Bolling: How Do Local Real Estate Taxes Get Increased Following a Reassessment?

Several of my friends in Hanover County have recently reached out to me trying to better understand the process by which the local Board of Supervisors sets a final real estate tax rate following a reassessment. I have discussed this process in the past, but will try and do so again here.

Under current Virginia law, a real estate reassessment cannot result in an increase in net revenue for any local government that is more than 1% of the prior years revenue collections from the real estate tax. If it does, the localities existing real estate tax rate must be “rolled back” to offset the impact of the reassessment. This is called the “lowered tax rate” or the “equalized tax rate.”

For example, if a locality has a real estate tax rate of .81/100 of assessed value (as is the case in Hanover County), and a real estate reassessment results in a 10% increase in local revenues from the real estate tax, the localities tax rate must be “rolled back” by roughly 10% to offset the impact of the reassessment. In this example, the localities new tax rate, adjusted by law, would be .73/100 of assessed value.

If the locality wishes to set the “final tax rate” at any number higher than .73/100 they must hold a public hearing and vote to do so. If they vote to do so, they would, in effect, be increasing the tax rate above the required “rolled back” rate. Thats a tax increase, plain and simple. By law, it is actually referred to as the “effective tax rate increase.”

Following a reassessment, many localities will vote to keep their “final tax rate” at the same level that it existed at  prior to the reassessment. In the example given above, they would vote to keep the “final tax rate” at .81/100.

Hanover County has done this for years. Local officials then argue that they did not increase the tax rate … that it is still .81/100 of assessed value. However, this argument ignores the fact that the required “rolled back rate” was .73/100. The reality is that the Board of Supervisors has voted to raise your real estate taxes every time there has been a reassessment.

Now in fairness, many localities rely heavily on the real estate tax to fund critical local programs like public education and public safety. Local supervisors would argue that unless they allow increases in real estate property values to drive revenue collecitons they would not have the money they need to fund these critical services. This may well be a valid argument, but the discussion should be undertaken with openness, honesty and transparency.

By the way, here’s the controlling state law that governs this process – Section 58.1-3321 of the Code of Virginia. Read it for yourself and be informed: § 58.1-3321. Effect on rate when assessment results in tax increase; public hearings; referendum.