Tennessee counties are lowering their property taxes as housing values climbed to new highs over the past four years, but that doesn’t necessarily mean smaller tax bills for homeowners.
In nearly every county across Tennessee, property tax rates have decreased during the required reevaluation period, a Lookout analysis of county property value data compiled by the Tennessee Comptroller’s Office shows. But increasingly across the state, homeowners have to take on a higher share of the total property taxes paid in counties, as residential values go up much faster than the value of land and personal assets owned by businesses.
On average, residential property owners paid 22% more in real property tax dollars last year compared with 2019, while businesses paid 5.1% more.
The increase in taxes comes despite a state law designed to prevent counties from realizing gains in property values. Counties reappraise the value of all the property within them to develop a new tax rate at least every six years, but often more frequently.
“In general, a local government can’t recognize a revenue windfall as a result of their revaluation,” said John Dunn, a spokesperson for the Tennessee Comptroller’s Office. “A certified tax rate is established so that the local government will bring in just about the same amount of revenue that they brought in before the revaluation was conducted.”
But this law is potentially ineffective at protecting homeowners from tax increases in an economic environment where house prices outpace commercial real estate.
For example, if you own a home worth $100,000, the business next door owns $100,000 in property and the county tax rate is 2%, then the homeowner pays $500 in taxes and the business owner $800. This is because residential property is taxed at 25% of the overall rate and businesses at 40%. If the home is reappraised at $150,000 and business property at $125,000, the county is required to reduce the tax rate down to 1.45%. But under the new tax rate the home owner pays $544 in taxes and the business $725.
The homeowner taxes went up in real dollars by $44 and the business owners were reduced by $75.
The adjustment aims to balance the increased property value and the tax rate. But it may not always be a perfect match for every property owner, particularly as home values across the country rise at unprecedented levels since the coronavirus pandemic.
The imbalance between residential and business property values is not specific to certain counties or regions in Tennessee, the Lookout’s analysis found. Across all three grand divisions, residential property is growing at about a 50% higher rate than property owned by businesses.
Across the United States, residential property values have significantly increased, while commercial properties have stagnated as more people shift to working from home, lowering the value of office buildings.
But Tennessee’s home values have increased faster than the national average as the state sees an influx of people from other regions combined with stricter zoning codes that have made it harder to build new housing for decades. Some residential property value growth is also attributable to the new residents as farmland is converted into houses, creating more value.
This rapid growth prompted the comptroller’s office earlier this year to push for legislation allowing counties to reappraise every year. But, Republican lawmakers squashed the plan when counties opposed a cap on property tax increases of 2% a year.
During this year’s reappraisal in counties such as Sumner and Jefferson, many property owners saw the value of their homes in need of renovation often double in value because of the demand.
Jim Lance, a homeowner in Jefferson County, told the Lookout his three-bedroom, four-bathroom house, which he bought in 2018 for around $578,000, increased in value to nearly $927,000 during this year’s reappraisal period.
Most of Lance’s neighbors on Byrd Spring Ranch have seen similar increases.
“We bought this house when we retired on a fixed income, and if our taxes go up, it will make it harder to afford,” Lance said. “It seems like the way property values and taxes are going we’re going to be priced out.”
