Shifting the real estate tax burden from commercial to residential properties

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First in a two-part series. The second part will appear on Tuesday.

Editor’s note: The press publishes a number of articles on topics related to rampant growth, including its impact on taxes. This is one of those stories, part 1 of a two-part series. Part 2 will be published in the press on Tuesday.

POST FALLS – Data shows residential property owners pay disproportionately more taxes than their commercial counterparts, and Post Falls officials are among those who say recent laws aren’t helping.

Several bills have attempted to moderate the rapid rise in Idaho property taxes over the years. In the 2021 session, House Bill 389 aimed to change the formula and slow growth by setting a cap on how much cities and counties can pull in from taxpayers.

However, it’s not just cities and counties that affect property tax. Other taxable entities such as freeway, waterfront, and library districts rely on property taxes to keep budgets warm and to keep pace with increasing service demands in the fast-growing northern Idaho community.

In addition, property taxes are influenced by property value – another number that has skyrocketed in many in Kootenai County since the Great Recession. The market value and the impact on property taxes are also not proportional.

In the 2019 and 2020 Kootenai County Assessor Office data, Post Falls found that the tipping point in net taxable market value – the difference between property tax cuts and increases – was 9.71%.

“If you saw a market valuation less than that increase, you saw a tax cut,” city administrator Shelly Enderud told The Press. “If you’ve seen a market valuation of 9.71% or more, you’ve seen a tax increase.”

The data shows that 8,331 residential properties (66%) in Post Falls saw property tax increases between 2019 and 2020. But only 71 commercial properties (6%) recorded an increase in the same period.

The majority of commercial properties in Post Falls, 94%, actually saw a tax cut, the data shows. For example, in the 2019-2020 tax year, the tax variance for Walmart on Mullan Avenue decreased by $ 12,641, even though the market valuation rose by $ 279,596.

Reducing the taxable value of a property just means redistributing the burden on others, Enderud said.

“Those taxes then shift to the other people who were above that 9.71%. These (commercial properties) in most cases did nothing wrong or did anything at all. It’s just a formula, ”said Enderud. “As long as the valuation increase with this tax structure continues, it will continue to move from commercial to residential real estate.”

Coeur d’Alene Rep. Jim Addis, co-chair of the Idaho Interim Real Estate Tax Committee, said it was a “natural phenomenon” that the sum of residential property taxes will rise as more homes are built. He noted that officials, speaking with some cities, fear that shifting the burden back to retail could have worse consequences than the impact on the housing sector.

“Some cities fear that if we shift so much taxes to commercial use to affect housing, businesses in a community will be shut down,” Addis said. “It’s a fine line and not an easy answer. We have to be aware that without local businesses we don’t have much.”

The composite effect of certain factors contributed to the shift in “who pays property taxes,” said a 2020 Policy Brief from the Idaho Association of Counties. The factors include:

* Idaho’s title as one of the fastest growing states in the nation

* A nationwide housing shortage

* Rising housing market / estimated home values

* Removal of Homeowner Exemption Index

* Lower valuation increases for agricultural and commercial real estate

“Because of these factors, homeowners pay two-thirds of all property taxes levied by local governments,” the IAC guideline says.

The Idaho Homeowner Exemption was first enacted in 1981 and allowed primary homeowners to apply for 20% of the market value of their home, up to a maximum of $ 10,000, according to the Idaho Tax Commission.

Thereafter, the determination allowed a 50% exemption on the value of a home, which ranged from $ 50,000 to over $ 100,000, based on the Idaho Housing Price Index.

That process lasted until July 1, 2016, when House Law 431 put the cap at $ 100,000 and abolished the determination of the house price index.

House Bill 389 took the exemption one step further, increasing the homeowner’s exemption to $ 125,000.

Therefore, if a home is worth over $ 200,000, the owner’s property tax burden increases. With typical Kootenai County’s home value measured by Zillow.com at over $ 470,000 in May 2021 – a 27.2% increase from May 2020 – an exception of $ 100,000 doesn’t have as profound implications.

“It’s a relatively minor adjustment,” said Enderud. “It wasn’t inflation-indexed. It was a one-off bomb.”

House Bill 389 also increased the property tax break for qualified low-income seniors from $ 1,320 to $ 1,500.

The biggest benefit, however, was seen by the business owners, who were able to more than double their potential property tax exemption from $ 100,000 to $ 250,000.

Exceptions are only part of the puzzle, explained Coeur d’Alene Sen. Mary Souza.

“For any property that gets a tax exemption, everyone else who pays taxes makes the difference. That money has to come from somewhere,” Souza said. “When prices go up, the homeowner exemption is one measure to help, but obviously this is not the end. We’re still looking for ways in which we as a state can respond to property tax concerns, but also responsibly, fairly and fairly. “



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