TAXATION ‑- PROPERTY ‑- APPLICATION OF CHAPTER 174, LAWS OF 1965, EX. SESS. ‑- TAX LEVY RATE ‑- CALCULATION ‑- FACTORS

TAXATION ‑- PROPERTY ‑- APPLICATION OF CHAPTER 174, LAWS OF 1965, EX. SESS. ‑- TAX LEVY RATE ‑- CALCULATION ‑- FACTORS.

1. The property tax levy rate referred to in § 2 (2) means the same actual millage rate as applied last year by that taxing district, rather than the effective rate upon the property of those taxes levied the preceding year.

2. In calculating the additional dollar amount in § 2 (2) allowed for the increase in assessed value resulting from new construction, revaluation, etc., the assessment level of the preceding year should be used rather than a current increased level.

3. When property passes into exempt ownership; has been destroyed; annexed to an adjoining district or loses value for any reason, such losses must be subtracted from any growth in assessed valuation (attributable to improvements, construction, revaluations, or annexations) before the increase (if any) to be used in computing the additional dollar amount for purposes of subsection (2), (§ 2, chapter 174, Laws of 1965, Ex. Sess.) can be known.  However, in the event that such losses exceed such growth the result will simply be that the district in question will have no subsection (2) additional dollar amount factor for this particular year; the dollar amount factors described in other subsections of § 2, chapter 174, Laws of 1965, Ex. Sess., would be unaffected by such a circumstance.

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                                                                    July 22, 1966

Honorable George Kinnear
Chairman, State Tax Commission
General Administration Building
Olympia, Washington 98501

                                                                                                                Cite as:  AGO 65-66 No. 97

Dear Sir:

            By a previously acknowledged letter you have requested our opinion on certain questions relative to § 2, chapter 174, Laws of 1965, Ex. Sess.  We paraphrase the questions as  [[Orig. Op. Page 2]] follows:

            1. Does property tax levy rate referred to in § 2 (2) mean the same actual millage rate as applied last year by that taxing district, rather than the effective rate upon the property of those taxes levied the preceding year?

            2. In calculating the additional dollar amount in § 2 (2) allowed for the increase in assessed value resulting from new construction, revaluation, etc., should the assessment level of the preceding year be used rather than a current increased level?

            3. In instances of a transfer of territory from one area to another, or in case of retirements (fire loss, sale to exempt public body, etc.) should there be a reduction in the maximum allowable regular property tax revenues of the taxing district?

            In addition, you have asked that we include an explanation in a step-by-step procedure of how the actual maximum dollar amount of a district's regular property tax revenue is to be determined, using as an example a district in a county where the assessor has increased the level of assessment from 20% to a rate of 25%.

            We answer questions 1 and 2 in the affirmative and question 3 in the manner set forth in the analysis.  The requested explanation is also contained herein.

                                                                     ANALYSIS

            Question 1:

            Section 2, chapter 174, Laws of 1965, Ex. Sess., reads as follows:

            "In addition to the other limitations provided by law, a taxing district's regular property tax revenue shall be limited so that the taxing district's total amount of regular property tax revenues from taxes levied in any year and payable in the following year shall not exceed the sum of the following:

            "(1) The total dollar amount of regular property tax revenues in that taxing district from taxes levied in the preceding year and payable in the  [[Orig. Op. Page 3]] current year including in the case of a school district the revenues derived by the state from any property tax for the support of common schools levied upon property located within such school district;

            "(2) An additional dollar amount calculated by multiplying the increase of assessed value in that taxing district resulting from the appraisal and valuation of property improved, constructed, or revalued, and resulting from the addition of property in areas annexed during the period from March 2 of the preceding year to March 1 of the current year by the property tax levy rate of that taxing district for taxes levied the preceding year.

            "(3) And an additional dollar amount, in the case of a county, representing the increased and additional costs to be expended by the county assessor in the year the taxes are payable to enable the county assessor of that county to carry out any program of appraisal and valuation of property within the county required by the Constitution or laws of the state.

            "Unless otherwise altered as authorized by section 5, the maximum millage rate shall be determined by dividing the total authorized dollar amount by the assessed valuation."

            The term "property tax levy rate," used in subsection (2), is susceptible of two meanings.  It could refer to the actual millage rate which was applied to the assessed value to obtain the dollar amount of taxes levied the preceding year, or it could mean the effective rate upon the property of the taxes thus levied (that percentage of full market value which equals the dollar amount of taxes levied the preceding year).

            This is the only instance in the entire act where this particular term is found, though the phrase "millage rate" is employed several times.  Because of this fact, some question as to the true meaning of the phrase "property tax levy rate" has arisen.

            However, in view of the purpose and intent of § 2, we conclude that the actual millage rate of the previous year,  [[Orig. Op. Page 4]] rather than the effective rate of taxation, was intended by the legislature to be used for the computation in question.  As will be pointed out in our answer to your second question, the base to which the "property tax levy rate" is to be applied for purposes of subsection (2) is the increase inassessed value, not full market value, resulting from new construction, etc., computed in accordance with the assessment level of the previous year.  To apply theeffective rate of taxation, rather than the actual millage rate, to this assessed value would be highly incongruous in view of the clear intent of § 2 that the maximum authorized dollar amount under subsections (1) and (2) shall be the same as tax revenues of the preceding year, plus an amount attributable to normal growth in valuation, computed on the same basis as the taxes for that prior year.  Such a computation would, of course, require use of not only the same assessment level but also the same millage rate as that of the previous year.

            Accordingly, we conclude that the property tax levy rate referred to in § 2 (2),supra, should be construed to mean the actual millage rate which was applied by the taxing district for taxes levied the preceding year.

            Question 2:

            Section 2 (2) requires the additional dollar amount authorized therein to be computed by using as one factor any increase in assessed value in the taxing district resulting from the appraisal and valuation of property which has been improved, constructed, revalued, or added to the taxing district through annexation between March 2 of the preceding year and March 1 of the current year.  The term "revalued" is defined by § 1 (3) of the act as follows:

            "The term 'revalue' or 'revalued' shall mean such changes as are made on the county assessor's valuation of the property because of changes pertaining to the particular property including, but not limited to, construction improvements, other changes in value, and similar changes made as to the property or properties in the immediate area;" (Emphasis supplied.)

            Question 2 arises where the assessor has increased the level of assessment for the current year over that of the preceding year.  By "level of assessment" is meant that percentage of  [[Orig. Op. Page 5]] the full true and fair value of property which is used by an assessor to arrive at assessed value.  See, AGO 65-66 No. 31.

            By the express terms of § 2 (2), "the increase of assessed value" can only mean that increase over the preceding year due solely to a rise in the market value of property because of the improvement, construction, or other change in that value, or resulting from annexations which naturally increase a taxing district's total property valuation over the preceding year.  Nowhere in the act is any reference made to changes in the level of assessment.

            Thus, we conclude that in calculating the "increase of assessed value" in a taxing district from the changes in market value or annexations under § 2 (2), the level of assessment of the preceding year must be used in order to reflect the only type of increase contemplated by the statute.

            Question 3:

            It is the intent of the statute to restrict (without a vote of the people)1/ the total dollar amount of regular property tax revenue a taxing district may receive in any one year to that amount which does not exceed the sum of the factors set forth in subsections (1) and (2) of § 2, with subsection (3) permitting counties to have an additional dollar amount for increased expenses of the assessor.

            Except for subsection (3) the section prevents an increase in the level of assessment from causing a rise in taxes in excess of the amount received by the district from the levy for the preceding year plus an amount representing normal growth in market value.  See, AGO 65-66 No. 31 and AGO 65-66 No. 45.

            In no event, however, need the regular property tax revenue of a district be less than that obtained for the preceding year.  Additional revenue is authorized under subsection (2) if there has been an increase in the assessed value due to causes other than a change in the level of assessment, and then only as to that portion of the increase attributable to improvements, construction, revaluation, or annexations.  The word "increase" denotes net growth, and there can only be an "increase of assessed value in that taxing district" over the preceding year to the extent of the difference between growth of valuation for the current year and losses of valuation for that year.

             [[Orig. Op. Page 6]]

            Against this background, we specifically answer your third question as follows: When property passes into exempt ownership, has been destroyed, annexed to an adjoining district, or loses value for any reason, such losses must be subtracted from any growth in assessed valuation (attributable to improvements, construction, revaluations, or annexations) before the increase (if any) to be used in computing the additional dollar amount for purposes of subsection (2) can be known.

            However, in the event that such losses exceed such growth the result will simply be that the district in question will have no subsection (2) additional dollar amount factor for this particular year; the dollar amount factors described in the other subsections of § 2, chapter 174, Laws of 1965, Ex. Sess., would be unaffected by such a circumstance.

            In addition to the foregoing questions, you have asked that we include in our discussion a step-by-step example of how the actual maximum authorized dollar amount is to be computed under § 2, chapter 174, Laws of 1965, Ex. Sess., supra.

            For purposes of illustration we will assume that a certain taxing district contained, for the assessment year 1965, $10,000,000.00 worth of property at market value.  For 1965, an assessment level of 20% was used making a total assessed valuation for that year of $2,000,000.00.  The millage rate applied was 14 mills which resulted in a tax levy for the district in the amount of $28,000.00.  For the current assessment year 1966, the assessment level has been raised to 25% and the district has added through improvements, construction, revaluation and annexations (see question 2, supra) $250,000.00 in fair market value of property.

            To compute the maximum amount of regular property tax revenue which the district may raise as taxes payable in 1967, we would, using the above figures, proceed as provided in § 2:

             [[Orig. Op. Page 7]]

            Subsection (1).  The total dollar amount of taxes levied in 1965 (excluding certain levies, see § 1 (1))!tr= $28,000.00

            Subsection (2).  The $50,000.00 increase of assessed value in 1966 over 1965 (computed at the 1965 20% level on the $250,000.00 market value) multiplied by the 14 mills levied in 1965!tr=     700.00

            Totalmaximum authorized dollar amount of taxes which can be raised in 1966!tr      

payable in 19672/ !tr= $28,700.00

            The last paragraph of § 2 provides that the maximum millage rate allowable for the current year shall be determined by dividing the total authorized dollar amount by the assessed valuation of the current year.  Using the figures of the illustration, $28,700.00 would be divided by $2,562,500.00 (25%, the 1966 level of assessment, times the 1966 market value of $10,250.000.00).  The maximum millage rate which could be used by the district for the 1966 assessment (for taxes payable in 1967), without a vote of the people as provided in § 5 of the act, would therefore be 11.2 mills.