Property Tax Relief Through a Proposed One-Percent Sales Tax in Douglas County and effects of a Countrywide Sales Tax on Taxable Sales

Abstract

This report investigates two issues related to the adoption of a propose one-percent countywide sales tax: a local property tax relief measure through additional sales tax proceeds (Section I-IV) and the review of literature on the effect of sales tax rate increases on taxable sales (Section V).

In order to estimate the reductions to property taxpayers which the proceeds from a countywide sales tax could generate, a forecast of sales tax revenues and property valuations is necessary to calculate the allocation of sales tax proceeds among local units of government and to determine the respective mill levy reductions. While a forecast of sales tax revenues has been straightforward (see IPPBR Report No. 170) , the projection of future property valuations is infeasible due to the structural change in the property tax system in 1989. Generally, a profound structural change prohibits the drawing of conclusions from historical data, no matter which forecasting method is employed. To provide some idea of future growth levels, a forecast was prepared based on time series regression of historical data for property valuations before 1989. However, the forecast has not been used for further calculations.

Although property tax hearings are still under way in the community, which will lead to a drop in total property valuation, the initial $327 million in assessed valuation in Douglas County for 1989 has been used as a basis for calculation. The lack of projections for future property valuations required the use of an estimator for 1990. This was derived from the valuation for 1989 plus the assessed value for new construction. The allocation of sales tax proceeds and the calculation of reduced mill levy rates for 1991 have been based on this estimator.