Acquisition-Value Assessment and the US Constitution

The US Supreme Court, in Nordlinger v Hahn,[33] ruled that states may limit assessment growth on individual parcels, and thus create different effective taxation rates, without violating the US Constitution's guarantee of equal protection under the laws. The court ruled that a state may establish an acquisition-cost system of assessment, since it had at least two rational bases: The preservation of neighborhoods, and the predictability and affordability ("reliance interests") of future property taxation.

Both HJR H and Cut and Cap limit assessment growth (HJR H on "homesteads" only), and thus both seem to be protected under Nordlinger against federal constitutional challenge. However, HJR H would still be vulnerable to federal challenge because it goes beyond the assessment-growth cap in California's Proposition 13 and in Michigan's Cut and Cap proposal, and explicitly discriminates by class-..

The US Supreme Court, in the prior case Allegheny Pittsburgh Coal v Webster[34] had ruled that arbitrary differences in tax rates, when those differences were contrary to state constitutions directing uniform taxation, violated the equal protection clause of the U.S. Constitution. The court noted in the Nordlinger decision the rational bases for the California constitution's assessment-growth cap contrasted with the facts in Allegheny, which "precluded any plausible inference that the reason for the unequal assessment practice was to achieve the benefits of an acquisition-value tax scheme."[35] HJR H would create a system where some properties ("homesteads") would be assessed on an acquisition-cost basis, and others assessed on a current value basis. Furthermore, whereas in both Allegheny and Nordlinger all property owners within each jurisdiction paid the same tax (millage) rate, under HJR H property owners would pay explicitly different tax rates. In Nordlinger, all property was assessed on a acquisition-costmethod, whereas under HJR H different property would face different assessment methods, as did property, in Allegheny.[36]

Equalization and HJR H

Equalization would be difficult, if not impossible, under HJR H. Equalization is necessary under a market-value assessment system; rudimentary under a acquisition-value assessment system. How do you equalize when some parcels are assessed by acquisition value, and others by market value?

This study previously detailed how taxes could be raised on single classes through the equalization process, under some possible HJR H equalization schemes. Equalization that forces some properties to pay higher taxes than other similar properties was previously found to unconstitutionally violate the equal protection clauses of both the U.S. and New York Constitutions, in the interesting Foss v Rochester case.[37]

In this case, the New York supreme court found a state law unconstitutional because it placed disparate tax burdens on similar parcels. The parallels with HJR H are striking, because the law was passed to correct a de facto dual taxation system that taxed non-homestead property at higher rates than homestead property, but attempted to preserve the lower rates on homestead property. However, equalization had the effect of causing similar parcels in the same class to pay different tax rates to the same unit of government. The same situation could occur under HJR H.

A Rational Basis for HJR H?

A future challenge to HJR H would come down to this question: What is the rational basis for RJR H? The court in Nordlinger ruled:

"Accordingly, this Court's cases are clear that, unless a classification warrants some form of heightened review because it jeopardizes exercise of a fundamental right or categorizes on the basis of an inherently suspect interest, the Equal Protection Clause requires only, that the classification rationally further a legitimate state interest."[38]

Proposition 13, and Cut and Cap, share a clear rational basis. HJR H, while motivated apparently by a desire to protect homeowners, in fact creates three classes of property, in which it is not clear who is favored, or why. HJR H explicitly discriminates, in both its assessment-growth cap and its split-Headlee-rollback provisions, between property owners based on the use of the property. HJR H arguably jeopardizes exercise of fundamental rights, such as to engage in an occupation, by subjecting residents to higher taxes if they do so.

Given the almost incomprehensible nature of the disparities created by HJR H, and the lack of a clear rational basis, it would likely be challenged in federal court, and may very well be found unconstitutional.