Analyzing property taxes

Published 12:00 am Thursday, July 31, 2003

One of the most contentious and misunderstood aspects of Governor Bob Riley's proposed tax plan, which he calls "Laying the Foundation for Greatness," is the issue of property taxes. Alabama, long known as a haven for low property taxes across the United States, has not had a significant increase in its property tax system since the Great Depression.

As part of Gov. Riley's plan to rescue what is being termed by many as a dire economic situation, a restructuring of Alabama's property tax system is proposed. This restructuring would include changes in Alabama's commercial, residential, farmland, and timberland tax structures.

According to the governor's proposal, the changes in the tax structure, and how it affects property owners, would be based largely on the local millage rates of each individual - with, according to the governor's numbers - the highest tax burden being placed on the largest property owners, and those with the highest assessed value of land.

For example, commercial property valued at $50,000 in a location with a high tax millage - or 50 mills of tax - pays only $565 in taxes for the year on said property. According to the governor, that property owner would only see an increase of $160 over the next four years, bringing the total to $725 on a $50,000 piece of commercial property.

Taking that to the next level, consider the following - a piece of commercial property valued at $5 million is only taxed at a rate of $56,500 in the highest millage rate - or just over 11 percent of the total value of the property. This property owner would see an increase of $16,000 over the next four years. This would still mean they only pay $72,500 in taxes on the property. Only 14.5 percent of the property's value.

For local citizens though, the concern probably lies more with residential property, farmland, and timberland.

According to David Azbell, press secretary for Gov. Riley, those property owners really have nothing to worry about.

"The whole package for property owners is about a 6 percent increase over the next year," Azbell said. "For example, if someone paid $100 in property taxes this year, they will only pay $106 next year, and then, over the course of the next four years, their property taxes will only increase to $124. This tax plan will be phased in over the next four years, and even with that increase, Alabama will still have one of the lowest tax burdens in the nation."

Some people may even see a drop in their property tax bill.

According to the governor's web site, residential property owners in all three millage brackets - high, average, and low - could see a decrease in property taxes by $6.50 on a piece of residential property valued at $50,000. In Covington County, the average cost of as of July is $64,622 - below the state average. The average selling price was $122,300 for homes in Alabama, through May 2003, according to the Covington Association of Realtors MLS. All unicorporated areas in the county pay a millage rate of 24, which puts the county in the low- to average-millage rate for Alabama, according to the Covington County Revenue Commissioner's Office.

As for people still saying the tax increase will still be too much, Azbell offers the following bit of information.

What that means for residential property owners in Covington County is their property taxes will be only slightly increased for some homeowners, while many home owners will experience a decrease in their tax burden.

"We will still be below the Southeaster average, and lower than all of the surrounding states," he said. "Our property tax rate is about one-half the national average, and less than 70 percent of the Southeastern average. We're also going to be keeping the exemption for property owners age 65 and older. They will not be losing their tax exemption. We're also going to increase the homestead exemption from $40,000 to $50,000 which will allow more residents to declare the homestead exemption status."

As for farmland and timberland, Azbell says the increases aren't geared to harm the family farmer.

"Even though some farmers and timber owners will pay additional taxes, we're creating additional exemptions for residential farmers," he said. "There will be 200 acre exemptions for residential farmers, plus additional exemptions."

As for the taxing portion of the plan for farmland and timberland, Azbell says property owners currently pay about $1.25 per acre in taxes, in four years, that amount will increase to only $2.50.

"That increase, phased in over four years will still make Alabama's property tax burden for farmers and timberland owners less than every other state in the Southeast except Mississippi. Alabama will only be on par with Mississippi," he said. "The average farm in Alabama is only 189 acres, so most of the farms in the state will be exempt from the new taxes.

"This plan is more friendly for family farmers than any other plan that has been proposed in the past," Azbell said. "It's not going to place a heavy burden on Alabama's family farmers. What it is going to do is make large timber owners and corporations, many of which are not even located in Alabama, pay their fair share of the tax burden - something they haven't had to do in the past - while the family farmers and small landowners, and the low- to middle-income families will not have to bear the brunt of the tax burden."

Editor's Note: As part of our ongoing Alabama Forward series, we will analyze Governor Bob Riley's tax package in depth