With residential property values rocketing upward in recent years, the gap between local property tax assessments and market values in Wisconsin has grown, meaning that when reassessments do occur, many property owners will experience surprising increases in the assessed value of their property.
According to a new
Wisconsin Policy Forum report, this situation suggests a need to monitor and possibly rethink how property assessment is handled in Wisconsin.
State data shows that more than 800 municipalities in the state have assessed property values that are lower than 80% of their market value – the largest gap since at least 2011.
"While every property in a community being equally under-assessed would not necessarily lead to an unfair distribution of property taxes, stark divergence from market values may mean that certain neighborhoods or classes of property are more likely now to be paying more or less than their fair share," the report says.
For tax purposes, it is ideal that a property's assessed value be as close to 100% of its market value as possible.
In 2022, however, 42.5% of Wisconsin municipalities had assessed properties at less than 80% their market value. Another 31% had ratios between 80% and 90%.
The state mandates that property is assessed within 10% of its market value at least once every five years. If municipalities don't comply, the state intervenes.
Between 2018 and 2022, the number of municipalities with which the state intervened grew from three to 28, indicating that under-assessment has not previously been the norm.
In theory, out-of-date local assessments may not lead to an unfair system.
Because the Department of Revenue equalizes property values for tax purposes, so long as all properties in a municipality are similarly under- or over-valued, property owners would be paying their fair share of the full levy.
However, the further each community is from assessing its property at full market value, the more problems can arise:
"Within a municipality, if two neighborhoods were assessed differently, then this could lead to residents in one neighborhood paying an outsized share of the property tax and the other underpaying," the report says. "Especially in areas that are growing quickly."
Further, this can result in a difference in assessment ratios across classes of property.
"If assessments are closer to market value for one class of property than another, then homeowners could end up paying less than business owners, or vice versa."
Wisconsin is fairly unique in conducting assessments at the municipal level as many states in the country opt for county-level assessments.
The report suggests giving consideration to county-level assessments, or a mix of county- and municipal-level assessments.
"If in the coming years municipalities remain unable to accurately assess property values, officials could give greater thought to changing the overall structure under which assessments are conducted in the state to ensure each property owner in Wisconsin receives an accurate assessment of the value of their parcel and an equitable tax bill," the report says.
