Property Tax Referendum Act

The Problem

Despite tax cuts in recent years at the state level, there have been significant tax increases at the local level, especially property taxes. In 2019 alone, more than $208 million in proposed or adopted property tax increases occurred across the state. While the General Assembly has returned hundreds of millions of dollars annually back in to the pockets of Tennesseans, local governments are just taking it right back out. It doesn’t help Tennesseans if their taxes are cut at the state level only to have them increased at the local level, especially for senior citizens and others on fixed incomes who are extremely sensitive to increases in property taxes. While their home values may be rising, that equity can only be accessed upon selling their home. Property taxes have even shown to harm new businesses and startups because unlike other taxes, property tax bills are paid irrespective of company performance. As a result, most states have passed some type of statewide protection from large property tax increases. Even California passed protections for property owners over 40 years ago with Proposition 13. Surprisingly, Tennessee is one of only four states that do not cap property taxes in some way, along with Hawaii, Vermont, and New Hampshire. Placing guardrails on property taxes can make Tennessee the most taxpayer-friendly state for individuals.

The Solution

The Property Tax Referendum Act protects homeowners and businesses by putting a reasonable limitation on the growth of revenue local governments can collect from property taxes in one year. It also exempts revenue collections from new construction, so it doesn’t penalize growth and provides a mechanism for constituents to vote on property tax increases on the ballot if the increase is significant.

What the Bill Does

The Property Tax Referendum Act limits the increase in revenue from property taxes that cities and counties can collect by inflation plus two percent annually. This allows for a reasonable rate of increase and prevents constituents from being hit with large tax increases. The bill exempts revenue from new construction from counting against the cap to allow localities to fund the expansion of services to these new areas and promote growth. Local governments would also be allowed to rollover unused years of revenue increases up to three years. If local governments wish to raise more than the cap would allow, then the bill allows local governing bodies to put the issue to the ballot for voters to decide, similar to the process for raising wheel taxes.

 

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