Assessment Cap

The passage of Proposal A in March of 1994 drastically changed the property assessment and taxation system. Some of the changes are hard to understand. The confusion is compounded because many of the old laws that are still in effect may appear to be in conflict with the intent of Proposal A.

One such change is the "assessment cap." The language in Proposal A stated that starting in 1995, the taxable assessment can be increased only by the amount of the consumer price index (CPI) or 5% (whichever is less). However, other laws still require that the State Equalized Value (SEV) is to be 50% of the current market value. Since 1982, the SEV and the assessed value have been virtually the same. The capped value and the SEV could be totally different.

As a result, there will be three different "values" recorded for each property: the State Equalized Value; the capped value; and the taxable value. The property taxes will be calculated on the Taxable Value.

Starting in 1995, the Assessor will still be required to estimate the market value of every property and record 50% of that as the State Equalized Value. In addition, the Assessor will also be required to multiply individually each 1994 assessment by the CPI to calculate each individual Capped Value. The lessor of the two will be the 1995 taxable value for that property. Structural items not previously assessed, for example, new construction, are added to the new values.

With this new system, in most cases, a property's taxable value will not be increased more than the previous year's taxable value times the CPI. This "capping" process will continue annually until the ownership is transferred.

When a transfer of ownership occurs, the next taxable value will be based on the State Equalized Value that had been calculated annually. The new legislation states that the actual sales price must not be the sole basis of the new SEV for that property.

To Summarize

State Equalized Value (SEV) equals half of the appraised market value.
Capped Value equals last year's taxable value increased by the amount of the Consumer Price Index (with a maximum of 5%) plus construction charges.
Taxable Value equals the lesser of the State Equalized and Capped Values. The Taxable Value will be used for the calculation of property taxes.

Example Number 1

A home had a market value of $80,000. The SEV was $40,000. Sales of comparable homes in the neighborhood show that the market value has increased to $84,000. The annual CPI is 1.026.

1995 SEV is $42,000 (half the appraised value)
1995 Capped Value is $41,040; (40,000 * 1.026)
1995 Taxable Value is $41,040 (lesser of Capped Value and SEV)

Example Number 2

A home had a market value of $80,000. The SEV was $40,000. Sales of comparable homes in the neighborhood show that the market value has decreased to $78,000. The CPI is 1.026.

1995 SEV is $47,000 (half the appraised value)
1995 Capped Value is $46,040; (40,000 * 1.026) + $5,000
1995 Taxable Value is $46,040 (lesser of Capped Value and SEV)

Example Number 3

A home had a market value of $80,000. The SE.V. was $40,000. Sales of comparable homes in the neighborhood show that the market value has decreased to $78,000. The CPI is 1.026.

1995 SEV is $39,000 (half the appraised value)
1995 Capped Value is $41,040; (40,000 * 1.026)
1995 Taxable Value is $39,000 (lesser of Capped Value and SEV)

Example Number 4

Looking at the current year 2001, assuming the property has not been transferred since 1995. Each year there has been a SEV and capped value calculated. The taxable value for the year 2000 is $45,000 and the SE.V. is $55,000. The property sold in 2000 for $115,000. The CPI is 3.2%. Sales of similar homes show that the property's appraised market value is $119,000.

2001 SEV would be $59,900 (half the appraised value)
2001 Capped Value would be $46,440; (45,000 * 1.032)
2001 Taxable Value would be $59,900 (transfer of ownership removes the "cap", and per State law, the SEV becomes the table value.)

Attention Property Owners

With the passage of Proposal A, there are new rules and regulations that impact your property tax assessment. New terms such as "capped value" and "taxable value" have become a part of the assessment and taxation procedure.

This pamphlet is being provided to help explain the changes in the assessment process. Hopefully, after reading the information, you will have a better understanding of this complex issue.