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Property taxes paid on a specific piece of real estate or on tangible personal property is the product of the valuation of the property, determined by the county assessor, multiplied by the tax levy, the rate set by the board of the political subdivision collecting the tax. This week I will discuss the process of valuation of property and its role in your property tax bill.
The responsibility for maintaining the roll of all taxable property and its value lies with the County Assessor, a publicly elected county official. The office of the assessor establishes the list of all taxable property and its owners, as well as the taxes due. The Assessor must establish the “valuation” of the property for tax purposes. In Nebraska, real estate is valued at the market value of the property. Therefore, if the market demand, and therefore prices, of a particular class of property is increased in an area, the valuation also increases. If local housing demand is high for the number of available houses, the actual sales of homes in your area will reflect a higher value of your home. Conversely, if the ag land market stagnates, the lower prices per acre will mean your farmland has a lower value at sale and the valuation will decrease accordingly.
The valuation for property tax purposes is based on the average actual value over the past three years. This rolling average is to prevent large, sudden changes in valuation based on a singular economic event. It does, however, mean that if property values rise rapidly for two years and then plateau, the assessed valuation will continue to rise during the third, fourth, and fifth years until the previous increases are removed from the average. On the other hand, a sudden drop in market value will not be immediately reflected as well. Valuations for tax purposes will rise and fall at a lower rate and over a longer period of time than the changes in actual market conditions.
Determining the value of a piece of property for taxation is subject to the “Uniformity Clause” of the Nebraska Constitution. Certain property can be classified differently for the purposes of determining its value and based on characteristics of that property. Most notable different classifications in property for taxation are agricultural and horticultural land, personal real estate, tangible personal property, and livestock. Under the Uniformity Clause, once actual market value has been determined for a piece of property, the County Board of Equalization ensures the values assessed are uniform for the type and nature of property within a county. The County Board of Equalization is composed of publicly elected members of the County Board of Supervisors. They correct any assessment on a piece of property that is undervalued or overvalued compared to other similar property based on the current market conditions in their county. Property owners who feel their valuations are not consistent with the local market or with comparable property can protest their valuation.
Constitutional amendments passed by Nebraska voters in 1972, 1984, and again in 1990 created a special distinction for agricultural and horticultural land for the purposes of taxation. Agricultural and Horticultural land is assessed at 75% of the actual value and must comply with the Uniformity Clause with other subclasses of ag land, but not with other types of real property. It is important to note that distinction only applies to the land used for production. Homes and improvements are valued at 100% of their actual value whether located rurally or in a town.
Increasing value of property is not in and of itself negative. In fact, increased value of property means greater net worth and owned assets for property owners. If you wish to sell your land, home, or business, rising property values mean your sale proceeds are increased. Many taxpayers see increased valuations and assume an automatic increase of their property tax bill. Without adjustments to the levy rate, that correlation is true. It does not have to be. The levy rate as set by the local board determines the ultimate effect of the value of your property on the amount of taxes you pay.
Next week I will discuss the levy rate, levy restrictions, and the impact on your property taxes. As always, I look forward to hearing your ideas and concerns on the many issues facing the Legislature during the interim and in coming years, particularly regarding property tax reform. Please do not hesitate to contact my office by calling 402-471-2732 or sending an e-mail to firstname.lastname@example.org. For daily updates, please follow me on Twitter @JohnKuehnDVM.
Senator John Kuehn, District 38