Does the State Have a Property Tax?

October 28th, 2009

Does the State Have a Property Tax?

If it looks like a . . . .

Ask most State Officials if the State has a property tax and the answer will be, No!

We feel otherwise and submit that an analysis of the taxes the State levies against taxpayers will show the State does indeed have a property tax.

First, consider that the property tax most taxpayers are familiar with is the tax levied locally against their homes and businesses. This tax is known as an “ad valorem” (according to value) tax on property and is applied by only the local governments.

Under this system, the local assessor of property uses methods required by law to value the properites on a county by county basis.

Next, as required by the Tennessee Constitution, these values are multiplied by assessment ratio percentages based upon the type or class of property (commercial = 40%, residential and farms – 25%, and tangible personal property = 30%).

The result for each property is an “assessment” or a percentage of the appraised market value. This is also known as a fractional assessment.

This assessment is then multiplied by the various local property tax rates, depending upon the city and/or county location, in order to arrive at the amount of taxes.

Under the State’s property tax system, the procedure is very similar.

First the value of the property is derived by the taxpayer, or sometimes the Commissioner of Revenue, by using the methods provided by law for obtaining the value.

Then, the value is multiplied times a State-wide tax rate (presently $.25 per $100 of value).

Do the procedures appear similar?

They certainly do. There is no doubt that both the local property taxes and the State’s property taxes are derived from the values of properties (ad valorem) as determined by law.

One of the main differences between the local property tax and the State’s property tax is that the State omits application of the classification percentages to the value to arrive at fractional assessments.

This means the State taxes property based upon 100% of its value.

Another difference from the local property tax is that the State applies the tax only against properties owned by corporations, limited partnerships, limited liability companies and business trusts chartered/organized in Tennessee or doing business in Tennessee.

Oh yes! There is one more difference between the two taxes. The State calls its tax not a property tax, but a Franchise tax; the Franchise tax portion of the Franchise & Excise taxes paid annually by the above named entities. The Franchise tax is levied as a privilege tax for the right to do business in the State.

Apparently, if a State charges a tax and calls it a privilege tax for the right to do business in the State, the tax may discriminate against the taxpayers by not applying to all taxpayers and further it may (and does) discriminate against taxpayers by charging some taxpayers the same tax twice (double taxation) for the privilege of doing business.

Our attorneys tell us under the privilege tax sections, the courts have upheld these forms of discrimination.

It’s unbelievable our Tennessee Constitution permits such discrimination. Perhaps the taxpayers should demand some fairness clauses inserted.

So, we have a legal State property tax applied against 100% of the value of property which is not uniformly assessed against all taxpayers.

The obvious conclusion is that whatever else you may choose to call it or how you apply it, a tax on property is still a property tax!

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