SENATE BILL REPORT

HB 1307

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

Revising assessment levels for equalizing personal property.

House Committe on Revenue

Senate Committee on Ways & Means

Senate Hearing Date(s):March 31, 1989; April 3, 1989; January 18, 1990

Majority Report:  Do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bauer, Bluechel, Cantu, Gaspard, Johnson, Lee, Moore, Niemi, Saling, Smith, Talmadge, Warnke, Williams, Wojahn.

Senate Staff:Terry Wilson (786-7715)

                  January 19, 1990

AS REPORTED BY COMMITTEE ON WAYS & MEANS, JANUARY 18, 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 April 30.  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 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.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Senate Committee - Testified: No one