Ohio's Property Tax System Gets Reviewed
A Committee of State Lawmakers Issues Report on the State's Property Tax System
It’s not often that this publication dives into the happenings at the State Capitol in Columbus; there are plenty of publications that discuss the palace intrigue that happens at the corner of Broad and High. However, it’s important to note that there is a strong relationship between the state government and local governments all throughout Ohio. In a broad sense, whatever the state government lays down as laws, the local governments must follow.
And a ton of the laws that impact local governments deal with taxes and revenue. Each form of local government has been granted rights to certain taxes, be they property, income or sales taxes; all granted by the State of Ohio. One of those forms of taxation - property taxes - has been under certain scrutiny for quite some time.
School districts find that the current property tax system creates an education system that is often unequal with more affluent districts doing better than poorer districts. Taxpayers, especially after the Covid-19 pandemic, are facing skyrocketing property values that are jacking up property tax bills.
To help tackle the problem, the last session of the Ohio General Assembly created a committee, the Joint Commitee on Property Tax Review and Reform to perform a comprehensive investigation into this system, its historical development, and the challenges it faces today. This committee recently released their final report.
The origins of Ohio's property tax can be traced back to the 1790s when it served as the primary revenue source for local and state governments. Initially based on a land classification system, it transitioned to an ad valorem tax in 1825, taxing property based on its current value. However, this system was plagued by inefficiencies, including numerous exemptions and the practice of taxing developed land based on its unimproved value, leading to revenue shortfalls and increased government debt.
A significant turning point came in 1846 with the enactment of the "Kelley Law," which mandated taxation of all real and personal property according to its true value. This law influenced the taxation principles enshrined in Ohio's 1851 Constitution, particularly the uniform rule. This constitutional provision required that all property be taxed uniformly according to its true value, interpreted as market value.
The uniform rule aimed to ensure tax equality, but its implementation faced numerous challenges. The lack of a state equalization entity led to the formation of multiple local equalization boards. In response, the State Tax Commission was established in 1910 to oversee property tax administration. This evolved into the Department of Taxation in 1939, which included the Board of Tax Appeals (BTA).
One of the persistent challenges in Ohio's property tax system has been the frequency and accuracy of property appraisals. The McDonald Act of 1925 established the framework for the current sexennial reappraisal system, requiring county auditors to reappraise all property every six years. However, enforcement of these reappraisal requirements remained problematic.
In 1952, the BTA began accepting abstracts with sales-assessment ratios averaged at 50% of true value. This practice of fractional assessment was challenged but ultimately upheld by the Ohio Supreme Court, which interpreted the constitutional "true value" requirement as a limitation on unvoted millage rather than on property appraisal methods.
Later in 1957, the General Assembly introduced penalties for non-compliance, including withholding Local Government Funds and revenue to school districts. Additionally, in 1959, a portion of property tax revenue was allocated to cover reappraisal costs, a practice that continues today.The issue of property valuation has been a contentious topic in Ohio's tax history.
The Joint Committee's report underscores the need for continued reform and modernization of Ohio's property tax system. Key recommendations include improving the reappraisal process, revisiting the funding mechanism for reappraisals, and enhancing enforcement of reappraisal requirements. The committee suggests exploring ways to make the reappraisal process more efficient and effective, possibly by leveraging modern technology and data analysis techniques.
Another important recommendation is to review and potentially update the funding mechanism for reappraisals. While a 1959 law allowed a portion of property tax revenue to be used for reappraisal costs, the committee recommends exploring alternative funding sources or adjusting the allocation of existing funds to ensure counties have adequate resources to conduct thorough and timely reappraisals.
The report also emphasizes the need to balance the constitutional mandate for uniform taxation based on true value with practical implementation challenges. The committee recommends exploring ways to clarify the interpretation of "true value" and ensuring that assessment practices align more closely with market values while maintaining uniformity across properties.
Given the shift in property tax importance from state to local funding, the committee suggests examining alternative funding mechanisms for local governments and schools; another recommendation aims to reduce the heavy reliance on property taxes for these entities while ensuring they have stable and sufficient funding sources.
Transparency and taxpayer education are also highlighted as areas for improvement. The committee recommends developing ways to make the property tax system more understandable for taxpayers, potentially through improved communication about assessment methods, tax calculations, and the use of property tax revenues.
The report emphasizes the importance of stakeholder collaboration in any reform efforts. It recognizes the diverse range of stakeholders involved in the property tax system, including county auditors, the Department of Taxation, and the Board of Tax Appeals. A key recommendation is to foster greater collaboration among these entities to ensure comprehensive and effective reforms that address the needs of all stakeholders.
As Ohio continues to grapple with these issues, the insights from this report could inform future policy decisions. The historical context provided illustrates the ongoing struggle to balance constitutional requirements, practical implementation challenges, and the evolving needs of state and local governments. It highlights the importance of considering both the legal framework and the real-world impacts of property tax policies.
Ohio's property tax system, while deeply rooted in the state's history and constitution, continues to face challenges in the modern era. The Joint Committee's report provides a valuable historical perspective and highlights the complexities involved in reforming such a long-standing and intricate system. As policymakers consider potential reforms, they will need to balance the principles of uniformity and true value taxation with the practical realities of implementation and the diverse needs of Ohio's communities while maintaining its constitutional foundations.
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Do you have any comparisons of other state’s property tax process that the “industry” might consider a “model” to copy”. While each state probably has its pros/cons, I’d like to think that there maybe some that are considered having an “B” or better process. Unless Ohio’s is considered by its peers to have that now. I’ve lived in 5 different states and found California’s property tax process the most understandable and fair one during my 13 year stay. (Not that the property taxes weren’t high).