Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q. Knoxville, Tennessee, might implement a property tax increase next year. How much would it affect homeowners?
A. For the first time in years, the mayor of Knoxville, Tennessee, is proposing a property tax increase.
The hike on the tax rate is small, but it could have a bigger effect on some property owners throughout Tennessee’s third-largest city as the values of their homes have been rising fast.
Knoxville Mayor Indya Kincannon last month unveiled her proposed budget, which calls for a 50 cent increase of the property tax rate to $2.9638 per $100 of assessed value. For the average homeowner with a property appraised between $75,000 and $150,000, that means they’d have to pay about $10.42 more each month.
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The increase comes as Knox County, the county Knoxville sits in, is completing state-mandated property reappraisals. And the county assessments will affect the city’s assessments.
The reappraisals were “pretty steep,” said Lewis Howard, a real estate and business attorney at Howard & Howard law firm in Knoxville. “I haven’t seen anything that says what the average increase was, but I suspect … that they were fairly significant based on property values now.”
And this means that some property owners will face higher tax bills regardless of the rate increase, said Mr. Howard, who primarily works in the commercial real estate space but is a Knoxville homeowner himself.
“The tax increase in and of itself is negligible in my opinion,” Mr. Howard said. “But with the reappraisal, I think that’s going to be $30 to $50 to $60 a month, which starts to make a difference to a lot of homeowners, particularly with the increase in mortgage rates.”
The mayor is proposing the increase because of increased pressures on the city’s budget. Spending has grown at an average rate of 3.62% over the past five years, though revenues rose at an average of just 2.41%. Supply chain costs and inflation haven’t helped, according to the mayor’s proposal.
About 20 cents of the tax rate will go toward the city’s debt service, and the rest will go toward core services and infrastructure, according to the mayor’s plan. About 80% of the new revenue will fund employee compensation specifically.
With this increase, the city’s tax rate is two cents higher than the rate from about a decade ago, after adjusting for inflation.
Even though no politician wants to be the one to raise taxes, Mr. Howard said it was something many people saw coming.
“Between Covid, expenditures, and just life in general, the tax rate’s going to have to go up,” he said. “It’s not a big surprise.”
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