Inequitable property assessments benefit the wealthy

This letter provides more detail to an issue the Foothills Forum article on taxation in the county touched on, being the divergence in property assessments between higher and lower-end properties.

Spurred on by the University of Chicago study, also mentioned in the article, and by comments from fellow citizens wondering whether the wealthy moving into our county are paying their fair share of local taxes, I used data on actual home sales and property assessments from mid2019 to early 2021 to investigate divergence. The conclusion is bracing — expensive properties are significantly more underassessed for tax purposes relative to their market values than lower priced properties, resulting in underpayment of local taxes in many cases by about $2,000 per year. This is not an issue of raising taxes but of making sure the applicable tax rate is paid equitably across property values.

The study analyzed homes in Rappahannock which sold for over $1 million and compared the results to homes that sold for under $1 million. It found that high-end properties were under-assessed by an average of 27%, while lower-priced properties were underassessed by 7%.

Looking at 13 homes that sold for over $1 million in that period, the average price was $1.25 million but the county’s tax assessment averaged $993,000, meaning the owner was able to pay about $1,900 less in taxes, using the county’s existing tax rate, than they would have if the property assessments aligned with actual market prices.

By contrast, properties which were purchased for less than $1 million sold for much closer to their assessed value. Looking at a sampling of 78 such properties, their assessments averaged $471,583 while their actual sales price was on average $505,636, only 7% higher than their assessed value.

County officials could argue that this is a result of assessments being mandated to be performed only every six years, and that the county is merely out of sync because its tax assessments are being undertaken this year — hence assessments will catch up. Or they may argue that this data reflects recent price spikes in the real estate market. However, that could explain a comparable underassessment across all property values not the difference between high and lower priced properties.

The study by the University of Chicago’s Center for Municipal Finance used data for Rappahannock County from an entirely different period — 2007 to 2016. It found very similar results. So, the issue may be much more systematic and ongoing.

This type of tax regressivity is not unique to this county or others like it. The University of Chicago study saw similar tax advantages for higher end properties in many jurisdictions across the country and in Virginia. According to their data, Rappahannock ranked 46th of 121 counties in Virginia in having this type of tax advantage for more expensive properties … not alone but certainly more than the majority of counties in the state. It certainly behooves county leaders to examine the causes that lead to an unfair tax advantage for higher priced properties. Again, this is not an argument to increase taxes on the wealthy but to apply existing tax rates fairly and equitably.

Corroborating the Foothills Forum data, this analysis found a huge additional tax benefit from land use and conservation easement tax abatements that owners of lower priced properties generally did not enjoy. Six of the 13 properties that sold for over $1 million were in land use and three were in conservation easement. This resulted in their overall property taxes being 34% below fair market value. However, only 16 of the 78 properties analyzed that sold for less than $1 million benefited from land use tax abatements resulting in a 13% reduction in taxes relative to market value. Just one of 35 properties that sold for less than $500,000 was in land use. Lower- and middle-income families living on smaller acreage generally cannot enjoy those additional tax breaks.

And as regards Foothills Forum’s point about Rappahannock’s tax rate being lower than immediately neighboring counties, many folks who move here do so from Great Falls or Bethesda or Capitol Hill, not from Culpeper or Madison Counties. The large Northern Virginia suburbs have significantly higher local tax rates than Rappahannock, and folks moving here, or changing their primary residence, from D.C. get additional savings in state income taxes that can be in the thousands for high income earners.

Has Rappahannock created the perfect tax haven for wealthy retirees from the D.C. area? Nice big properties and low taxes!

This influx of households with higher incomes and more expensive properties, especially those further distorted by land use, has a substantial negative effect on the Local Composite Index, the measure Virginia uses to allocate state funding for schools. Virginia bases its school funding on the ability of local communities to make up the difference. As more wealth moves into Rappahannock, unfavorably skewing our LCI scores, it is even more incumbent on local government to make sure that wealthy taxpayers pay their fair share of local taxes — based on an equitable application of property assessments.

Has Rappahannock created the perfect tax haven for wealthy retirees from the D.C. area? Nice big properties and low taxes!