Vertical Equity in the Taxation of Single-Family Homes

Vertical equity in ad valorem real property taxation is the concept that all properties within a taxing jurisdiction are assessed in equal proportion to their fair market value. This study examines the assessment of single-family homes in Bellingham, Washington, utilizing a database of 1,118 home sales in the southern half of Bellingham that sold during the time period January 1990 through June 1994. The results of several empirical tests suggest the presence of regressive vertical inequity. It appears that higher market value homes are assessed at a lower proportion of their value (sales price) than less expensive homes. These results suggest that property taxation at the local level magnifies the regressivity of Washington State's already highly regressive state tax system. Why does this apparent regressive vertical inequity exist? The authors offer several possibilities including the propensity of wealthy homeowners to challenge property tax assessments, the difficulty of valuing the amenities inside an upper-end home, the heterogeneity of the upper-end home market coupled with a small number of transactions, and the lack of ample staff and other resources at the County Assessor's office.