Proposition 2½
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Proposition 2½ (Mass. Gen. Laws Ch. 59 § 21C[1]) is a Massachusetts statute which limits property tax increases by Massachusetts municipalities. It was passed by ballot initiative,[2] specifically called an initiative petition within Massachusetts state law, in 1980 and went into effect in 1982. The effort to enact the proposition was led by the anti-tax group Citizens for Limited Taxation.[3] The name of the initiative refers to the 2.5% annual limit on the increase in taxes that a municipality is permitted. It is similar to other tax revolt measures passed around the same time in other parts of the United States.
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[edit] Real and personal property taxes
Under Proposition 2½, a municipality is subject to two property tax limits:
- Ceiling: The total annual property tax revenue raised by a municipality shall not exceed 2.5% of the assessed value of all taxable property contained in it.
- Increase limit: The annual increase of property tax cannot exceed 2.5%, plus the amount attributable to taxes that are from new real property.
These limits refer to the entire amount of the annual tax levy raised by a municipality. The property taxes are the sum of: (a) residential real property; (b) commercial real property; (c) industrial real property; and (d) business-owned personal property. In practice, it usually limits the tax bills of individual taxpayers, but only as an indirect result.
A side effect of Proposition 2½ is that municipality income will decline in real terms whenever inflation rises above 2.5%. Historically inflation has been above 2.5% for a significant majority of the years since 1980 (22 out of the 28 years to date), thus resulting in a real decline in local tax rates and local spending ability.
An exception allows the citizens of each municipality to override the 2½ restriction to address specific needs of the community thus giving the citizens direct control over their taxation.
[edit] Vehicle excise tax
The excise tax for automobiles registered in Massachusetts was also lowered by Proposition 2½. Previously, this tax was levied at a rate of $66.00 per $1,000 of car valuation (6.6%). Proposition 2½ lowered this rate to $25.00 per $1,000 of car valuation, resulting in a 2½ per cent excise tax rate.[4]
[edit] Exclusions
Proposition 2½ excludes four cases from the tax levy increase:
- "New growth": The Act allows for new growth. So, for example, when a new house is built, the tax levy may increase by the amount of taxes collected from that house.
And three types of exclusions granted by the majority those voting in a in municipal referendum:
- "Capital exclusion": Capital expenditure for the upcoming fiscal year;[5]
- "Debt exclusion": For pre-1980 municipal debt or new debt issued for a designated purpose (e.g. bonds issued for a multi-year capital expense);[6] or
- Water/sewer debt: For certain water and sewer system debt.[7]
[edit] Override / Underride
Municipalities may exceed or reduce the limits with the prior approval of the majority those voting in a municipal referendum to:
- "Operational override": Override the increase limit.[8]
- "Underride": The levy limit is reduced. Such a vote can be initiated by popular petition or the municipal legislature.[9]
The proposition originally required a two-thirds majority for passage of overrides, but the state legislature changed this to a simple majority in 1981.[10]
As of January 2009[update], municipalities had requested, via referendum, 4,449 overrides of Proposition 2½, of which 1,798 passed; 16 underrides were requested, of which 9 passed.[11]
[edit] See also
- Proposition 13, the California tax limitation law that inspired the passage of Proposition 2½.[2]
[edit] References
- ^ Mass. Gen. Laws Ch. 59 § 21C, via Mass.gov
- ^ a b Frum, David (2000). How We Got Here: The '70s. New York, New York: Basic Books. p. 325. ISBN 0-465-04195-7.
- ^ Denison, Dave (Summer 1996). "The Odd Proposition". Commonwealth Magazine. http://www.commonwealthmagazine.org/Article-Import-Latest/1996/Summer/The-Odd-Proposition.aspx.
- ^ Tompkins, Susanne. "Proposition 2½". McCormack Institute. http://web.archive.org/web/20070314114059/http://www.mccormack.umb.edu/dean/docs/IssueBook/prop2half.html.
- ^ Mass. Gen. Laws Ch. 59 § 21C(i½), via Mass.gov
- ^ Mass. Gen. Laws Ch. 59 § 21C(j,k), via Mass.gov
- ^ Mass. Gen. Laws Ch. 59 § 21C(n), via Mass.gov
- ^ Mass. Gen. Laws Ch. 59 § 21C(g), via Mass.gov
- ^ Mass. Gen. Laws Ch. 59 § 21C(h), via Mass.gov
- ^ Zimmerman, Joseph F. (1995). State-local Relations: A Partnership Approach. ABC-CLIO. ISBN 9780275952358. http://books.google.com/books?id=3WzphyK48eYC&pg=PA64.
- ^ "Proposition 2 1/2". Massachusetts Department of Revenue. http://www.mass.gov/dor/local-officials/municipal-data-and-financial-management/data-bank-reports/proposition-2-12.html.
[edit] External links
- Levy Limits: A Primer on Proposition 2½ from Massachusetts Dept. of Revenue, Division of Local Services
