On what property can a county levy taxes? Is there a maximum amount of tax that a county can levy? Do the registered voters of a county have to approve the tax levy? Is any property exempt from property taxes?
According to Article 16, Section 5 of the Arkansas Constitution, both real and personal property is taxable. Section 17 of Arkansas Constitution Amendment 59 repealed the original Article 16, Section 5 and substituted the current wording which, in part, says: “all real and tangible personal property subject to taxation shall be taxed according to its value, that value to be ascertained in such manner as the General Assembly shall direct, making the same equal and uniform throughout the State.” Amendment 71 of the Arkansas Constitution, adopted at the 1992 general election, delineates what personal property is exempt from ad valorem taxes and what personal property is taxable.
Counties in Arkansas can levy up to 21 mills of property tax. The maximum rates that can be levied on real and personal property by the county for county use are:
5 Mills – County general government [Arkansas Constitution, Article 16, § 9 and A.C.A. § 26-25-101]. Quorum Court can levy without a vote of the electorate.
5 Mills – County bonded indebtedness [Arkansas Constitution, Amendment 62]. Requires a vote of the electorate.
5 Mills – County Library maintenance and operation [Amendment 38 as amended by Amendments 72 and 89]. Requires a vote of the electorate to lower, raise or abolish the millage.
3 Mills – County Library capital improvements and construction – [Amendment 38 as amended by Amendments 72 and 89]. Requires a vote of the electorate to lower, raise, or abolish the millage.
3 Mills – County Road – [Amendment 61 and § 26-79-101]. Quorum Court can levy without a vote of the electorate.
Note 1: Amendment 61 was approved at the general election of 1982. Prior to the enactment of Amendment 61 the road millage was governed by Amendment 3 which required that the road millage be on the ballot at each general election in each county.
Note 2: 1 mill = a tenth of 1%
The county quorum court is required to levy ad valorem tax rates at its regular meeting in November or December of each year for collection the following year [A.C.A. 14-14-904(b)(1)(A)(i)]. The quorum court must levy not only the county property taxes but municipal taxes and school taxes. The Director of the Assessment Coordination Department may authorize an extension of up to 60 days of the date for levy of taxes if there is good cause shown resulting from reappraisal or rollback of taxes. The application for extension must be filed by the County Judge and County Clerk.
The electorate does not have to approve the levy of general and road taxes for the county. The county is given the authority to levy up to 5 mills for general purposes in Article 16, Section 9 of the Arkansas Constitution – “No county shall levy a tax to exceed one-half of one per cent (5 mills) for all purposes…..” [Also see § 26-25-101]. Amendment 61 to the state constitution says, “County quorum courts may annually levy a county road tax not to exceed three (3) mills on the dollar on all taxable real and personal property within their respective counties.....” Amendment 61 repealed Arkansas Constitution, Amendment 3, which also allowed a maximum 3 mill road tax, but under Amendment 3 the tax had to appear on the ballot every general election. Every November the quorum court has the authority to levy a county general tax up to 5 mills and a road tax up to 3 mills.
A county is also authorized to levy a county library tax by Amendment 38 of the Arkansas Constitution (amended by Amendment 72 and incorporated into Amendment 38 by amending Sections 1 and 3 and adding Section 5). However, this tax must be voted on by the electors of the county and the tax rate cannot exceed five (5) mills on the dollar for maintenance and operation of the library (Amendment 38, Section 1). The maintenance and operation of the library is defined in A.C.A. 13-2-405(2). Once the rate is established by the electorate, the quorum court will levy the established rate each year until there is another election to change the rate. Amendment 38, Section 3 of the state constitution requires an election to raise, reduce or abolish the library tax.
Section 5 of Amendment 38 (added by Amendment 72) provides for an election for a special library tax, in addition to the maintenance and operation tax, to pay bonded indebtedness to finance capital improvements to or construction of a county library or county library service or system. Upon retirement of the bonded indebtedness, any surplus tax collections, which may have accumulated, shall be transferred to the general funds of the county, and shall be used for maintenance of the county library.
County government is also allowed to levy 5 general mills for bonded indebtedness in accordance with Amendment 62 of the Arkansas Constitution. However, since the 1980’s most bonded indebtedness of counties has been funded with a dedicated sales tax rather than a tax levy on real and personal property.
Property tax is a very important source of revenue for local governments and is protected by government leaders. The Arkansas Constitution, Article 16, §5 provides an exemption from taxation on only a few types of property, including:
- (1) public property used exclusively for public purposes;
- (2) churches used as such;
- (3) cemeteries used exclusively as such;
- (4) school buildings and apparatus;
- (5) libraries and grounds used exclusively for school purposes; and
- (6) buildings, grounds & materials used exclusively for public charity.
Article 16, § 6 says, “All laws exempting property from taxation, other than as provided in this Constitution shall be void.”
Assessors in Arkansas receive funding from the end-of-the-year certified excess funds in the State Property Tax Relief Fund. How should these funds be handled at the county level? If the county level fund has a balance at the end of the year does it carry-over in that fund or become general funds of the county? Since the law establishing this funding source for County Assessors is scant when it comes to details – what is a “Best Practices” scenario for the establishment and operation of this fund?
Act 1892 of 2005 amended Arkansas Code Annotated § 26-26-310 to provide that 1% of the certified surplus funds in the State Property Tax Relief Fund would be allocated to the County Assessors for the purpose of administering Arkansas Constitution, Amendment 79. Amendment 79, of course, is the Real Property Tax Relief amendment – currently allowing up to a $375 homestead credit on an individual’s real estate taxes.
The pertinent section of § 26-26-310 was amended in 2019 by Act 808 to set the annual distribution allocated to the County Assessors at $1,000,000. Each January each county receives their proportionate share based on the proportions used to reimburse the county for property tax reductions the previous year.
These funds are sent to the County Treasurer by the State Treasurer for “allocation to the County Assessor”. This makes these funds “restricted use” funds. In fact, the law goes on to say that “these funds shall be used by the County Assessor for costs of administering Arkansas Constitution, Amendment 79. These costs include, without limitation personnel costs, equipment, services, and postage used in the administration of Arkansas Constitution, Amendment 79.”
This law does not contain a complete or all-inclusive list of allowable costs. Note the use of the term "without limitation" to refer to a partial list by making sure that the list includes other elements that are not specifically mentioned. Ultimately the Assessor should be able to demonstrate that the use of any money from this fund is for the administration of Amendment 79 - the property tax relief program.
Since these are “restricted” or “special revenue” funds they should be set up in a separate fund on the books of the County Treasurer. These funds are subject to the normal county accounting laws. That means: (1) revenue for the fund should be projected; (2) the funds should be budgeted at no more than 90% of the projected revenue; (3) the funds must be appropriated by the Quorum Court; and (4) the funds must be expended through the normal claims process.
Any fund balance at the end of the year should remain with the fund because the funds are “special revenue” and can be spent only for specific purposes. The funds do NOT inure to County General or any other fund. The carry-over balance will become a part of the projected revenue for the fund for the following year and the process starts all over – project, budget, appropriate and expend.
A “Best Practices” scenario for the Assessor’s Amendment 79 Fund would include:
- The establishment of a “special revenue” account on the books of the County Treasurer. A good entity title for this account is “Assessor’s Amendment 79 Fund”.
- Appropriate and expend directly from this fund.
- Expenditures from this fund should be restricted to expenditures for the administration of Amendment 79 as outlined in the law to include the costs of “personnel, equipment, services and postage”.
- Any monies not used in any given year should be allowed to accumulate for appropriation and expending in a future year.
- A separate checking account is NOT necessary. These funds can simply be a part of the county’s conglomerated bank balance – but accounted for separately through “fund accounting” just like County General, Road & Bridge, County Recorder’s Cost Fund, County Library, etc.
- DO NOT recoup any expenditure from this fund in the “Final Tax Settlement”. [This fund is separate and apart from the general operation of the Tax Assessor’s office which is funded on a pro-rata basis by the taxing entities of the county – so the expenses from this fund should not be deducted from the general operation expenses of the Assessor’s office when pro-rating expenses during the Final Tax Settlement.]
Real property reappraisals are required to be conducted on a cyclical basis by county governments in Arkansas. What is the history of these reappraisals and how are the reappraisals paid for under current law?
The beginning of ad valorem taxation in Arkansas starts with the Arkansas Constitution of 1874. Article 16, Section 5 of the Constitution, as amended, provides that: “All real and tangible personal property subject to taxation shall be taxed according to its value, that value to be ascertained in such manner as the General Assembly shall direct, making the same equal and uniform throughout the State.”
Laws on property taxation in Arkansas have been in constant change throughout the years. Because of a court case in the late 1970’s that ruled that ad valorem taxation in Arkansas was not “equal and uniform throughout the State” the court ordered reassessment of all real estate in Arkansas. Amendment 59 to the Constitution was passed by the electorate in 1980 due to the court-ordered reassessment to keep real property taxes from rising exorbitantly. Act 848 of 1981 [§ 26-26-401 et. seq.] was adopted by the Arkansas legislature as the enabling legislation for Amendment 59.
Every county in the State of Arkansas is now responsible for a cyclical county-wide reappraisal. Each county is required to appraise all market value real estate normally assessed by the county assessor at its full and fair market value in accordance with Arkansas Code Annotated 26-26-1902. Depending on the real property value growth – a county is either on a 3 year or a 5 year cycle for a complete reappraisal of real property.
The reappraisal is paid for from the Arkansas Real Property Reappraisal Fund – established by Act 1185 of 1999 and codified as§ 26-26-1907. The proceeds of the fund are used to pay counties and professional reappraisal companies for the reappraisal of real property in lieu of real property reappraisal funding by the local taxing units in each county of the state.
In reality the tax entities are still paying for nearly all of the reappraisal since the funding source of $14,250,000 of the cost is withheld from state funds that would otherwise flow to schools, counties and cities. The State Treasurer withholds 76% of the amount from the Department of Education Public School Fund Account; 16% of the amount from the County Aid Fund; and 8% of the amount from the Municipal Aid Fund and credits the amounts to the Arkansas Real Property Reappraisal Fund [Part of the Arkansas Assessment Coordination Department budget act each year]. The other $1.5 million of the annual appropriation of $15,750,000 for Real Property Reappraisal comes from the State of Arkansas Miscellaneous Agencies Fund.
Funding to any county for property reappraisal is for actual appraisal cost, up to a maximum of $7 per parcel, per year. Counties must use other taxing unit sources of revenue to provide for the cost of real property reappraisals if the cost exceeds $7 per parcel.
There is nothing in the law to prohibit a county from charging each tax entity their proportionate share of the cost exceeding $7 per parcel on a monthly basis in order to keep the County Property Reappraisal Fund from running a negative balance. There is no need for the county to suffer the burden of paying the excess cost of reappraisal until the “final tax settlement” is made in December. Charge each entity their share on a monthly basis.