North Dakota may abolish property tax

This post comes from Kay Bell at partner site Bankrate.

Nobody likes paying taxes, even when we acknowledge that we must do so to get services. But which tax do we hate the most?

It's a close race, but last year property taxes edged out income taxes as the most hated tax. Yes, even though this levy can offer some tax benefits to homeowners who are allowed to deduct it on their federal income tax returns, annual real-estate tax bills really set us off.

And apparently, North Dakota residents hate property taxes more than other Americans. We'll find out for sure next summer when North Dakota voters get to decide whether to abolish property taxes.

In June 2012 a constitutional amendment to eliminate the tax will be on the ballot. If approved, it would make North Dakota the only state in the nation to abolish real-estate taxes.

Like many ballot initiatives, this one will go before the voters thanks to a grass-roots effort. A citizens' group critical of increased government spending pushed for the measure after noting that North Dakota's general fund spending has doubled from $2 billion to $4 billion since 2005.

While elimination of property taxes is dramatic, there have been some precursors nationwide.

Ballot initiatives have allowed many jurisdictions to limit the rate of growth of real-estate taxes. See California's landmark Proposition 13 (.pdf file), the granddaddy of real-estate tax rate restrictions.

Other taxing districts have forgone collection of property taxes in years when there was enough other revenue to cover government operating costs, but the collection resumed later.

Added income is the catalyst behind the North Dakota effort to kill property taxes. The oil industry is booming in the state, especially the northwestern section, providing local governments more revenue without raising tax rates. Post continues after video.

My view

As a native of the West Texas oil patch, trust me. The boom won't last. But the services paid for by property taxes, most notably public schools, will continue to need money.

If the property tax system is axed, the proposed law would force the state legislature to come up $740 million for North Dakota's school districts, counties and cities. The fight over apportioning that money would be brutal.

And let's not forget about America's real pastime, lawsuits. Opponents and proponents alike of ending property taxes will clog the courts with requests for rulings on the state's obligation to provide revenue to replace property taxes.

Supporters of the North Dakota initiative say the property tax ban is necessary to keep older homeowners on fixed incomes from being priced out of their homes by rising tax bills.

Point taken. But deal specifically with that group of adversely affected taxpayers. Enact a new property tax relief program or expand existing ones specific for lower-income senior citizens.

Don't create a whole other set of impacted taxpayers statewide who see their schools demolished because the funding mechanism was eliminated.

But don't nuke a system that lets each taxing district be in charge of how money is spent for local needs. Once it's gone, I'm willing to bet that another ballot measure effort will soon begin to put the property tax system back in place.

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