Property Tax Revaluation

SUMMARY

State law requires that property be taxed at its market value. In order to accomplish this, property must be revalued periodically in order to account for differences in market trends, e. g. , houses in some neighborhoods appreciating more quickly than houses in other neighborhoods.

With limited exceptions, Connecticut does not classify property for assessment purposes, i. e. , the same assessment rules apply to residential, commercial, and other types of property.

Revaluations must be conducted every five years. At least one revaluation every 10 years must conducted by physical inspection; the other may be conducted by statistical means. Individual properties are assessed based comparable sales, the amount of income a property generates, or the cost of replacing the building.

In many towns, the value of residential property has risen more quickly than the value of commercial property, with a consequent shift in the tax burden.

RATIONALE FOR REVALUATION

A general principal of Connecticut’s property tax law is that property should be taxed based on its market value. Specifically, § 12-62a requires assessors to assess all property at 70% of its “present true and actual value. ” In most cases, the trend in the market value of different properties within a town varies based on such market factors as location and condition. For example, home values in one part of town may increase more rapidly than values in another area because of changing qualities of neighborhood schools. Similarly, one part of town may become more attractive than others over time because jobs or shopping opportunities have located nearby. In order to reflect these differences, the law has required towns to periodically revalue property values. This law (CGS § 12-62) has been in effect since 1930, although the frequency of revaluation has changed over time. Under very limited circumstances, a town can skip a revaluation if the trend in market values is very similar across different types of property.

CLASSIFICATION

With limited exceptions, Connecticut does not use a classification approach to property taxation. Instead, the same basic rules apply to the assessment of residential, commercial, industrial, and other types of property. The major exception to the uniform assessment rules in Connecticut is the treatment of farm, forest, and open space land under the 490 program. Such property must be valued on the basis of its current use without regard to more intensive uses in the neighborhood (CGS § 12-63). Thus, assessment of land in the 490 program does not reflect its development potential, while the assessment of other land does.

In addition, Connecticut law allows Hartford to implement a program of residential tax relief that has some characteristics of a tax classification system. Hartford’s Tax Cap program gives owner-occupants of one- to three-family homes a tax credit equal to the amount by which their property tax exceeds 1. 5% of the property’s fair market value. Providing this credit requires the city to impose a 15% surcharge on all other property owners, thus in effect creating two property classes with different tax rates. OLR memo 2003-R-0875 provides additional information about this program and classification in general.

In contrast, many other states have classification systems that treat different types of property differently, e. g. , different assessment ratios for different types of property. OLR memo 2003-R-0926 provides additional information about classification.

CONDUCT OF REVALUATIONS

Starting in 2004, municipalities must revalue every five years. At least one revaluation in each 10 years must be based on a physical inspection, while the other can use statistical means. If a municipality’s last revaluation was done by statistical means, the next revaluation must be physical. (CGS § 12-62, as amended by PA 04-2, May 11 Special Session).

In a physical revaluation, the assessor or revaluation company collects information about individual properties from the previous revaluations, building permits, and other sources. For each property, the assessor or company inspects the property to determine its physical condition and to verify information about it.

The other revaluation conducted in the 10-year cycle can be conducted by statistical means. In this approach, market information based on real estate sales is used to estimate the value of individual properties. For example, sales data may indicate that three-bedroom, two-bathroom houses with a specified set of amenities in a given neighborhood appreciated by 50% over the 10-year period since the last physical revaluation. This factor would be used to adjust the old valuation data, with the value also adjusted for any modifications made to the property. In practice, assessors and revaluation companies sometimes use physical inspections to augment the statistical approach.

Office of Policy and Mangement regulations (Conn. Agencies Regs. § 12-62i-1 et seq. ) contain standards used to determine whether a statistical or physical revaluation meets the statutory requirement that assessments reflect market values. Among other things, the regulations require that the median ratio of assessments to sales prices for all property classes be within 10% of the 70% ratio required by CGS § 12-62a. There are specific requirements regarding the relationship between assessments and sales prices for residential and commercial property and vacant land.

ASSESSMENT METHODS

Assessors generally use one of three approaches to estimate an individual property's fair market value. They determine the value of residential, vacant, and farm properties by comparing them to comparable properties that were recently sold (i. e. , market approach). They assess the value of land and buildings separately, beginning by dividing the town into geographic areas reflecting differences in these areas that could affect property values. These include market demand, zoning regulations and other land use controls that determine how people can use the land, and the likelihood they or others will use the land for other purposes (e. g. , the likelihood that the area will be rezoned from single-family residential to multifamily residential). This step helps assessors identify comparable parcels and structures.

Assessors then divide the properties in each area into classes based on common traits, such as residential lots with sewers or raised ranches with two-car garages. They then identify parcels or structures that best represent the value of the properties in each class. Ideally, these are properties that were recently sold. Otherwise, the assessors will compare the standard property against similar ones that were recently sold, adjusting the value of the standard property to reflect differences between it and the recently sold ones.

The assessors determine the value of leased property, such as apartment buildings and shops in a mall, based on the amount of income they generate (i. e. , income approach). Finally, they determine the value of utilities and other special purpose properties by calculating the cost, using current labor and material prices, to replace the property with a similar one and then determining how much the property has depreciated since it was built (i. e. , cost approach). In the case of large apartment buildings, assessors must use the cost approach or one of two versions of the income approach. (CGS § 12-63b. )

SHIFT IN TAX BURDEN

In many towns, residential property values have appreciated more quickly than the values of other types of property. In some towns, the value of commercial and industrial property has been flat or declining, reflecting the obsolescence of older buildings and increasing vacancy rates. As a result, the residential share of the grand list and the share of the tax burden borne by residential property owners has also increased. Partly to address this phenomenon, PA 04-2, May 11 Special Session, allows municipalities that, under prior law, had to revalue real property in the 2003, 2004, or 2005 assessment year to delay revaluation to the 2006 assessment year, if the municipality’s legislative body approves the delay. The expectation is that the delay may allow the values of nonresidential property to “catch up” to the values of residential property, reducing the shift in tax burden.

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October 18, 2004		2004-R-0789
PROPERTY TAX REVALUATION

By: Kevin E. McCarthy, Principal Analyst