America's Property Tax Advisor

Nevada May Tweak Tax Caps

BY JOE MONZON, DENVER, FEBRUARY 2021

For more than 15 years, Nevada has used caps to hold the line on increasing property taxes. With the disastrous economic impact of COVID-19, state lawmakers are considering making changes to the caps.

 

“Heavy reliance on sales taxes and taxes related to hospitality has really brought out the need to have a predictable and stable source of revenue,” Nevada League of Cities Executive Director Wesley Harper told the Nevada Current.

 

In recent years, legislators have grown increasingly supportive of tweaking the property tax calculation, rather than placing additional levies on businesses.

 

Current Caps

 

Nevada’s property tax rate is constitutionally limited to 5% of assessed value, not market value. Assessed value in Nevada is 35% of taxable value. Taxable value is calculated by adding the value of land and replacement value of improvements, minus 1.5% annual depreciation on the improvements for 50 years.

 

Nevada provides a partial abatement of taxes by applying a 3% cap on the tax bill of the owner's primary residence. Some rental dwellings that meet the low-income rent limits may also qualify for a 3% cap. A cap of up to 8% is applied to residences that are not owner occupied.

 

An up to 8% General Tax Cap applies to land, commercial buildings, and business personal property, which is the greater of the average percentage increase in assessed value in the county over ten years or twice the Consumer Price Index. New construction or property that has a change of use qualifies for a cap the following fiscal year.

 

If the General Tax Cap is less than 3%, the Residential Tax Cap must equal it, a provision that has forced the rate on residential property even lower.

 

Proposed Changes

 

Two bills before the Nevada Legislature would tweak, but not remove the caps. Both measures would require approval from two-thirds of the Senate and Assembly.

 

  • Senate Bill 10 would eliminate the secondary calculation but leave in place the 3% cap on residential property taxes and the 8% cap on commercial property taxes.

  • Senate Bill 64 would also eliminate the secondary calculation. Additionally, it would reduce the annual depreciation rate on improvements from 1.5% to 1%. Nevada is the only state in the union that depreciates improvements as part of the property tax calculation.

Rather than capping taxes, Gov. Pete Ricketts has proposed a constitutional amendment, which, if approved by voters, would restrict annual increases in property tax spending by local schools, cities, counties and other taxing entities to no more than 3% a year.