Property Taxes

cases and rules on property taxes

Nordlinger v. Hahn

After CA property values rose in the '60s-'70s, Proposition 13 was adopted (amending State Const.)

It capped property tax rate at 1% of property's acquisition value in first hear of ownership, then limited increases to no more than 2% per year until sold or new construction occurred.

This created disparities, as long-term owners paid taxes based on a lower value while new owners were taxed at the current purchase price. Stephanie Nordlinger, a new owner, would be charged more $1700 while her neighors (long term residents) were only charged less than $400.

She sued, claiming it violated her 14th Amend. EP rights.

What was the court's holding and reasoning?

Not a violation. Proposition 13 supported the states interest in preservation and stability of locality and discourages negative housing market effects for all. Also, new owner had more control over his tax expense as a buyer, rather than a long time owner and their levels of property taxation. The new buyer could choose not to move to CA if he didn't like the tax rate.

Armour v. City of Indianapolis

In 2004, Indianapolis used a state law to assess property owners for the cost of a new sewer project.

Homeowners could pay the assessment in a single lump sum or over a period of up to 30 years in installments.

38 property owners chose to pay the full amount upfront.

Several years later, the city changed its financing method for sewer projects, deciding to use bonds instead of special assessments.

As a result, the city forgave the remaining balances for all homeowners still making installment payments but refused to refund the money to those who had already paid in full.

The lump-sum payers sued the city, alleging that this different treatment violated their Fourteenth Amendment right to equal protection.

What did SCOTUS say?

Because this discrimination was not based on race or national origin, SCOTUS analyzed under rational basis review. That meant that they could use any conceivable facts as a rational basis for the classification.

The state argued that it was administratively burdensome to refund the lump-sum payments. The Court upheld the city's decision, ruling that the classification was rationally related to a legitimate government interest, thus not violating equal protection rights.

This decision was distinguished from Allegheny Pittsburgh Coal Co. v. County Commission. In Alleghany, the assessor took it upon herself to only tax new purchasers and exempt old owners, raising the issue of unequal application of the law.

Allegheny Pittsburgh Coal Co. v. Commission of Webster County

The West Virginia Constitution in relevant part established a general principle of uniform taxation so that all property, both real and personal, shall be taxed in proportion to its value.

The Webster County tax assessor, on her own, from 1975 to 1986, valued petitioners' real property on the basis of its recent purchase price, not current value, as the WV constitution required.

Because home values increased, recently purchased homes incurred a much higher tax rate than homes purchased years ago. It was also in opposition to WV’s constitution.

Did this violate 14th Amend. EP?

Yes

The Supreme Court held that because the tax assessor, on her own, reassessed property based on its recent purchase price while leaving other properties untouched, the state action violated the Equal Protection Clause of the Fourteenth Amendment. She violated the state’s uniformity clause and it her action was not based on any rationale put forth by the state (like CA saying this is about preserving low taxes for people on fixed incomes and Indianapolis saying it was about efficient administration).

What are the two leading sources of state tax revenue?

Individual income taxes
General sales

What is the leading source of local tax revenue?

Property taxes

Robinson v. Cahill

Facts: New Jersey's system for funding public schools relied heavily on local property taxes, creating significant disparities in per-pupil spending between wealthy and poor school districts. A student, Kenneth Robinson, and other plaintiffs sued, arguing this system violated both the state and federal constitutions by providing unequal educational opportunities and placing unequal burdens on taxpayers.

Issue: The main legal question for the NJ supreme court was whether New Jersey's school funding structure violated the state's constitutional requirement for a "thorough and efficient" system of public schools, as well as state and federal equal protection guarantees.

Holding: The New Jersey Supreme Court held that the existing system was unconstitutional because it failed to provide a "thorough and efficient" education to all students. The court avoided making a ruling based on the federal equal protection clause, instead basing its decision on the more demanding requirements of the state constitution.

Reasoning: The court reasoned that the state had a constitutional obligation to ensure equal educational opportunity, and it could not discharge that duty by relying solely on local property taxes. The large disparities in funding resulting from this system created unequal educational opportunities. However, the court did not specify a particular funding method, leaving it to the legislature to devise a new, constitutional plan.

What effect did Robinson v. Cahill have on NJ?

It led to a series of subsequent court decisions and legislative responses in New Jersey.

The New Jersey Supreme Court was forced to issue an injunction in 1976 that threatened to close public schools if a constitutional funding plan was not enacted.

This pressure prompted the legislature to pass New Jersey's first state income tax to help fund public schools, leading to new school finance programs.

The case established a powerful precedent that state-level constitutional provisions can provide a basis for judicial intervention in school funding, an argument not available under federal law after the US Supreme Court's ruling in San Antonio Independent School District v. Rodriguez.

In property tax law today, which property is assessed and how is it assessed?

State Law Mechanics of Property Taxes

Property tax today by and large means Real Estate (does not include personal property such as cars, equipment, etc.)

The tax is based on value.

Ex. Proposition 13 in California makes value the purchase price

Ex. Other states assess at current value (and that changes all the time as the value increases or decreases)

How does a county formulate its uniform property tax rate?

1. Determine the Budget and General Fund Requirements (e.g. $45,000,000)

2. Subtract Non-Property Tax Revenue: Calculate what County brings in through non-property taxes and subtract that (local sales taxes, state/federal grants, user fees, and licensing permits, etc.)

• Budget $45,000,000 minus non-property tax revenue $15,000,000 = tax levy $30,000,000 (what county needs to meet budget)

3. Calculate the Net Taxable Value Base: Total valuation of all real and personal property within the county's boundaries

• To ensure compliance with state uniformity clauses, the county must subtract all legally protected exemptions (homestead exemptions, charitable exclusions, or government property) from the gross assessed value

  • Value base is $1,200,000,000 minus exemptions $200,000,000 = net taxable value base $1,000,000,000 (tax base minus exemptions)

4. Find the millage rate: Required tax levy ($30,000,000) divided by net taxable value base ($1,000,000,000) multiplied by 1,000 = 30 mills (or 3% of the home’s value)

5. A home worth $200,000 would owe $6,000

Total budget minus non-property-tax revenue = tax levy

Total tax base minus exemptions = net tax base

Tax levy divided by net tax base multiplied by 1,000 = millage rate (for every $1,000 → so divide by ten to get actual percent of value charged to owner)