First published by the Common Sense Alliance, Friday Harbor.
The following is formatted as a Q&A with answers provided by Paul Dossett who has been a State Accredited Real Estate Appraiser for 25 years and who served five terms (20 years) as the former San Juan County Assessor.
Question: If government places a non-forming designation on property that previously had been considered conforming, does that change affect the value of the property both in terms of real estate value and assessed value for tax purposes?
Answer: Market value and assessed value (as of the date of the assessment) are of equal value. Many influences and attributes contribute to market value including a “bundle of rights” of conforming uses. If a valuable conforming use becomes non-conforming, then some of the bundle of rights has been diminished; therefore affecting the value of real property to a lower market value. Remember, real estate value is based on “highest and best use” of a parcel of land. If the property bundle of rights has been diminished, so has the highest and best use.
Question: Does the assessment process consider a change in status of property, from conforming to con-conforming when assigning assessed value to property?
Answer: When property is re-assessed for tax purposes, the established value for real property mirrors the real estate market value based on real estate sales. State law requires assessments to reflect 100% of market value. Yes, assessment(s) reflect the difference of parcels that are conforming compared to those that are non-conforming. If real estate sales reflect a non-conforming status value that is lower than a conforming status, tax assessments would also.
Question: Does your experience as Assessor in San Juan County lead you to believe that new restrictions on the use of real property embodied in a regulatory change from conforming to a non-conforming designation tend to reduce the overall value of the property?
Answer: Yes, any restriction to the “bundle of rights” associated with real property will affect the real estate market value negatively. Obviously, a regulatory change affecting real property from conforming to non-conforming is a restriction because the highest and best use and the bundle of rights have been diminished to the property.
Question: If a government regulatory decision creates additional new non-forming properties and if the value of those non-conforming properties is diminished, what affect does that have on the tax obligations for property not affected by such a value reduction? In other words, is there a tax shift and how does it tax shift work?
Answer: Yes, if non-conforming property causes diminished market value, there will be a tax shift to other taxpayers. An explanation is in order to understand this concept.
First this fact must be understood, taxing district property tax revenue is not affected by changes of the assessed value of the district unless the district is already collecting tax revenue at the district’s highest tax rate allowed. The tax shift is reflected by the change of the district’s tax rate (per $1,000 assessed value) due to fluctuations in the total assessed value of the district.
If the taxing district revenue remains the same but district’s assessed value decreases, the tax rate will increase causing a tax shift to other taxpayers in the district. It is the tax rate times the taxpayer’s assessed value that determines the taxes to be paid to the taxing district and the amount of the tax shift by the taxpayers in the district.