Riley’s tax package How will it affect Shelby County property owners

Published 12:00 am Tuesday, September 2, 2003

Editor’s Note: This is the fifth in a series leading up to the Sept. 9 statewide vote.

Shelby County produces about $83.3 million in property taxes each year.

Currently, 6.5 mills of that amount go to the state.

Five mills go to the county’s general fund, and 2.5 mills go to the county’s road and bridge fund.

During 2002, that amounted to $8.3 million for the general fund and $4.1 million for the road and bridge fund.

Thirty mills of that property tax revenue go to the schools, Shelby County, Hoover and Vestavia.

Gov. Bob Riley’s tax and accountability package would change that, however.

Some of the changes will have a significant impact on Shelby County, according to county finance manager Butch Burbage.

The amendment changes the assessed amount of property from 10 percent to 100 percent on the state portion.

Currently, Burbage said, property is assessed at only 10 percent of its value. For example, if a person has a home valued at $100,000, millage is assessed on only $10,000, or 10 percent of the value.

If Amendment 1 is approved by voters on Sept. 9, millage will be assessed on the total value, or $100,000.

Burbage said another portion of the amendment that would have a direct impact on Shelby County residents is the change in the homestead exemption.

The plan would increase the homestead exemption from $40,000 to $50,000.

According to the Legislative Fiscal Office, changes in Alabama property taxes would produce $13 million during fiscal year 2004; $121.7 million during 2005; $216 million during 2006; $321 million during 2007; and $403.6 million during 2008 and afterward.

Gov. Riley’s package also decreases the millage rate for the state of Alabama from 6.5 to 3.5 mills.

Another major change that comes with the package deals with current use.

&uot;Current use&uot; property was created by the Alabama Legislature to keep large landowners from being penalized for owning larger amounts of acreage.

With passage of Gov. Riley’s package, only 2,000 acres can be claimed and assessed as &uot;current use.&uot;

The state’s homestead exemption would apply for up to 200 acres. Current law allows an exemption for only up to 160 acres.

Property designated as &uot;current use&uot; would be taxed with maximum current use values per acre rising by 22 percent.

Maximum current use values would increase to $650 per acre for farmland, $715 per acre for timberland.

Now, farm acres are valued at $532, an amount that hasn’t changed since the 1980s. Timber acres are valued at $585.

Should the governor’s package be approved, the estimated increase felt by Shelby County through changes in current use would be $14,353 during fiscal year 2004 with an increase each year, Burbage said. In 2010, current use would bring $18,823 to the county; in 2020, $22,945.

Current use changes would bring an additional $23,455 to Shelby County schools during FY 2004. That revenue amount would continue to increase each year as well.

The package also creates a new farmstead exemption which would apply to more than 200 acres of land that qualify as agricultural or forest property or $150,000 in assessed value of buildings or structures used in agricultural or forest activities, other than residences. The farmstead exemption would be used as an alternative to the homestead exemption and would not be allowed to be claimed at the same time.

According to the governor’s Alabama Partnership for Progress, landowners pay $1.25 per acre on farm and timberland.

The governor’s plan would increase that amount to $2.50 per acre.

Other property tax changes include:

Business property will be assessed at 22 percent of its fair market value. It is currently assessed at 20 percent.

The increase to 22 percent would bring a substantial increase in revenue to the county &045; $588,203 during fiscal year 2004 with an increase each year. During fiscal year 2020, the change would bring an increase of $807,477.

The 22 percent change would bring a $2.7 million increase in additional funding to the schools during 2004. During 2020, the change would bring an increase of $3.7 million.

&160;Single-family homes under construction, including the value of the lot, is included in the definition of residential property. As a result, with passage of Amendment 1, those homes under construction will be assessed at 10 percent of their value, rather than the current 20 percent, for local property taxes.

This change would take revenue from the county to the tune of some $64,000 during fiscal year 2004. As the county continues to grow, that loss would continue to rise.

Mortgage and deed fees

Gov. Riley’s plan would raise more than $44.8 million each year in deed and mortgage recording taxes.

According to the legislation, the deed recording tax would increase from 50 cents to $1 for instruments conveying property of $500 or less in value.

If approved, the mortgage recording tax would increase the mortgage recording tax from 15 cents to 30 cents for each $100 of debt.

Bank taxes

Financial institutions including banks are mentioned specifically in the governor’s plan.

Should the plan be approved by voters on Sept. 9, the financial institution excise tax would be reduced from 6.5 to 6 percent.

The legislation also disallows the federal income tax deduction for banks and eliminates the credits that are routinely taken on the excise tax.

At the polls

When voters go to the polls Sept. 9, the amendment they will be faced with will read (according to the Alabama Secretary of State’s office): &uot;Proposing an amendment to the Constitution of Alabama of 1901, establishing the Alabama Excellence Initiative Fund which may be used to fund programs including, but not limited to, the furtherance of excellence in public education, college scholarships, healthcare benefits for senior citizens and job training programs to attract new high-paying jobs and otherwise provide for distributing state tax revenues; to adjust income and property taxes; to establish the General Fund Rainy Day Account; to provide for the replenishment of the General Fund Rainy Day Account and the Education Trust Fund Rainy Day Account.&uot;

‘Yes’ will mean a voter chooses to accept the reforms put forth by the governor; a ‘no’ vote will mean a voter chooses not to accept the reforms