Lawmakers considering killing property-tax break

Thursday, March 21, 2002 | 9:47 a.m.

CARSON CITY -- Lawmakers on Wednesday discussed a proposal to eliminate a 20-year-old tax break that saves owners of older homes hundreds and in some cases thousands of dollars each year.

The issue was discussed by an advisory committee to the Legislative Committee for Local Government Taxes and Finance. The full committee was to review the idea today.

The tax break was set up in 1981 as a depreciation on the value of homes and businesses of 1.5 percent a year for 50 years. Property taxes are based on the value of homes and businesses.

It was part of an overhaul of the state tax system that shifted the burden from property to sales and other taxes.

Eliminating the depreciation could mean millions in added revenue for local governments, the advisory committee was told. But one committee member warned that it wouldn't be a windfall, and others noted it would bring a political battle.

Guy Hobbs, chairman of the governor's Task Force on Taxes and the advisory committee, told the panel that eliminating the depreciation was only "a small fraction of the solution" to finding a stable tax base for Nevada.

The task force has been looking at a tax on gross receipts other than mining, gaming and insurance; a net profits tax; startup of a lottery; increases in the property tax; and indexing taxes to allow them to rise with inflation, said Hobbs, who added he had not yet endorsed any of those solutions.

The task force meets again April 17.

Nevada is the only state in the nation that allows homes and businesses to be depreciated, Terri Thomas, finance director for the city of Sparks, said.

A report by the state Department of Taxation showed the statewide average property tax rate in Nevada was $3.06 per $100 of assessed valuation. A study by the Minnesota Taxpayers Association said Nevada ranked 35th lowest in the nation in property tax rates.

On a $100,000 home, the depreciation can save the owner of a 10-year-old home about $200 on an annual tax bill, William Keane, principal deputy legislative counsel who wrote the legal opinion, said.

Getting rid of the depreciation was first proposed in the 2001 Legislature by Sparks, but city officials were told their bill was unconstitutional.

A legal opinion from the Legislative Counsel Bureau found a revised plan would be "constitutionally defensible," to either abolish the depreciation in 2003 or phase it out over time.

Assemblyman Bernie Anderson, D-Sparks, who asked for the opinion, said he envisioned that the depreciation would remain in effect until a house or business was sold. Then the property would return to its full value for tax purposes.

It's not only a problem in Sparks, Anderson said, but in many cities that are growing quickly and still have a lot of older neighborhoods. The local governments don't have the revenue to take care of the added required services.

Marvin Leavitt, a committee member and former finance director for Las Vegas, predicted the proposal would not provide a windfall to local governments, based on estimates that tax rates would have to come down only 5 percent to offset the loss of the benefit.

Advisory committee members admitted that scrapping the depreciation schedule would spark a major political battle.

Carole Villardo, executive director of the Nevada Taxpayers Association, told the advisory committee that it should instead consider reducing the depreciation.

But Leavitt said it would be complicated to simply change the depreciation schedule, he said, since each county has a different tax rate, and make sure the new formula is fair. In addition, each home would have to be revalued.