Acquisition Value Taxation is a Risky Proposition
Voters should be aware of proposed legislation (HB 282 – property tax-acquisition value) that has made its way through the Wyoming House and is now on General File in the Wyoming Senate.
Proponents tout this as true property tax reform and the answer to spikes in market value from 2019 to 2024 impacting homeowner’s tax bill in several counties. In 2023, a study funded by the legislature, examined the feasibility of replacing Wyoming’s current “ad valorem” property tax system—where taxes are based on “fair market value”—with an “acquisition value system”, which would tax properties based on their purchase price rather than their current market value.
While this concept may sound appealing at first glance, the study reveals significant challenges that would make such a transition not only difficult but “detrimental to the funding of education and local services.” The sponsors of the bill dismiss the study results entirely; citing the limited use of Zillow data which did not impact the conclusions.
What is an Acquisition Value Tax System?
An acquisition value tax system sets a property’s taxable value based on the price paid at the time of purchase. The value increases annually by a fixed rate (e.g., 2%) or an inflation-based measure. This approach contrasts with the current “fair market value” system, which adjusts property valuations regularly based on actual market conditions.
The only state that still uses an acquisition value system is California under Proposition 13, which has led to significant inequities in taxation, massive disparities in property tax bills for similar properties, and financial shortfalls in local budgets.
Major Barriers to Implementing Acquisition Value in Wyoming
The study identified numerous barriers to shifting to an acquisition-based system. These include:
- Wyoming’s Constitution Does Not Allow for It
Transitioning to an acquisition value system would require first amending the Wyoming Constitution, which currently mandates taxation based on uniformity and fair market value. The following constitutional sections apply:
- Article 15, Section 11 (Uniformity & Equality of Taxation): Taxing similar properties differently based on purchase date may be unconstitutional.
- Article 15, Section 12 (Assessment Based on Actual Value): Acquisition-based taxes deviate from the constitutional requirement for annual assessments based on actual value.
- Article 15, Section 13 (Duties of County Assessors): Limits assessors’ role in determining fair market value, raising legal concerns.
- Article 15, Section 14 (Classification of Property): Breaks uniformity by treating properties differently based on purchase date rather than objective market conditions.
- Article 1, Section 28 (Taxation for Public Purposes): This is a fundamental structural change in tax policy, without an amendment this may be challenged as taxation without public consent
- Wyoming Lacks the Necessary Infrastructure
Unlike California, which implemented its system decades ago, Wyoming does not have the fundamental infrastructure needed to support an acquisition value tax system. Major deficiencies include:
- No mandatory sales disclosure law: Assessors do not have access to accurate sales data, making it impossible to track acquisition values effectively.
- No uniform property permitting system: A permitting system would be needed to ensure changes in property (renovations, additions, etc.) are properly recorded and taxed.
- A need for extensive IT upgrades: The state’s tax systems would require a costly overhaul to track and manage acquisition-based values.
- Loss of Revenue for Education & Local Services
One of the most alarming findings of the study was the estimated $1.72 billion loss in tax revenue over ten years. This would primarily affect public schools, county and municipal functions and essential services, special districts and college districts.
- Property taxes provide a significant portion of school funding** in Wyoming. Lower property tax revenues mean cuts to education budgets or the need for alternative funding sources, such as higher sales taxes.
- Counties cannot easily offset revenue losses since 75% of the mill levy is fixed.
- Some counties could see tax revenue declines between $2.9 million and $587 million.
- Creates Tax Inequities
Under an acquisition value system, two nearly identical homes could have drastically different tax bills simply because one was purchased decades ago and another was purchased recently.
- Long-term homeowners would benefit from artificially low tax bills, while new homebuyers would bear a disproportionately high tax burden.
- Over time, this would discourage people from moving, create distortions in the housing market, and make it more difficult for young families to afford homeownership.
- Lessons from Other States
The study found that California is the only state still using this system—and it has created widespread tax disparities and budget challenges.
– Idaho previously tried an acquisition value-based system but abandoned it because of administrative difficulties and revenue shortfalls, reverting to fair market value assessments.
Wyoming Should Maintain Fair Market Value Taxation
Given the legal, administrative, and financial hurdles associated with an acquisition value system, Wyoming voters should be wary of any legislative attempts to change the current tax structure. While property tax concerns are valid, adopting a system that has already proven problematic elsewhere would only create more inequities, budget shortfalls, and bureaucratic inefficiencies.
Current Legislation Being Considered
Legislators are keenly aware of the need to address the impact market price increases have had on property owners. In 2024, several changes were made: expanding the tax refund program, providing exemptions for long-term residential property owners and capping year over year increases to 4 percent. The two most viable bills this session include SF 69 sent to conference committee to reconcile differences between chambers and SF153 which is on second reading in the House. The latter incorporates Amendment A passed by voters in 2024 establishing a fourth class of property for owner occupied residences. Amendments made today would set that rate at 8.3%, down from 9.5%. All other residential would remain at the existing rate.
Tax policy is always challenging. Throwing out the current system and replacing with a California style system is not the answer.
