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In search of equalization.

In Search Of Equalization

Personal Property Worth Millions Draws Scrutiny In a Balancing Act Of Taxes

Amendment 59, approved by the voters in November 1978, focused statewide attention on real property taxes and the inequities of appraisals on land and buildings vs. personal property.

Things were so skewed on the real property side of valuations that a statewide reappraisal was ordered.

That's understandable when a car dealer is screaming that his $2-million inventory of street machines (personal property) is carried on the county tax rolls at a higher value than a $2-million office building (real property) down the road.

To achieve equalization, personal property taxes were frozen. Meanwhile, real property assessments increased with a corresponding rollback in millage rates.

Once equalization between personal and real property occurs, the county, city or school district is released from the constraints of Amendment 59.

After more than a decade of tax reform chaos, the state's 1,385 taxing units (counties, cities and school districts) are more than halfway there.

As of last year, these taxing units had achieved equalization:

* 45 of 75 counties (60 percent).

* 170 of 328 school districts (52 percent).

* 308 of 491 cities (63 percent).

As part of the search for equalization, personal property taxes have come under close scrutiny. As a result, assessors seem to be doing a better job.

Statewide assessments on personal property grew 13.69 percent from 1989 to 1990. That translated into nearly $16.54 million of revenue growth for the taxing units that have reached equalization.

Pulaski County accounted for more than $3 million of the 1990 total. Much of the money is coming from the business side of personal property.

Taxing units that haven't achieved equalization don't realize a gain. But taxpayers who already are paying their fair share on personal property will see their burden drop in direct proportion to the new money coming in.

That, of course, leaves those who are forced to pay more personal property taxes grumbling.

But nobody said equalization would make everyone happy.

Much of the gain in personal property assessment can be attributed to better and more aggressive reporting methods.

But Omega Tube & Conduit Corp. of Little Rock believes Pulaski County has overstepped its authority in assessing one form of personal property -- raw materials.

Manufacturers and assessors statewide are awaiting the outcome of a lawsuit filed by the company against the county (see related story on page 23.)

"By and large, most business people out there want to pay their fair share of taxes, but not any more than that," says Larry Crane, director of the state Assessment Coordination Division. "The only industries hollering are those involved in a situation like Omega's."

Uniformity And Standardization

Prior to 1989, there wasn't much uniformity in the way Arkansas assessors gathered information on personal property for businesses. That's when the Assessment Coordination Division first experimented with standardized forms.

The division, an arm of the Public Service Commission, can't tell county assessors how to do their jobs. But it can mandate what reporting forms assessors use.

The improvements revolved around a simple one-two-three process of discovering personal property, listing it and assessing it.

"No one had been doing the first two," Crane says. "They had been accepting renditions."

Instead of relying on companies to do a thorough job of reporting, the new forms were more detailed. They broke out personal property in terms of raw materials, work in progress, finished goods, office equipment and machinery.

The ACD developed separate assessment forms for businesses and manufacturers. For the 1989 assessment year, 52 counties used one or both forms. The other 23 counties used neither.

Twenty-six counties segregated commercial and manufacturing property from other personal property for reporting purposes.

Of those 26 counties, seven counties used one of the new forms. The average increase in the personal property assessment base was 13.5 percent.

Twelve counties used both forms and had an average 21.6 percent increase.

The counties that didn't use either form averaged a 7.92 percent increase.

"That showed us that significant improvements could be had simply by using a form," Crane says.

For the 1990 assessment year, the commercial and manufacturers' forms were merged. Counties were mandated to use this improved standardized form.

Commercial personal property assessment increased an average of 24.5 percent statewide.

Historical Background

A string of lawsuits challenging the fairness of property tax assessments was the driving force behind the tax-reform movement.

"Conventional wisdom is that nobody can get personal property taxes equalized," Crane says. "We had a $300,000-a-year reason to go out and do it right -- the railroads."

Railroad companies that operate in Arkansas, represented by the Little Rock law firm Friday, Eldredge and Clark, filed a successful series of lawsuits and laid bare inequities in the personal property tax system.

The litigation forced assessors to determine personal property taxes on railroads based on 18 percent of the assessed value instead of the normal 20 percent.

The settlement added up to $300,000 in lost property tax revenues. In 1990, the railroads settled for a 19 percent rate during the next two years instead of the 18 percent rate.

"I think the railroads will have enough confidence in what we're doing to let us assess them at 20 percent like any other business," Crane says.

New assessment forms aren't the only reason more personal property is winding up on county tax rolls. Education and experience are factoring into the mix as well.

"We have more, better-qualified assessors out there," Crane says. "The difference is daylight to dark from 10 years ago, and some of these are the same people.

"We have one assessor who swears he can drive by a house at 30 miles an hour and assess it. I'm serious. And his ratios [samples that measure accuracy] back him up. He knows his territory that well."

People still might resent intrusions by the tax man, but once equalization has covered the state, the question of fairness should be moot.

"People have a vote on taxes and how they are used," Crane says. "All we want is to make sure the tax bases reflect reality so they can make a judgment themselves."
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:taxing personal property
Author:Waldon, George
Publication:Arkansas Business
Date:Jun 3, 1991
Previous Article:Breakfast at Bard's.
Next Article:Are raw materials getting a raw deal?

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