Nationwide, property owners have experienced surges in valuations and are demanding taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
relief. Lawmakers are right to find ways to provide it, but should do so with sound tax principles in mind. In November, Wyoming voters will be asked whether to grant the legislature additional authority to adjust property taxes. Unfortunately, the option before them is a nonneutral policy that could negatively influence investment decisions and would likely shift the property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.
burden without offering meaningful relief for all taxpayers.
In 1988, voters amended Wyoming’s constitution and established three classes of property, requiring that each be assessed at full market value and taxed equally and uniformly (within the class). The three classes of property are (1) minerals and mine products, (2) industrial property, and (3) all other real and personal property. Residential property is currently taxed in the third class. Now, nearly 40 years later, through a legislatively referred constitutional amendment from 2023, voters are being asked to add residential real property as a fourth class and to further authorize the legislature to consider a new subclass for owner-occupied primary residences.
In some states, like Wyoming, distinct tax burdens apply to different classes of property. This is known as a split roll (or differentiated) tax system. Through a split roll regime, distinct classes of property are taxed at different rates or face separate assessment ratios. This introduces non-neutrality to the tax code by changing the incentives to own or invest in certain types of property over others. Moreover, a differentiated tax system can encourage lawmakers to increase the property tax burden on some classes of property, often to the detriment of businesses, to generate additional revenue without being seen as raising taxes on homeowners.
If approved, the constitutional change would further split the property rolls, and if a new subclass of residential property with its own assessment ratio is created, the tax burden would likely shift to other classes of property to ensure revenue stability. Wyoming voters are effectively being asked to preference property owners who live in their homes over everyone else—including renters.
Apartment complexes would be in a separate class than residential property and presumably face higher property taxes—most of which would ultimately be borne by the renters themselves. And when single-family homes are rented out, these would still be considered residential property (the cutoff is typically four units), but because they are not owner-occupied, they could be in a different subclass—again putting renters at a disadvantage compared to homeowners.
Businesses and those with second homes would also face different tax treatment, and increasing taxes on commercial real estate tends to hurt the whole community in the long run. But the disparate treatment of rental property is perhaps most notable, since many renters have lower incomes than homeowners, yet the change would treat them worse. That legally the tax would be remitted by the rental property owner is a small comfort: ultimately, most of the increased tax is passed on to renters in the form of higher rent.
The ultimate statutory definition of “owner-occupied” could also raise US Constitutional questions, particularly with respect to nonresident taxpayers with homes in Wyoming. These concerns aside, creating the subclass could lead to applying different rates to substantially similar properties in the same neighborhood based solely on status as a primary owner-occupied residence. This could disincentivize investment and negatively impact renters who cannot afford to purchase a home.
When vacation homeowners, part-year residents, or renters avail themselves of a property, they, like full-time resident homeowners, spend money in the community, to the benefit of businesses (through sales) and the government (through sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.
revenue). Of course, these properties also require local services (e.g., police and fire), and the property tax is an efficient means to pay for the services used. However, renters do not need, nor are they provided, greater services than similar neighboring properties that are used as primary residences and, therefore, should not pay disproportionately more property taxes.
In 2024, lawmakers debated a variety of property tax relief options. These included exempting significant portions of residential property assessed value and replacing local revenue by increasing the statewide sales tax. Though this measure did not reach the governor’s desk, several others did. The governor signed bills that provided, or increased, assessed value exemptions for older taxpayers and veterans, and limited property tax increases year over year.
As valuations surge throughout the country, some have chased unsound policies to provide relief. We have written on the downsides of what may otherwise seem like logical means to counter rapidly increasing property valuations. Unfortunately, what is before voters is not a sound solution.
A better way to deliver relief to Wyoming property owners is to institute strong levy (or revenue) limits, which Wyoming currently lacks. Levy limits focus on the amount of revenue raised by government and can feature rollbacks or reductions to ensure that collections do not rise in the aggregate above a set amount. Lawmakers may also set a revenue growth rate and adjust for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.
. This means there could be variations in property taxes owed but all within the context of an established revenue limit. For example, as valuations rise, property tax payments may decrease to ensure that local governments do not receive a windfall but remain adequately funded.
Wyoming lawmakers are right to seek relief for property owners, but asking voters to amend the constitution to further split the tax rolls and authorize the creation of a property subclass is an inefficient release valve for rapidly rising valuations. Levy limits can provide the relief and stability that lawmakers seek without saddling taxpayers with the consequences of unsound policies that they cannot afford and do not deserve.
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