HOUSE BILL REPORT

HB 1307

As Amended by the Senate

BYRepresentatives Phillips, Holland, Wang and Appelwick; by request of Department of Revenue

Revising assessment levels for equalizing personal property.

House Committe on Revenue

Majority Report:  Do pass.  (14)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member;  Basich, Brumsickle, Fraser, Grant, Haugen, Morris, Phillips, Rust, H. Sommers and Van Luven.

House Staff:Rick Wickman and Bob Longman (786-7136)

AS PASSED HOUSE JANUARY 10, 1990

BACKGROUND:

The taxation of property applies to both real and personal property.  Real property is both land and buildings.  Personal property includes all items not considered as real property, such as furnishings and equipment.  Household personal property items (furnishings, etc.) are exempt from property taxation.

Each year, taxpayers must submit a list of the values of their taxable personal property to the county assessor by March 31st.  These lists are known as "personal property affidavits."

Under the law, all property must be assessed at 100 percent of market value.  Due to four year revaluation cycles for real property and assessment practices that vary among counties, actual assessment levels are generally somewhat less than 100 percent. The Department of Revenue calculates the ratio of actual assessments to market value for each county, and calls this the "indicated ratio."  The indicated ratio is used to adjust the state levy rate in each county so that the state levy applies uniformly across the state regardless of variations in assessment levels.  To calculate the indicated ratio, the Department conducts "ratio studies" that include audits of assessments of both real and personal property in each county.

Since 1963, the Department of Revenue has been conducting personal property assessment ratio studies using data from the previous assessment year as the basis of the calculations.  Using the previous year's data was necessary to allow taxpayers time to complete and file personal property tax affidavits and subsequent records available for audit verification.

In 1982, the State Tax Appeals Board interpreted current law to mean the Department of Revenue should conduct personal property audits using current year's assessments.  Annual reports since 1983 have complied with this interpretation.  Using current year data has caused some problems, including:

1)  Under the statutory deadlines for submitting affidavits, taxpayers have time to amend their affidavits after learning the Department plans to audit their affidavits.  This encourages understatement of values, followed by amendment upwards only when there will be an audit. 

2)  Audit confidence levels of the final ratio results are reduced.

3)  With 39 counties to be audited and the short time span to conduct the audits, fewer audits can be conducted and overall reliability is reduced.

4)  Shortened audit time results in increased use of on mail-in review instead of more reliable on-site visitations.

In June, 1988, the Efficiency and Accountability Commission study of the Department of Revenue reviewed these problems and recommended a statutory solution.

SUMMARY:

When conducting ratio studies for equalization of the state levy, the Department of Revenue shall use data from the preceding assessment year.

EFFECT OF SENATE AMENDMENTS:  Property of veterans' organizations that is loaned or rented is exempt from property taxes except in instances where the rented or loaned property is used for pecuniary gain or to promote business activities.  Fund raising activities conducted on the loaned or rented property does not disqualify the organization from receiving the tax exemption.

Fiscal Note:      Requested January 24, 1989.

House Committee ‑ Testified For:    Steve Frisch and Barney McClure, Department of Revenue.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    Personal property tax ratio studies should be conducted by the Department of Revenue using the previous year's property tax assessment data.

House Committee - Testimony Against:      None.

VOTE ON FINAL PASSAGE:

      Yeas 92; Excused 5

Excused:    Representatives Belcher, Bowman, Dellwo, Hine, Mr. Speaker.