.

Davidson county (USD) has estimated $1.3 million dollars in anticipated tax losses to appeal and Nashville (GSD) has an allowance of slightly over $11.2 million.

Together, Nashville and Davidson County have estimated tax appeal losses of over $12.5 million and are charging their taxpayers that much more in taxes for 2009 to allow for those expected losses.

In order to compare these allowances to Memphis and Shelby County, the assessment bases have to be compared.

Guess what? The assessment base in Davidson County is almost the same as the Shelby County assessment base. Davidson County’s total property assessment is approximately $19.6 billion and Shelby County total property assessment is approximately $19.5 billion.

Why then have Memphis and Shelby County increased their taxpayers’ taxes by over $61 million to allow for expected tax appeal losses while Nashville and Davidson have increased taxes on their taxpayers by only $12.5 million to allow for appeal losses?

Some of the difference is explained in that Nashville and Davidson County’s total tax rate is only $4.13 while the total tax rate for Memphis and Shelby County is $7.2157 or almost 75% more.

This should not, however, make Memphis and Shelby County taxpayers feel much better because it shows them that due to the higher tax rate they have to pay 75% more taxes on their homes and other property than Nashville and Davidson County taxpayers.

If the Nashville and Davidson County appeals allowance is increased by 75% that would be an adjusted equivalent appeals loss allowance of approximately $21.9 million for Memphis and Shelby County, still way short of the extra $61 million charged their taxpayers for anticipated tax losses to appeals.

The message from this information appears to be that Memphis and Shelby County taxpayers may be well overtaxed for the appeals allowance.

We won’t know for sure until next year and the big question then is, will the governments give any excess back to the taxpayers?

We think not.

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