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How tax levies work: A primer
During a February meeting of the Concerned Citizens of Clallam County, local developer Greg McCarry told those present that the new Dungeness Water Rule will likely have a financial impact on all property owners living in the county. If the rule’s provisions lower the value of some properties, McCarry said, that would increase the taxes paid by owners of parcels that are otherwise unaffected by the rule.
For those unfamiliar with Washington law, the concept is a little odd. How does reducing the value of one property increase the taxes on another?
In Washington the amount of tax collected isn’t simply based on the tax rate — for example, 19 cents per $1,000 valuation. Rather it works the opposite way: First the taxing authority determines how much it will collect. That figure is then divided by the valuation of the taxable property within the district to determine the levy rate.
If the value of one property — or many — declines, that won’t reduce the amount of tax revenues because the gross amount to be collected is already established.
Declining values simply bump up the tax rate on all.
In fact that dynamic has been at work in Clallam County since 2008, when the total valuation of taxable property in the county peaked at $8,587,834,547. By 2012 it had dropped by more than $1.4 billion to $7,173,041,376.
At the same time tax revenues have grown, as has the tax rate on individual properties.
The tax rate increases have grown slowly because with a few exceptions the taxing districts can’t bump up their overall collections more than 1 percent per year, and because taxes on new construction and other add-ons have helped fill the coffers.
In the end the revenue increases haven’t kept pace with inflation, which is putting the squeeze on many taxing districts.
How it works
The system is extraordinarily complicated, but a few examples may help explain the system, or at least provide an admittedly simplified overview.
On Feb. 12, Clallam County voters — along with a handful of Jefferson County voters — overwhelmingly approved a new school district maintenance and operation levy.
As a result, the property owners within the district will pay approximately $1.61 per $1,000 of property valuation from 2014 through 2017 to help support the district’s schools.
The voters also approved a one-year transportation vehicle-funding levy. That will add approximately 44 cents per $1,000 valuation to property tax bills in 2014.
So, how were those figures calculated?
That job is largely the responsibility of County Assessor Pamela Rushton.
With information supplied by the districts, Rushton calculates and certifies levy rates for more than two dozen taxing authorities in the county. That is, her office comes up with the rate individual property owners must pay. For example, those who live within Sequim city limits will this year pay a total of $10.9995241364 per $1,000 valuation.
That covers the taxes collected on behalf of the county, the school district, the Port of Port Angeles, Fire District 3 (and its EMS service), the North Olympic Library System, the State of Washington, the hospital district and the City of Sequim.
Rushton also ensures the state-imposed limits to the levy rates aren’t exceeded. (More on that in a moment.)
Other special assessments are collected by the Treasurer’s Office, including those for city stormwater projects and for water from the irrigation companies.
To make matters more complex, different rules apply to different types of taxing authorities — and to different types of levies.
For example, the recent education levy is defined as a “special levy.” Because a special levy isn’t capped in state law, there is theoretically no limit to the amount the school district can ask for. “I think the voters would set a limit,” Rushton laughed.
Other levies, including those proposed by most of the taxing authorities, are called “regular levies.” Their total levy rate is capped by law. The North Olympic Library System, for example, is capped at 50 cents per thousand valuation.
While some choose to collect the full amount allowed by law, others choose to collect less. For example, the Port of Port Angeles could collect 45 cents per $1,000 valuation, but collects 19 cents instead.
Under state law the port, and most other taxing authorities, can bump up collections by 1 percent per year without going to the public for a vote.
To illustrate that, let’s say that in 2012 the port collected $1 million. In 2013, the port commissioners could increase their collections by 1 percent, to $1,010,000.
Taxpayers are aided in paying this increase through additional revenues brought in from taxes on new construction and from other add-ons, including taxes on state-assessed property within each taxing district (for example, railroad-owned property that extends through multiple jurisdictions).
To jump more than 1 percent — from 19 cents to 45 cents per thousand valuation, for example — the port commissioners would have to hold a public election.
A big jump
In August 2010 the board of the North Olympic Library System did just that, with voters agreeing to bump their tax rate from 33 cents to 50 cents.
The library system would be able to continue to increase its levy amount by one percent a year if it weren’t restricted by its statutory limit of 50 cents per thousand dollars of value. In fact the statutory limit has resulted in declining collections for the library since 2010. Because the valuation of property in the district declined, in 2011 NOLS collected $4,015,505.96 and in 2013 will collect $3,586,520.69.
The recent school levy, on the other hand, wasn’t based on similar calculations. It was based on need, as determined by the school board.
They said the schools required $5,780,000 in 2014.
Then Rushton worked backward, taking that figure and dividing it by the amount of taxable property within the district — $3,588,724,000.
The resulting tax levy is approximately $1.61 per $1,000 valuation.
Rushton said while every effort is made to ensure the figures are accurate, the final rate may be different. It won’t be calculated until the end of this year — and “total taxable property values constantly fluctuate,” Ruston said.
Exemptions and exceptions
Who pays these taxes?
“Everyone who isn’t exempt,” said Rushton.
Many seniors qualify for an exemption.
Plus there are properties that are exempt, including those owned by school districts and by other governmental agencies. Nonprofits can apply for an exemption.
Tribal lands on reservations and owned in trust by the U.S. government also are exempt.
It’s important to note again that these exemptions don’t reduce the overall tax burden, which is established by each taxing authority before the tax rates are calculated. Instead they are “shifted” onto the taxpayers.
To use the previously cited hypothetical: If the Port of Port Angeles determined it would collect $1,010,000 in 2013, it would collect that amount from those property owners who aren’t tax exempt.
Taxes don’t simply apply to real property — that is, real estate. They also extend to the personal property of companies. Rushton noted that much of the Nippon Paper Industries mill in Port Angeles is on land owned by the Port of Port Angeles and the land is therefore tax exempt. But the machinery and equipment owned by the mill on that property is subject to property tax at the same rate as land and homes.
Some landowners pay lower tax rates than others. The assessed valuation of all land is supposed to reflect its market value — its “highest and best use.” But a state constitutional amendment passed in 1968 established a “current use assessment” for open space, timber and agricultural lands. The value of these properties is determined based on its current use, not the highest and best use of the land. Although not a tax exemption in the strict sense of the term, current use valuations reduce the tax burden on certain properties. As a result, the reduction “shifts” the tax burden to other taxpayers just as an exemption does.
Rushton said it’s done this way in part to make it affordable for farmers “to feed us.”
On the other hand, shifting a property from one of these uses to its highest and best use can be expensive and may include paying seven years of back taxes if the property isn’t in compliance with the program.
Some taxpayers also are eligible for deferred payments. That means the state pays the property taxes, then collects them when the property is sold or otherwise transferred. Because the property tax is paid, the taxes aren’t shifted onto others.
And yet another
It’s possible Clallam property owners soon will have additional taxing authorities. The City of Sequim, for example, has suggested creating a new Parks and Recreation District that matches the footprint of the Sequim School District.
In recent months the county commission has heard from several citizens who would like to see a new “Law and Justice” levy to generate more funding for the courts and police.
The law and justice levy would be a little different from others: It would require approval by three-fifths of the voters and could be in place no longer than six years before requiring another vote of the people. It would be limited to 50 cents per $1,000 of assessed valuation.
Recently Rushton was asked if she performed these labors before automated databases, including Microsoft’s Excel, were available.
“Did I do it? No, thank God,” she laughed.
Reach Mark Couhig at email@example.com.