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This week I want to explore further the property tax problem we have in Nebraska. One of the main problems is how we value property. Some have been talking about going to an income producing method of valuing real estate for taxation purposes. Some of our surrounding states are using that method currently and Nebraska has used it in the past. During my visits with county assessors, I usually ask them about making that change. Most of them have asked me “please do not go back to that method”. It is much too cumbersome and there are way too many subjective decisions that can be made on any property.
Sales is not a perfect way to determine value but it is simpler and less subjective. Besides, whatever method you use to determine value, there is still an arbitrary number plugged into the equation to come up with the amount of taxes needed to fund our government. Currently, Nebraska taxes agricultural land around 75%, of recent sales determined values, and residential and commercial properties at not less than 95%, of recent sales determined values. With the income-producing method, there is a capitalization rate which is an arbitrary number plugged into the formula to give the values necessary to raise the amount of taxes needed to fund our government. One of the biggest complaints I receive is when someone’s neighbor sells their property, causing their property value to escalate and causing taxes to go up. On average only two to three percent of agricultural land sells in any given year, and based on a three-year rolling average, we are allowing over 90 percent of our values to be determined by less than 10 percent of sales. The same thing happens with residential and commercial properties but using a different time frame. Why should you have to pay more in taxes just because someone else chose to pay an inflated price for a piece of property in your vicinity? That inflated valuation does you no good unless you are willing to sell. Most of the time that is not an option.
I would like to see our valuations frozen at today’s levels, then if someone wants to pay an inflated price for a piece of property, they can without it causing all of the neighboring properties valuations and ultimately taxes to go up. The price paid for the selling property would be the new value for it, but all surrounding properties values would not change for taxation purposes. We will also need to decrease the percentage that agricultural land is taxed at, to bring balance back to our revenue streams. If we did freeze valuations we would still need to make some adjustments annually in valuations to keep them uniform and proportional and to ensure our schools and counties could still have a modest increase in revenue if needed. Our property tax issue is very complicated in Nebraska. There are cause and effect issues with everything the Legislature tries to do to solve the problem.