The matter of inequitable tax burdens among different classes of property was ignored by John D. Moorhead, the Christian Science Monitor writer who discussed property tax problems and inequities in two articles published in this section. Feb. 18 and 25.
The basic assumption used by assessors to determine taxable "market value" is that all appraisal methods (e.g., sales, income, reproduction costs) will yield a similar value approximation for comparable real estate. But the validity of this assumption is questionable, considering the administrative practices used and the assessment results obtained.
For example, the Templeton condominiums and the Summit rental apartments are two identical high-rise buildings located on adjacent lots in Alexandria. The only difference is the method of determining taxable market value. The "sales-valued" Templeton (condominiums) is assessed for $6,913,800 - almost twice that of the "income-valued" Summit (rental apartments), which is assessed for $3,758,400.
Similarly, owners of non-income-producing properties, such as single-family homes and invidually owned townhouses and condominiums ("homeowners"), are being taxed to the hilt in at least two ways:
1. The "sales" method of market valuation generally applied to owner-occupied and rented "homeowner" properties reflects value of potential use and is responsive to and reflective of monetary inflation.
2. The "sales price" representation used by assessors is the total consideration of the deed conveyance, which includes items other than real estate such as seller-shifted sales commissions, settlement and closing costs, mortgage interest "points" and other finance charges and personal property which is not part of the building structure like appliances (e.g., stove, washer, dryer, refrigerator, room air conditioner). Such inclusions increase taxable "market value" well beyond the value limited to real estate (i.e., land and building structure).
In contrast, the "income" method yields much lower taxable market values for rental apartments by excluding the above-mentioned nonrealty items and by being limited to current use valuation. Other factors include deducting from income operation and maintenance those expenses which for homeowners enhance the value of their property and by having assessments based on confidential, outdated data provided by the owner or his agent.
Various studies have shown that real estate taxes have increased significantly over the years for single-family homes but have remained relatively stable for rental apartments, even though rents and the construction costs necessary to reproduce a like structure have increased. The result has been a continual shift of the realty tax burden to homeowners. For example, rental apartments account for almost one-fourth of the total residential dwellings in Fairfax County but only about 7 percent of the total assessed valuation of these residential dwellings.
A Fairfax County Taxpayers Alliance (of which the writer is vice president) study based on data provided by the county shows that in 1977 the average realty tax on a rental apartment unit was only 21 percent of the average realty tax levied on a single-family home. Rental apartments averaged $267 in realty taxes, far below the average of $1,251 for single-family homes, $940 for town houses and $593 for condominiums.
The appraised value (i.e., 100 percent assessment) of the surveyed rental apartments, which also included some rental townhouses, averaged only $15,328 per unit. In contrast, the county-wide appraised value was $71,900 for single-family homes, $54,000 for townhouses and $34,100 for condominiums. For all residential dwelling units, a median of $64,600 and an arithmetic average $67,200 is estimated countywide.
The average realty tax on rental apartments ($267) equates to the average montly rent in Fairfax County ($266). Comparable monthly rent equivalents are not available for homeowners.
The solutions proposed in the Moorhead articles wouldn't reduce the disparity in the realty tax burden between homeowners and owners of rental apartments. Reducing government spending or imposing realty tax limits may lower the level of taxation but such measures would continue existing disparities.
Tax relief programs such as the "income redistribution" proposal of the "circuit breaker" (i.e., realty taxes tied inversely to individual income) would likely increase both tax level and disparity on those homeowners who do not get proportional relief.
Somehow, some taxpayers must pay the costs of providing governmental services. Moreover, both tax level and the disparity would be increased more by giving tax relief to renters (who legally pay no realty taxes), particularly when the tax relief exceeds the actual realty taxes paid by the owner of the rented apartment.
Moreover, if all assessors were properly trained to use the current assessment methodology, the likely rsult would be a continued disparity of the real estate tax burden on homes and rental apartments.
Even challenging the tax assessment on a home has proved to be useless unless the property involved can be shown to be uniquely different from other nearby homes. But is it worthwhile to prove A's property is assessed too high in relation to B's comparable property when the assessor can easily achieve uniformity by increasing the assessment on B's property? Further, why compare one over-taxed home with another over-taxed home? The worthwhile comparison is between an over-taxed home and an under-taxed rental apartment.
A realistic approach to having all property classes pay a fair share of the realty tax burden would be to define "market value" legislatively to exclude non-realty items from the sales price.
Gil Ryback, who has been active in the Fairfax Cunty Taxpayers Alliance for many years, is a homeowner. Holder of a master's degree in economics, he is employed as a program analyst by the federal government here.