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With the passage of Proposal “A”, there are new rules and regulation that impact your Property Tax Assessment. New terms such as “Capped Value” and “Taxable Value” have become a part of the assessment and taxation procedure.
This section is being provided to help explain the changes in the assessment process. Hopefully, after reading this information, you will have a better understanding of this complex issue.
ASSESSMENT CAP
The passage of Proposal “A” in March of 1994 drastically changed the property assessment and the taxation system. Some of the changes are hard to understand. The confusion is compounded because many of the old laws that are still in effect may appear to be in conflict with the intent of Proposal “A”.
One such change is the Value Cap. The language in Proposal “A” states that, starting in 1995; the Taxable Value Assessments can be increased only by the amount of the Consumer Price Index. (C.P.I.) or 5% (whichever is less). However, other laws still require that the State Equalized Value (S.E.V.) is to be 50% of the current market value. Since 1982, the S.E.V. and the Assessed Value have been virtually the same. The Capped Value and the S.E.V. are now totally different.
VALUE
As a result of Proposal “A”, there will be three different “values” recorded for each property; The State Equalized Value; the Capped Value; and the Taxable Value. The property taxes will be calculated on the Taxable Value.
Stating in 1995, the Assessor were still be required to estimate the Market Value of every property and record 50% of that as the State Equalized Value. In addition the Assessor was also required to multiply individually each 1994 assessment by the C. P. I. to calculate each individual Capped Value. The lesser of the two was the 1995 Taxable Value for that property. Structural items not previously assessed, for example new construction, were added to the new values.
With this new system, in most cases, a property’s taxable value in multiplied by the C.P.I. This “capping” process continues annually until the ownership is transferred.
When a Transfer of Ownership occurs, the next Taxable Value will be based on the State Equalized Value that had been calculated annually. New legislation states that the actual sales price must not be the sole basis of the new S.E.V. for that property.
STATE EQUALIZED VALUE (S.E.V.)
Equals
Half of the True Cash Value.
CAPPED VALUE
Equals
Last year’s Taxable Value increased by the amount of the Consumer Price Index (with a maximum of 5%) plus construction cost (additions), or the Taxable Value minus losses then increased by the Consumer Price Index.
TAXABLE VALUE
Equals
The lesser of the State Equalized and Capped Values. The Taxable Value will be used for the calculation of property taxes.
Example #1
A home had a True Cash Value of $80,000. The State Equalized Value (S.E.V.) was $40,000. Sales of the comparable homes in the neighborhood show that the True Cash Value has increased to $84,000. The annual C.P.I. is 1.015.
S.E.V. is
$42,000 (50% of the True Cash Value.)
CAPPED VALUE is
$40,600 (40,000 x 1.015)
TAXABLE VALUE is
$40,000 (Capped Value or S.E.V. which ever is less.)
Example #2
The same house as in Example #1, except that in this instance, an addition worth $10,000, was built onto the home. The True Cash Value of the property is $94,000.
S.E.V. is
$47,000 (50% of the True Cash Value.)
CAPPED VALUE is
$45,600 ([40,000 x 1.015] + 5,000)
TAXABLE VALUE is
$45,600 (Capped Value or S.E.V. whichever is less.)
Example #3
A home had a True Cash Value of $80,000. The S.E.V. was $40,000. Sales of comparable homes in the neighborhood show that the True Cash Value has decreased to $78,000. The C.P.I is 1.015.
S.E.V. is
$39,000 (50% of the True Cash Value.)
CAPPED VALUE is
$40,600 (40,000 x 1.015)
TAXABLE VALUE is
$39,000 (Capped Value or S.E.V whichever is less.)
Example # 4
A property that you own for an investment had a True Cash Value of $100,000. In this instance, you know that the structure on the property is not in good condition, you intend to remove the house and build a new home there for next year. You have owned the property for a few years; the Taxable Value for the previous year was $40,600. Sales of vacant property’s similar to yours are $90,000. Sales of comparable homes in the neighborhood show that the True Cash Value is $120,000. The capped, true cash building value with depreciation is $30,000. The property is vacant on Tax Day (December 31st) so the property will be vacant for the current assessment year.
S.E.V. is
$45,000 (50% of the True Cash Value.)
CAPPED VALUE is
$25,980 (last years Taxable Value minus the value of the demolished structure, equals the loss for the structure.)
40,600 – 15,000 (30,000 x 50%)=25,600. 25,600 x 1.015 = 25,980.
TAXABLE VALUE is
$25,980 (Capped Value or S.E.V. whichever is less.)
Example #5
Looking into the future, assume that several years have passed. Each year there has been an S.E.V. and Capped Value calculated. The True Cash Value for 2020 is $136,000. The S.E.V. for 2020 is $68,000 The Taxable Value for the year 2020 was $65,000. The property sold in 2020 for $135,000. The C.P.I. for 2021 is 3%. Sales of similar homes in the neighborhood show that the True Cash Value for 2021 is $138,000.
2021 S.E.V. is
$69,000 (50% of the True Cash Value.)
2021 CAPPED VALUE is
$66,950 (65,000 x 1.030)
2021 TAXABLE VALUE is
$69,000 (The Transfer of Ownership in 2020 removes the “Cap” and per the General Property Tax Laws, the S.E.V. becomes the Taxable Value.)