Dakota Beacon

North Dakota taxpayers have been told repeatedly that they would see a 16-17% decrease in their combined income and property taxes in 2009.

This assertion is based on the fact that the state income tax rates were reduced and property taxes were to be reduced by a mandatory reduction in school property tax levies because of increased state funding. It is a given that property taxes did decrease since a large portion of that tax is in school taxes.

However, some of the anticipated saving was negated by an increase in property values. The increase in taxable valuation was required by some state mandate, we are told.

In Renville County, which would be representative of all counties in District 6, residential valuations were increased by approximately 10-12% on average. Total city evaluations in Renville increased 8.1% from 2008 to 2009. Farmland taxable valuations increased 5%.

In spite of the increased valuations, on average residential homeowners realized a 5% decrease and farm owners a 16% decrease in property taxes from the property tax relief legislation. The point to be made here is the way the state income tax reduction was calculated and the basis for expressing how delighted we would be.

In response to a query for an explanation on why a person would pay more income taxes in 2009 on a taxable income that was less than in 2008, even after a reduction in tax rates, a North Dakota Tax Department official explained it this way:  

In 2008 taxpayers were given a "tax credit" for a limited percentage of the property tax amount paid in 2007, thus lowering the final income tax liability. That was a part of the tax code in 2008, designed to provide some tax relief. As an example, if a person had a tax liability of $950 and a tax credit of $150 (based on 10% of property taxes paid in 2007), the tax liability in 2008 would have been $800.  In 2009, using the reduced rates, the income tax on similar, but lower, taxable income would be about $825-$25 higher than in 2008!

How can this be, especially after lower tax rates and being told there would be a 16-17% decrease in total income and property taxes in 2009?

Here is the explanation: The Tax Department is basing their projection of decrease in income taxes on what the tax liability was before the tax credit in 2008. Thus, in our example, they say that the tax liability in 2009 is $125 less than in 2008 ($950-$825). That calculates to a 13% decrease, using the Tax Department method. In reality it is not a decrease, but rather a 3% increase over what was actually paid in 2008.

City residential homeowners will find their combined property and income tax decreases to be around 2%, not the 16-17% as predicted. Farmers may fair better.

Since their tax credit in 2008 was lower in proportion to the total property tax owed, farm owners may realize a higher decrease percentage.

This Guest Editorial was written by Milton Hoyt of Mohall, ND.  Milton is the district secretary for the District 6 Republicans.  This article was originally published in the District 6 Republican Party Newsletter for April 2010.  That newsletter can be viewed here. 

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