The proposed Fauquier County budget for fiscal year 2023 would lower the personal property tax by 26%, potentially helping to offset both rising real estate values — which are likely to contribute to higher real estate tax bills — and the skyrocketing value of used cars, by far the most common item subject to the personal property tax.
Currently, personal property in Fauquier County is taxed at $4.65 per $100 of assessed value. County Administrator Paul McCulla’s proposed budget would lower the rate to $3.45. The move would be roughly revenue-neutral, however, as McCulla has also proposed raising the tax rate on business property from $2.30 to $3.45.
County supervisors will hold a public hearing on the proposed budget March 15. They are currently scheduled to adopt a final version of the budget on April 4.
The average value of a vehicle in the county is currently $13,239, meaning the tax bill for the average vehicle would be $159 less if the proposed rate was adopted by county supervisors, revenue commissioner Eric Maybach explained Monday. For each $10,000 taxable value, the proposed rate cut would reduce the tax bill by $120.
Lowering the tax on personal property would help offset the expected rise in real estate tax bills for county residents. Despite a proposed real estate tax rate that would be the lowest in 13 years, the average homeowner would — due to the drastic rise in taxable real estate value — pay $539 more this year than last year if the proposed rate is adopted.
A lower tax rate on cars and trucks would be especially timely because of global market forces driving up the selling prices — and therefore the taxable value — of used vehicles since the pandemic began. The average selling price of a used vehicle in the United States was, in October 2021, 41% higher than it was in January 2019, according to the U.S. Bureau of Labor Statistics.
The price surge is mainly due to the scarcity of new vehicles as automakers struggled to meet demand after pent-up consumer spending levels began to rebound in the summer of 2020. The relative scarcity of new cars has caused higher demand for used vehicles — U.S. residents bought a record number of used cars in 2021, according to Cox Automotive — driving their prices up and in turn becoming a major contributor to inflation in general.
Business property tax
Even though the business property tax rate would increase, most businesses would fare better than they do currently if proposed property tax rates were adopted, Maybach said. That’s because vehicles — usually a small business’ most valuable asset — are taxed at the personal property rate, so lowering that rate would in many cases outweigh any increase to the business tax.
Of the roughly 5,000 commercial entities in the county expected to pay business property tax this year, about half have less than $1,000 of taxable property, Maybach said. In total, 96% of businesses have less than $10,000 of taxable business property, meaning that all but the largest 4% of companies would pay, at most, about $115 more per year under the new rates.
Background
In the immediate aftermath of the Great Recession, supervisors lowered the business property rate to relieve economic pressure on commercial property owners, Supervisor Chris Granger (Center District) said at a March 4 budget work session. Commercial property values were then increasing much more quickly than property values in the residential sector.
But since then — and especially since the pandemic began — residential real estate values have risen sharply while commercial real estate values have lagged behind. According to last year’s reassessment of Fauquier County real estate, for instance, residential real estate values have increased by 30% in four years, while commercial real properties have risen by just 11%.
“The burden has been vastly shifted to the residents,” Granger said, “and equalizing the [property tax] rates is one way to balance that out.”
