Why the property tax burden hits Nashville harder than other Tennessee cities | Opinion
Clarification: An earlier version of this guest opinion column contained the incorrect byline. The author is Tennessee State University business professor Achintya Ray.
Metro Nashville government argues that the property tax rate is significantly lower than other major metros in Tennessee.
For example, the urban services district tax rate of $3.254 per $100 of assessed value is considerably lower than Chattanooga’s $4.487, Knoxville’s $4.584, and Memphis’s $6.163.
One might believe that Nashvillians pay significantly lower property taxes than other prominent Tennessee metro region residents. However, a close objective analysis of publicly available data paints a different picture.
Nashvillians may be the most taxed urban property owners in Tennessee, and the gap is stunningly wide.
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How poorer people are paying more in taxes
Property taxes are levied on the assessed value of the property and are considered a highly regressive form of revenue collection.
Think about two neighbors with nearly identical properties, each with an appraised value of $500,000. Suppose both households pay effectively 1% of the appraised value in property taxes. Therefore, each of these neighbors pays $5,000 in property taxes.
Assume that neighbor A is a single retired lady who makes $40,000 annually. Neighbor B has two working professionals bringing in a combined household income of $200,000.
In this scenario, the poorer neighbor A pays 12.5% of her income in property taxes and neighbor B pays only 2.5% of their income in property taxes. In other words, the poorer neighbor pays five times in property tax as a percentage of income than her more prosperous neighbors.
This is the central concept of a regressive tax where less prosperous people pay proportionately more in taxes than their wealthier counterparts.
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How disparities pan out among cities
The regressive nature of property taxes may be particularly hurtful for single women, the elderly, minority owners, etc., if their property valuations increase faster than their take-home incomes.
Recent research from the Federal Reserve Bank of Philadelphia shows that faulty valuation methods can further exacerbate the regressivity by over-assessing relatively inexpensive homes compared to their expensive counterparts.
This assessment anomaly may significantly affect property owners of modest means and worsen home affordability.
The regressive nature of property taxes may be particularly pernicious for Nashvillians compared to the rest of Tennessee’s urban property owners.
Every tax, direct or indirect, may ultimately be evaluated by looking at the impact of that tax on one’s net income.
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Here is an example of the inequity: Nashville v. other cities
Budget data reveals that Nashville collects about $1.607 billion in property taxes. With a population of about 704,000, an average Nashvillian pays a whopping $2,283 in property taxes. With a per-capita income of about $44,000, an average Nashvillian pays about 5% of income in property taxes.
Meanwhile, an average Knoxville person pays about $955 in the combined county and city property taxes or about 3% of income. In other words, an average Nashville person pays about 1.4 times more in property taxes than an average Knoxville person.
Extending the same methodology, an average Brentwood person pays about $531 in the combined county and city property taxes or just about 0.7% of per-capita income. The comparable figures stand at about $1,031 per person or about 2.79% of income for Murfreesboro, $1,441 per person or about 4.2% for Chattanooga, and $1,293 per person or about 4.53% of income for Memphis.
In other words, an average Nashville person pays about 4.3 times more than an average Brentwood resident, about 2.2 times more than an average Murfreesboro resident, about 1.6 times more than an average Chattanooga resident, and about 1.8 times more than an average Memphis resident.
Tax burden puts Davidson County residents at a disadvantage
It may be noted that these simple calculations do not distinguish between residential and commercial properties and arrive at the proportional tax burden conveniently by distributing all collected property taxes over the relevant total population.
It is possible that Metro Nashville’s stifling property tax burden may put Davidson County residents at a steep disadvantage and might have been leading to economic stagnation even when the overall region is experiencing spectacular growth.
This aspect needs more investigation in the coming days.
Achintya Ray, Ph.D. is a professor in the College of Business at Tennessee State University
This article originally appeared on Nashville Tennessean: Property tax burden hits Nashville harder than other Tennessee cities
