Alabama residents in some counties pay among the highest sales taxes in the country.
But property tax collections per capita, are among the lowest in the nation with local governments relying heavily on other revenue sources for their operations. That is unlike other states where property taxes heavily finance schools, city and county governments.
Given that reality, is there a need for a cap on increasing Alabama’s property taxes?
Alabama lawmakers say it’s needed. The Senate voted 30-3 on Wednesday on legislation that caps increases in assessed values on residential and commercial property to 7% of the assessed value from the prior year.
The legislation removed the creation of an Alabama Ad Valorem Advisory Committee that was included in a House version approved 97-1 last month. The House, later on Wednesday, concurred with the Senate’s changes by a 98-0 vote. The legislation now goes to Alabama Gov. Kay Ivey for final consideration.
The legislation maintains a three-year sunset date on the tax cap that runs until Oct. 1, 2027. The tax cap bill, if adopted, goes into effect this October.
“This is a cap, not a tax cut,” said Sen. David Sessions, R-Mobile, the Senate sponsor of HB73. “Recently in the last few years, inflation has been hitting real hard. Housing has been at a deficit, and property taxes are increasing substantially. This puts a stability increase on the property at 7 percent a year in which it can go up and creates a stable platform on tax.”
Valuations in fast-growing counties like Baldwin County have experienced an increase from 15-25%. In the surging city of Huntsville, valuations were up over 19% from 2021 to 2022.
The cap in the original bill was set at 3% for residential properties and 5% for commercial. It changed to 7% for both property classifications while the legislation was debated on the Alabama House floor.
The House version, also adopted in the Senate, includes exemptions for new construction to existing property and property that is located in a tax-increment finance (TIF) district.
Sessions initially sought to have the sunset date extended to five years, not three. But he rescinded that consideration following criticism about capping property taxes by Sen. Bobby Singleton, D-Greensboro.
“Our property taxes are the lowest in the nation,” Singleton said. “Even if you doubled it right now, it would be the lowest in the nation. I don’t know what people are crying about.”
He added, “Rich folks don’t want to pay the taxes. This is what it’s all about. It’s about protecting those rich folks who want to continue to control everything in this state and pay no taxes. If you double the taxes, it won’t hurt a family you want to protect.”
Sessions responded, “this is not just for rich people. It’s for all Alabamians.”
Efforts in the House to protect the legislation from impacting cities, counties, and schools was defeated, and the issue did not return in the Senate. A fiscal note placed on the House version showed the legislation having a $1.13 million impact on state and local governments.
Alabama School Superintendent Eric Mackey said he felt the compromises in the bill were reasonable and fair, and protected “the vast majority of our school systems from artificially low property taxes.”
“The 7% percent cap means that property owners will no longer see drastic swings in property taxes, and schools, counties, and cities can plan adequately for their budgets,” Mackey said in a statement to AL.com. “In some cases, in the past, taxes rose only a minimal amount in one year followed by double-digit increases in the next. That caused a backlash that likely led to property tax renewals being voted down out of frustration.”
Greg Cochran, executive director of the Alabama League of Municipalities, said his agency supports the changes from the original legislation.
“We appreciate the Alabama Legislature for hearing our concerns with HB73 by increasing the property tax cap from 3% to 7% on future property value growth, as well as adding an exemption on TIF districts and including a three-year sunset provision,” Cochran said. “This will better allow our municipalities to fund essential services in their communities.”
Sonny Brasfield, executive director of the Association of County Commissions of Alabama, said HB73 “provides a safeguard for taxpayers without significantly endangering the important services – public safety, law enforcement, education, health care and transportation – that are essential to our state’s growth.”
He said, “The bill contains an important three-year sunset period that is vital to our continued growth as a state. During this time, it is important to identify improvements to the system of property assessment.”
Brasfield said that over the past two years, “many factors” contributed to an unexpected spike in some property tax assessments around the state. He said the increases led to the passage of the legislation.
“We are committed to reforms that can ensure that all properties are assessed equally and fairly, even in times of unprecedented real estate values,” Brasfield said.
This story was updated at 1:57 p.m. on May 8, 2024, to include comments from Sonny Brasfield. It was also updated at 3:07 p.m. to update information on the House’s vote to concur on the Senate’s changes. It was also approved at 4:35 p.m. to include a statement from Eric Mackey, the state school superintendent.