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California’s property tax system not a good fit for Wyoming

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California’s property tax system not a good fit for Wyoming

Sep 28, 2023 | 8:16 am ET
By Maggie Mullen/WyoFile
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The Albany County Assessor office in September, 2023. (Maggie Mullen/WyoFile)
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The Albany County Assessor office in September, 2023. (Maggie Mullen/WyoFile)

As lawmakers debate solutions to rising residential property taxes in Wyoming, one popular option may cause harm and do little good. That’s the conclusion of a new state-funded report on implementing an acquisition value-based property tax system in Wyoming. 

As home values have swelled in most counties, so have property taxes. That’s because property in Wyoming is now taxed ad valorem — or according to value. But that system isn’t working, according to some voters, lawmakers and top state officials. 

To consider an alternative, the Wyoming Legislature passed a bill earlier this year to fund an extensive study of moving the state to a property tax system based on acquisition value — or the price paid to own property. In June, voters presented lawmakers with a petition of 1,825 signatures in support of an acquisition value-based system. Secretary of State Chuck Gray and Superintendent of Public Instruction Megan Degenfelder signed on ahead of their primary wins last year. Over the summer, members of the hard-line Freedom Caucus also pushed the idea during town hall meetings, hailing it as a long-term fix and “actual reform.”

Such a transition, however, is not practical for the state, the study found. 

The state lacks the legal framework as well as the infrastructure to support an acquisition value system, according to the report. Addressing those limitations will “require a significant amount of money and time to implement, as well as public acceptance.” 

The greatest challenge to enacting an acquisition value-based system, the report said, would be upending Wyoming’s non-disclosure status. Currently, the sales price of real estate is disclosed to county assessors, but not to the public. That would have to change. 

“We anticipate a substantial amount of pushback from taxpayers on the requirement to disclose sale prices,” the report stated. 

Lastly, an acquisition value-based system would slash revenue for public services. That could compound a broader trend, as fossil fuels decline and leave state revenue streams increasingly vulnerable.

Lawmakers will review the study next week when the Joint Revenue Committee meets in Casper to discuss a lengthy property tax agenda. 

Background and methods

Out of a heap of bills aimed at residential property taxes, lawmakers opted for three during the 2023 legislative session. One expanded an existing income-based refund program, another will let voters decide via a 2024 ballot initiative whether to separate residential property tax into its own tax class. Because the state constitution groups residential, commercial and industrial properties into the same tax class, lawmakers are unable to make any isolated changes to how residential properties are taxed. Separating it would alleviate the constitutional conundrum

The third bill called on the Department of Revenue to contract with an outside consultant to study the statutory, regulatory and procedural changes needed to convert Wyoming to an acquisition value-based system. 

The report is that study.

It was awarded through a bidding process to the Florida-based group of assessment and appraisal experts TEAM Consulting, LLC and cost the state slightly less than the $50,000 lawmakers had set aside in the bill. Department of Revenue Director Brenda Henson told lawmakers in June that TEAM was the only company to apply. 

“I will tell you we reached out to several other companies and could not get anyone that was interested,” Henson said. 

The contract required the consultants to propose three options for an acquisition value-based approach, and it recommended they consider 10 factors in each of those, including a review of potential revenue effects and whether it would result in inequities to taxpayers. 

Between April and August, the consultants interviewed stakeholders and property tax policy experts, reviewed existing statutes and procedural guidelines and sorted through Wyoming property data. 

Combined, they brought the consultants to one conclusion. 

“A property tax system that is based on acquisition value does not result in uniform and equal treatment of property taxpayers,” the report stated. 

Constitutionality 

In a few respects, the study told lawmakers what they already knew. 

Legislators, for example, were advised of the unconstitutionality of moving to acquisition value over a year ago. 

In August 2022, the Legislative Service Office prepared a memo outlining the potential fiscal impact and constitutional soundness of about a dozen property tax relief measures. This memo was presented to the Joint Revenue Committee ahead of the 2023 general session, which took place early this year. 

“ … [A]n option that would set the property tax value based on the acquisition value of the property would appear to create different subclasses of property values based on the last time the property was purchased,” the memo stated. “Note that some of the proponents of these options have suggested a constitutional amendment. If any of these options are accomplished through a constitutional change instead of a statutory change, the constitutional concerns would not apply.”

Some lawmakers, however, have expressed ambivalence about whether property tax reform needs to be constitutional, including Rep. Mark Jennings (R-Sheridan). 

“They say you have to address it in the constitution. I’m not really a proponent of that,” Jennings said during a May 16 virtual town hall hosted by the Wyoming Freedom Caucus. Jennings, a small business owner, was lead sponsor of the bill to create the study. He did not respond to WyoFile’s request for comment. 

The study reconfirmed the need for constitutional changes as the first step in implementing an acquisition-based valuation system. More specifically, it found three sections of the Wyoming Constitution that would need to be either reworded or repealed 

Any of those changes would need to be approved by voters. If lawmakers get them on the ballot in 2024, the soonest the necessary statutory and regulatory changes could happen would be the 2025 session. From there, the state would need to alter or replace the computer system for property taxes. 

Altogether, the 2026 tax year is the earliest year it would be feasible to institute the new system. 

Other hangups

If the state converts to acquisition value through those hoops, other difficulties remain, according to the study. 

In the consultants’ review of other states, they found California is the only one to have implemented an acquisition value property tax system. 

“The legislation for this in California is referred to as Proposition 13,” the study stated. “Proposition 13 is widely recognized as having created huge inequities among taxpayers.” 

The study included a map from the Riverside County, California Assessor’s Office of a 30-home subdivision. All were built in 1987 and have the same number of bedrooms and bathrooms as well as the same square footage. However, the assessed values between homes vary widely — between $435,986 and $1,045,500. 

“Owners of identical properties will face differing property tax liabilities based on when they acquired their property,” according to the report. 

The consultants also pointed to Idaho, which tried an acquisition value-based system over 30 years ago. Eventually, it abandoned it due to difficulties in implementation and administration and reverted to an ad valorem-based system. Today, Wyoming is one of 49 states that taxes its property that way. 

The funding of government services such as senior centers, law enforcement, public health and education would also take a significant hit under acquisition value, the study found. 

“The revenue impact of changing to [an] acquisition value based system is complex and influenced by a multitude of variables that are difficult to isolate,” the report stated. However, it would limit counties’ ability to respond to changing budget needs. The consultants also found that the loss of revenue would increase the longer the state relied on an acquisition value system.

The first year, for example, would result in a 4.2% decrease, but after a decade revenue would decline 30.2%, according to the report. 

As an alternative to acquisition value, the report points to expanding the homestead exemption “to allow all residential property owners to qualify for some type of value (tax) relief” — something divided Republicans appear to somewhat agree on

The Joint Revenue Committee will meet Oct. 2 and 3 in Casper.