BOISE — Ada County Assessor Bob McQuade was exhausted as he wrapped up hearings in roughly 1,000 property tax appeals, all of which, by law, had to be completed by last Monday.
“We’ve had so many hearings,” he said. “It was up a lot.”
Ada County saw the most property tax appeals filed since 2011; in Bannock County in eastern Idaho, there were so many that the state is extending the deadline, according to the state Tax Commission.
Residential property owners were the majority of those appealing, McQuade said, and the numbers statewide show a telling reason: Idaho’s property tax burden shifted significantly to residential property owners in 2018, who are now paying their biggest share of statewide property taxes since 2008.
That’s also fueling a push to bring back the indexing of Idaho’s homeowner’s exemption from property taxes, which used to be pegged to home prices before state lawmakers capped it in 2016.
“When values in one type of property — primary residential — increase faster than those in other types, such as commercial, farms, timber, then taxes increase faster for that sector,” said Alan Dornfest, property tax policy chief for the Tax Commission.
Dornfest’s official report on Idaho property taxes in fiscal year 2018 shows that residential property owners paid 65.8% of the property taxes statewide. Commercial property owners paid 27.2%; agricultural, 2.6%; timber, 0.5%; mining, 0.2%; and operating property, which largely is utility property including power lines and railroads, 3.8%.
In Ada County, McQuade said, residential property owners paid 70% of the tax, with commercial at 30%. That was up from a 68-32 split in 2017.
“So residential has gone up, and commercial is down,” he said. “This is a big change. Even though it’s only 2 percent, it’s a big change.”
Overall, Idahoans paid 6.4% more in property taxes in 2018 than they did the previous year, the highest increase since 2008, with the increase distributed across all major types of taxing districts, from cities and counties to school districts and highway districts. Taxable values rose 10.6%, the largest increase since 2007.
“The 2018 value gains were more concentrated in residential property sectors, indicating a tax shift in terms of the proportion of property tax paid by this sector,” Dornfest wrote in his annual report. “Because of caps that limit the amount by which most property tax budgets of taxing districts can grow each year, tax rates tend to decrease when values rise. This effect was observable in 2018, with the 10.6% overall increase in value translating into a 6.4% overall increase in tax. As a result, statewide overall average tax rates dropped 3.8% this year.”
The average property tax levy statewide, across all taxing districts is 1.247%, the lowest rate since 2010.
Several factors are driving the increase in the burden to residential property. Idaho has seen significant new home construction, adding to the pool of values being taxed, and home prices are shooting up much faster than commercial property values. There’s a third factor that’s specifically hitting owner-occupied homes: Idaho lawmakers’ move to cap the homeowner’s exemption from property taxes in 2016.
Earlier this year, Rep. John Vander Woude, R-Nampa, and Sen. Maryanne Jordan, D-Boise, introduced bipartisan legislation to remove the cap and bring back the annual indexing of the exemption to the Idaho Housing Price Index. The bill, introduced late in the legislative session in March, didn’t get a hearing. Jordan promised to bring it back next year.
“We can’t ignore this problem. It’s really hurting homeowners,” she said.
The homeowner’s exemption exempts roughly half the value of an owner-occupied home from property taxes; the amount has varied over the years. It was created by voter initiative in 1983 and dubbed the “50-50” exemption; at that time, it was capped at $50,000 or 50% of the value of the home — whichever is less. That amount remained unchanged from 1983 until 2006, causing it to fall far below 50% of most Idaho homes’ values.
In 2006, lawmakers raised the cap to $75,000 to try to get back closer to exempting 50% of home values, and added the indexing. As a result, the maximum exemption went up and down with Idaho home values over the years; it rose to $104,471 in 2009, and dropped as low as $81,000 in 2013.
In 2016, when the exemption was poised to again exceed $100,000, lawmakers removed the indexing and capped the exemption at $100,000 at the urging of the Idaho Association of Realtors and business and agriculture interests. So, from that point on, any home valued at $200,000 or more got less than a 50% exemption.
So, for example, someone with a house assessed at $250,000 received a homeowner's exemption of $100,000 and was taxed on $150,000 of the property's value. Someone with a house assessed at $350,000 was taxed on $250,000 of assessed value.
Because of the way Idaho’s property tax system works, an exemption doesn’t change the total amount of property taxes collected, it just shifts the burden so that those not subject to the exemption pay a little more to make up the difference. The homeowner’s exemption is among a wide array of exemptions, agricultural and timber land, job-creation and disabled veterans among them. The budget for property-tax supported services is divided by the taxable value of the county or district to determine each individual taxpayer’s tax bill.
According to Dornfest’s report, the 65.8% share of property taxes paid by owners of residential property owners in 2018 was split between homeowners, who paid 46.8%, and owners of rental property, who don’t get the homeowner’s exemption and paid 19% of the total taxes.
In 2018, Dornfest found, “Primary residential taxes increased more rapidly — 8.8% — than overall property taxes — 6.4%. Some of this increase was absorbed by new construction.”
That’s because newly built houses were occupied and their owners started paying property taxes, boosting the total.
When Dornfest subtracted out new construction, his figures showed existing Idaho homeowners saw their taxes go up 6.1% in 2018, while existing rental-property owners saw a 5.4% increase. Owners of existing commercial property saw just a 0.2% increase in their taxes.
“Ag and timber have values required by law to be smoothed over several years,” Dornfest noted, and thus tend to be more stable than residential property values.
The market value of single-family residential rose 16 to 18% in Ada County in 2018.
“So that’s certainly a big piece of this shift," McQuade said.
The capping of the homeowner’s exemption at $100,000, since it exempts half the taxable value, meant higher tax increases for owners of homes valued at more than $200,000. In May, the Boise Regional Realtors reported that the median home sale price in Ada County was $342,990.
If a homeowner has a home with that value, Idaho’s maximum homeowner’s exemption would exempt only 29% of the value from tax, rather than the 50% break that lower-priced homes get.
Dornfest estimated that 40 to 50 percent of Idaho’s owner-occupied homes statewide have values of less than $200,000.
“I personally really favor going back to the indexed homestead exemption,” McQuade said. “Certainly we would have some benefit by it. … As we move on down the road, house prices are increasing, and there is no change to the homeowner’s exemption. In real terms, that value is becoming less and less.”