MEDIAN REAL ESTATE TAX RATE FOR VIRGINIA LOCALITIES DROPPED SLIGHTLY THIS YEAR CHARLOTTESVILLE, Va., Dec. 21 -- Median real estate tax rates for Virginia cities and counties dropped slightly in 1996, according to a study by the University of Virginia's Cooper Center for Public Service. The 328-page "1996 Tax Rates in Virginia's Cities, Counties and Selected Towns," by economist John L. Knapp contains information on 14 major tax categories and shows tax rates for the state's 95 counties and 40 cities, plus 167 towns. Virginia's local tax arrangements, likely to be debated in the 1997 General Assembly, stem from no clear public policy plan, Knapp noted. Real estate and personal property taxes, the only two major local taxes with no state restrictions on rates, now account for 58 percent of city tax revenues and 72 percent of county tax revenues, Knapp said. The median tax rate on real property was $1.11 per $100 of assessed value for cities and 66 cents for counties in 1996, down from $1.12 for cities and 67 cents for counties in 1995. Real estate tax rates rose in 4 cities and 23 counties. They stayed the same in the majority of cities (30) and counties (64). Rates were reduced in 6 cities and 8 counties. The 1996 real estate tax rates ranged from a high of $1.45 in Richmond City to a low of 35 cents in Mecklenburg County. The next highest rates were $1.44 in the city of Manassas Park and $1.43 in Petersburg. The second and third lowest rates were 38 cents in Halifax County and 46 cents in Carroll County. "Such comparisons are rough because the tax rates apply to assessed values that may not keep pace with market values," Knapp cautioned. He also noted that the quoted county rates do not include rates for incorporated towns, which average about 30 percent of county rates. The median personal property tax on motor vehicles, adjusted to reflect variations in local assessment practices, rose for cities and dropped for counties in 1996. The median adjusted rate for cities was $2.74 per $100 in 1996, compared to $2.68 in 1995. The median for counties was $2.32 per $100, compared to $2.37 the previous year. Study of Virginia local government tax structures provides a very interesting perspective on state and local public policies, Knapp said. "The tax structure is not the result of a rational plan but is the product of separate tax decisions made over many years." In regard to the taxation of property, nearly all Virginia local governments tax real estate at a lower effective rates than motor vehicles, Knapp noted. "This means that taxpayers who drive new or expensive cars pay a much higher property tax than those who invest the same amount of money in a better house." Many types of personal property (e.g., furniture and jewelry) are not taxed because of the difficulty of enforcing such a tax. All cities and the majority of counties impose consumer utility taxes. The rates are generally much higher than the combined state-local sales tax rate of 4.5 percent on many other types of consumption. However, most local utility taxes must conform to state guidelines that limit the tax to 20 percent of the first $15 of a monthly bill. When this limit was set in 1972, utilities were considered a luxury and monthly bills were not high. If the tax were reinvented today, it probably would be at a lower rate with no cap, Knapp said. Taxes on cellular phones are not as common as those on regular telephone service. When cellular phone taxes are used, they frequently differ from the taxes on regular phones even though the two types of phone service are the same. Nearly all cities and counties impose a machinery and tools tax on the equipment of manufacturers. However, in the absence of any state guidelines on how to value the property and how to depreciate it, there is tremendous variation in local tax provisions. It is virtually impossible to compare effective rates without making adjustments for variations in valuation and depreciation. A meals tax is imposed by all of the cities, about one-fourth of the counties, and a number of towns. Rates range from 2 to 5.5 percent and are in addition to the 4.5 percent state and local sales tax. Since 39 cents out of each food dollar is spent away from home, many taxpayers are subject to high tax rates on their food purchases. For localities with a large portion of restaurant sales to visitors and job-commuters, a significant share of the tax is exported to nonresidents. Although Virginia's state tobacco tax of 2.5 cents per pack is the lowest in the nation, a number of localities have imposed taxes that exceed the state rate. Half of the cities tax cigarettes and their rates range from 4 cents to 27 cents per pack of twenty cigarettes. Counties are generally prohibited by state statute from levying a cigarette tax. Arlington and Fairfax, the only counties with the tax, both use a 5 cent levy. Also, a number of towns tax cigarettes. Many efforts have been made to reduce the real property tax because of its role as the largest tax source. In addition to outright exemption, there are several sources of relief such as rehabilitation exemptions, pollution control exemptions, use-value assessment for agricultural, horticultural, forest, and open space, and property tax relief for the elderly and the handicapped. The "Tax Rates" report has enjoyed a wide audience during its 15 years of publication. It is purchased by state and local government officials, taxpayer groups, property owners, economic and community development specialists, real estate agents and developers, businesses, newcomers to Virginia, chambers of commerce, candidates for elected office, and others who want to know more about local taxation. The publication is available from the University of Virginia's Cooper Center for Public Service. The price is $28 plus tax and shipping. ### December 20, 1996 For additional information John Knapp may be reached at (804) 982-5604. Television reporters should call our TV News Office at (804) 924-7550.