Taxing New Homebuyers to the Max


 Tom Larson  |    March 11, 2019
Taxing New Homebuyers

In addition to facing a long list of fees and taxes upon the purchase of a home, new homebuyers often face an automatic increase in property taxes based upon their purchase price. In fact, homebuyers have come to expect that their assessed value will be immediately adjusted to the sales price for the next assessment period after closing. However, using the sale of the home as the trigger for increasing the assessed value is problematic, for both legal and public policy reasons. 

Background

Wisconsin’s constitution requires all property tax assessments to be assessed uniformly. Specifically, Article VIII, Section 1 states, “The rule of taxation shall be uniform ….” This language, known as the “uniformity clause,” was inserted in the constitution in the 1800s to prevent state and local lawmakers from giving preferential treatment to some property owners over others. As the Wisconsin Supreme Court has recognized, the purpose of the uniformity clause is “to protect the citizen against unequal, and consequently unjust taxation.” See Weeks v. Milwaukee, 10 Wis. 186, 242 (1860). 

To ensure property assessments are accurate and fair, state law requires municipalities to maintain the assessed value of each major class of property within 10 percent of fair market value once every five years. When assessed values fall outside this acceptable range, assessors are supposed to perform complete revaluations of the properties, which require a closer examination of each property to make sure the information on the property is accurate and the value reflects current market conditions. 

Many communities, however, do not perform regular revaluations. Some do it every few years, while others wait 10 years or longer. Milwaukee, for example, performs citywide assessment revaluations every year, which include an analysis of sales in the previous year and make any necessary adjustments. Rather, it is common for communities to perform regular “maintenance” on their assessments, which includes making adjustments to individual properties based upon a recent sale or remodeling project such as an addition, new garage or bathroom remodel. 

Chasing sales violates the uniformity clause

According to Wisconsin Department of Revenue (DOR) guidelines and rules, basing the assessment solely on the recent sale of a property, referred to as “chasing sales,” violates the uniformity clause. Specifically, the DOR’s guidelines state, “[s]ingling out specific properties as a result of a sale during a maintenance assessment is in direct conflict with the Wisconsin Property Assessment Manual. The practice results in non-uniform assessments.” 

Although the DOR prohibits the practice of chasing sales, assessors regularly increase the assessed value of property based on a recent sale. In a sampling of 24 communities around the state in 2014, an analysis by the Milwaukee Journal Sentinel found that at least 5 percent of the new assessments were identical to a property’s selling price. In Racine county, for example, the assessor admitted to using the sale price to establish the assessed value for 20 percent of the properties that sold in two communities she assessed. 

When assessors adjust the value of individual properties based on market conditions without adjusting the values of all other properties in the neighborhood or community, the properties are not being assessed fairly or uniformly. If all property is assessed based upon the same market conditions and the same methodology, then all property owners are paying their fair share even if all the properties are over-assessed or under-assessed.

While the sale of a property is important information to be considered in the assessment, the uniformity clause prohibits the sale from being the sole basis for the assessment. Other factors related to the sale must be considered, including days on market and sales of other comparable properties in the neighborhood. 

To stop assessors from employing the practice of chasing sales, Wisconsin should follow the lead of states like New Hampshire and Michigan, which specifically prohibit chasing sales by statute. If nothing is done to prevent this practice from continuing, new homebuyers will continue to be harmed by paying more than their fair share of property taxes. 

Stopping the practice of chasing sales is one of the top legislative priorities for the WRA during the 2019-20 legislative session. 

Tom Larson is the Senior Vice President of Legal and Public Affairs for the WRA. 

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