Paying a fair share
As Minot voters prepare to go to the polls next month to vote on a bond issue for schools, the question arises regarding who would be affected if property taxes go up.
Exemptions exist for certain nonprofits and religious groups, but in general, anyone who owns property will pay for the bond issue. But do renters pay as well?
“Tenants do pay property tax in an indirect way,” said Matt Watne, president of the North Dakota Apartment Association and president of IPM Inc., which manages property in Minot. Property taxes are included when landlords determine the amount of rent they need to cover expenses, he said.
The amount of property tax that might be attributed to an apartment unit can be less than the tax on a house because of design features with a multiple-unit dwelling and yard considerations.
The owner of a three-bedroom, 1000-square-foot house at the median non-flood, assessed value of $187,000 would pay $2,761 this year, according to information from the Minot Assessor’s Office and mill levy calculations.
Apartment buildings aren’t taxed by unit. But rough calculations on random sample properties indicate that annual taxes might be attributed to a unit as follows:
1,065-square-foot, two-bedroom unit in a newer, large apartment complex, $1,418.
650-square-foot, two-bedroom unit in a four-plex, $922
900-square-foot, two-bedroom unit in a new and upscale, small apartment building, $1,507.
800- to 900-square-foot, two-bedroom unit in an older, small apartment building, $1,063 to $1,072.
There’s been rumblings at times, both locally and across the nation, that only people who own property should vote on property-tax increases, or should vote at all. Judson Phillips, founder of Tea Party Nation, created a stir a few years ago when he said allowing only property owners to vote “makes a lot of sense.” Although he wasn’t advocating for restricted voting, his rationale was that property owners have more vested interest in a community.
Property ownership requirements for voting were common in the colonies before 1776, according to historians. Reform began brewing during the drafting of the Constitution, although it took a number of years before states phased out the voting requirement. Most property ownership and tax requirements for voting were eliminated in the United States by the 1850s.
Most people don’t want to mess with today’s residency rule, although one Minot landlord who lives outside city limits cited “taxation without representation” in saying he would love a chance to vote on the school bond issue.
Robert Townsend, a Minot renter, said that while he may not be a property-tax payer, he is affected by the tax rates and should have a vote on a bond issue. He believes market factors other than expenses are behind the rent levels in Minot. Still, he is concerned that landlords might use passage of a school bond issue as a reason to raise rents further.
“I am a little nervous about that,” he said.
Mark Rey, who owns Minot rental properties, wouldn’t describe renters as property-tax payers, but he said they certainly are affected by property taxes.
When taxes go up, he said, “The landlord is not going to take the loss. We might initially, but I guarantee, eventually the renter will pay for it.”
However, he said, the landlord is the person ultimately responsible for the taxes. Renters can leave if they no longer want to pay, but whether a rental property is occupied or vacant, the landlord must foot the tax bill.
Doug Pfau, a property supervisor at IMM and president of the Magic City Apartment Association, said the influence of taxes on rent can be hard to measure because interest rates and various operating costs also have an effect.
“The increase in property taxes is only one factor related to the rental amount,” Pfau said.
Justin Hammer, director of residential property management at IRET, said rents don’t automatically change if the property tax changes, at least in IRET’s case.
“Rents are more based off of market comparables,” he said. “A lot of times, we have enough like properties and will compare the two of them. We use that to come up with our rents.”
Hammer said landlords with smaller rental-property inventories might be quicker to pass along property-tax increases because they have less ability to absorb the cost.
Jock Eaton of Minot, who rents a house to a tenant, said whether a tax increase gets passed along or absorbed depends on a variety of factors. Minot’s rental market has been strong, making it easier to justify a rent increase to cover taxes, he said.
In his case, though, he has a long-time renter whom he wants to keep. So he tends to hold back on rent increases even if it means charging below market.
“When you get to be happy with a particular tenant, I am not quick to raise the rent,” he said.