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Omdahl: Devil in details of property tax reform

By Staff | Jan 27, 2017

Through the ages, the property tax has been denounced as the scourge of the civilized world. So using the words “tax reform” is like ringing the fire bell so that the Dalmatians can alert the neighborhood.

Republicans and Democrats, governors and legislators alike seem resolved to reform the property tax. Governor Doug Burgum, the Legislature and both party caucuses have announced their determination to slay the dragon once and for all. It will not be easy.

When I was state tax commissioner, the majority in the Legislature resolved to end the property tax on store inventories, livestock, equipment, household goods and other such holdings. So the primary mission of the 1965 session was to abolish the personal property tax, replace lost revenue and win universal acclaim.

Repeal was easy but replacing the revenue was formidable. The sales tax would have to go up by one-half of one percent and broadened to cover a wide range of services; the income tax had to be raised. When the Legislature finished, House Bill 698 was referred to the people and soundly trashed at the polls.

When people think of property tax reform, they automatically assume that the goal is reducing or eliminating the tax. In the final analysis, taxes must be paid by someone to operate schools, counties, cities and townships.

Instead of reform, the Legislature has been inclined to erode the property tax base by granting exemptions to a variety of citizens and corporations. This has resulted in an unnoticed shift to remaining property owners.

Without massive consensus on any proposal, it will be mutilated, declawed or killed. So the first step toward gaining consensus is educating the public about a tax that is confusing and widely misunderstood.

Another barrier to reform is the amount of revenue involved. We must find $800,000,000 in replacement revenue.

In 1965, only 12 percent of the property tax base was involved and it took 10 years to work out the kinks and repeal it. If that minor shift took 10 years, how long would it take to shift 88 percent of the tax to new sources?

In 2012, North Dakota voters had their chance to abolish the property tax. When everyone sobered up, the measure was soundly defeated because it had no replacement revenue.

To cut property taxes, recent legislatures have engaged in buydowns. They gave the school districts money with a mandate to cut property taxes proportionately. A good chunk of the buydowns was made possible by oil revenue, which is now in the drink. Consequently, the present Legislature is struggling to find revenue just to pay for past buydowns.

The only real property tax reform occurred in the early 1980s when the Legislature gave farmers a big break by changing the valuation of farm land from the ad valorem base to a productivity formula. Farm taxes were not only cut in half but they were insulated from the shock of the markets by having multi-year calculations to spread productivity.

Turning from the hope of tax cuts, maybe some reform could be achieved in administration. With a governor who can imagine technological uses beyond our comprehension, perhaps there are ways that recording, taxing and collecting property taxes could be merged into a statewide system.

But this streamlining would reduce jobs in courthouses across the state and would not be welcomed in county seats.

Talk about reform is easy until we get into the details with the devil, and property tax reform has one big devil.

Omdahl is a former lieutenant governor and former political science professor at UND.

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