With real estate values rocketing upward during the COVID-19 pandemic, the gap between local property tax assessments and market values in Wisconsin is now the largest in recent memory.
State data show more than 800 municipalities in the state have assessed values for the collective properties within their borders that are lower than 80% of their market value – the largest gap since at least 2011, and likely much longer.
That means that when reassessments do periodically occur, many property owners will experience huge increases in the assessed value of their property. However, contrary to some property owners’ fears, in most cases, this massive correction will not result in a huge increase in their property taxes.
To show how close each community is to assessing property accurately, the state Department of Revenue tracks the assessment ratio – or assessed value of property divided by its market value – for each municipality in the state. These ratios can be affected when property values change rapidly. In 2022 and again in 2023, total equalized property values (or estimated market values) in Wisconsin rose by more than 13% – the two largest percentage increases in four decades.
As a result, in 2022, 811 (42.5%) of the state’s 1,906 municipalities with available data had assessment ratios below 80%, and another 592 (31.1%) had ratios between 80% and 90%.
Every property in a community being equally under-assessed would not necessarily lead to an unfair distribution of property taxes. But stark divergence from market values may mean certain areas or classes of property are more likely now to be paying more or less than their fair share. For instance, if two neighborhoods within a municipality are assessed differently, this could lead to residents in one paying an outsized share of the tax levy and the other underpaying.
Another issue that can arise is a difference in assessment ratios across classes of property. To examine the extent to which commercial and residential property assessment ratios are diverging, the Forum looked at 2017 and 2022 ratios in all 160 cities, villages, and towns in five counties.
In 2017, residential and commercial property owners were generally being treated equally; but 2022 paints a different picture. The median assessment ratio for commercial property in the same communities dropped to 90.6%. The median assessment ratio for residential properties, meanwhile, dropped to 82.9%. The number of municipalities with commercial and residential assessment ratios separated by at least 10 percentage points nearly tripled to 71, or 44.4% of the 160 communities. Commercial property was assessed at least 10 percentage points higher than residential in 59 of those communities, meaning commercial property owners appeared to be overpaying property taxes relative to homeowners.
Our state is relatively unique in conducting assessments at the municipal level. It may be appropriate to consider giving a greater role in assessments to counties, which particularly in rural areas might have the budgets and economies of scale to conduct more regular revaluations. Lawmakers and DOR may also wish to consider either higher standards for local assessment or greater efforts to ensure compliance with existing standards.
This information is a service of the Wisconsin Policy Forum, the state’s leading resource for nonpartisan state and local government research and civic education. Learn more at wispolicyforum.org.