Capping Local Property Tax Increases

• In 2024, several pieces of legislation were filed to address a cap on the rate at which local governments can increase their property tax rate. Although no final version of a particular bill passed, it sparked a variety of conversations amongst interested stakeholders. It is expected a similar piece of legislation could arise next General Assembly. 

• For 94 of Tennessee’s 95 counties, property tax is the greatest source of revenue. Sevier County is the exception, who has a higher sales tax base due to tourism. 

• In recent years, cities and counties across Tennessee have raised property taxes by double-digits. 
• Several states across the nation have limits on growth in property tax increases. Some placing caps on potential increases, others requiring adoptions to take place by referendum election. 

1. Should the General Assembly place a cap on local government’s ability to raise property tax rates? If so, is there a specific rate? 
2. If local governments are capped on how they can increase property taxes, they may soon need additional sources of revenue. Should Tennessee increase funding for local governments?
3. How would capping property tax rates impact you?
4. How would capping property tax rates impact your county’s ability to function? 

With this in mind, the Tennessee General Assembly considered a few different proposals to “cap” a local government’s ability to raise property taxes in a year. One piece of legislation (SB171/HB565) would have capped property tax increases in the state at 2% plus inflation each year, and 6% plus inflation over a three-year span. The cap would apply to counties, municipalities, metropolitan governments, and special school districts which can levy property taxes. Other conversation around potential legislation considered “locking in” the assessment from the year the property was purchased until the time the property again changes hands. Although no final version of a particular bill passed, it sparked a variety of conversations amongst interested stakeholders. It is expected a similar piece of legislation could arise next General Assembly. 

Opponents of the idea to cap local property tax increases claim a cap could cripple their ability to cope with growth, especially in areas surrounding Nashville. However, economist and proponent of the consideration, Dr. Art Laffer claims large, one-time county property tax increases cause property values to fall, mainly damaging urban areas and having a long term impact on personal income. Several states across the nation have limits on growth in property tax increases, some placing caps on potential increases and others requiring adoptions to take place by referendum election. 

Currently, counties have few options to raise revenue without state or voter approval. 94 of Tennessee’s 95 counties consider their main source of revenue is from local property tax, apart from Sevier County who has a larger sales tax base. 

The Tennessee Comptroller of the Treasury’s website contains Tennessee county property tax rates dating back to 1997, to find more about your county property taxes, click HERE.

Tennessee Farm Bureau
State and Local Taxes (Partial) 

In the future, when the state finds itself in need of new revenue, Farm Bureau believes a state property tax should not be an option. Therefore, we support a constitutional amendment preventing the state from collecting a state property tax. The burden of filling the gap in a budget deficit should not be put upon farmers and property owners of the state. Furthermore, local governments are primarily funded through property taxes and need the capacity of that tax structure. If the revenues of both local and state governments are considered in a reform proposal, property taxes should be replaced.  

Since we cannot foresee all of the various combinations of taxes to reform our tax structure, the Tennessee Farm Bureau Federation’s Board of Directors should analyze the economic impact to Tennessee farmers of any proposal. The Board should adopt the position with the best long-term economic interest of Tennessee farmers.  

Property values do not change at the same rate on all properties. Growth areas typically experience more rapid market value increases than non-growth areas. Farmers and established property owners should not unfairly bear a community’s growth burden. Reappraisal resets property values to the current market value and equalizes the property tax burden for all taxpayers. Reappraisals should ensure every property owner pays their fair share.  

Due to the high growth occurring in some areas, we urge the state to conduct an economic analysis reflecting the cost of more frequent appraisals and the impact of the changing tax burden on property owners. With an equalized assessment, property taxes will fairly and accurately reflect a property’s value, the value of all property within the county, and the county’s budget.  

We favor continuing of the present system of locally assessed personal property.  

An economic impact analysis is needed before the General Assembly implements a proposal similar to California’s Proposition 13 of 1978, annually capping all property appraisal and/or tax rate increases.  

We urge that state-mandated pay levels and pay increases of local government officials and judges be more reflective for local economies and situations.  

While we generally favor authority and responsibility for local governments, the authority to tax must be granted with caution. Impact fees and adequate facilities taxes levied by local governments help relieve the cost of urbanization on local property taxpayers. Local governments should have the authority to levy impact fees and adequate facilities taxes based on their needs and growth. When local governments increase property taxes, impact fees and adequate facilities tax rates should increase proportionally. As Tennessee’s population grows, Farm Bureau should continue supporting policies which aid local government’s ability to handle the fiscal impact without negatively impacting agriculture.