Proposition 2½
Encyclopedia
Proposition 2½ is a Massachusetts
statute
which limits property tax
increases by Massachusetts municipalities. It was passed by ballot initiative, specifically called an initiative petition within Massachusetts state law, in 1980 and went into effect in 1982. 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
.
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.
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%), one of the highest automotive taxes of its kind in the United States. Proposition 2½ lowered this rate to only $25.00 per $1,000 of car valuation, resulting in a 2½ per cent excise tax rate, unless overriden by referendum, that is meant to override the mandated 2-1/2% property tax rate in a city or town.
And three types of exclusions granted by the majority those voting in a in municipal referendum:
Since 1983, municipalities have requested, via referendum, 4,449 overrides of Proposition 2½, and 1,798 of them have passed. Sixteen underrides have also been requested, and nine of them have passed.
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
which limits property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
increases by Massachusetts municipalities. It was passed by ballot initiative, specifically called an initiative petition within Massachusetts state law, in 1980 and went into effect in 1982. 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
Tax revolt
A tax revolt is a political struggle to repeal, limit, or roll back a tax.-1930s, The Great Depression:In the United States, the term "tax revolt" is sometimes used to refer to a series of anti-tax state initiative campaigns. The first significant wave of these campaigns was during the 1930s. The...
measures passed around the same time in other parts of the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
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
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
; (b) commercial real property; (c) industrial real property; and (d) business-owned personal property
Personal property
Personal property, roughly speaking, is private property that is moveable, as opposed to real property or real estate. In the common law systems personal property may also be called chattels or personalty. In the civil law systems personal property is often called movable property or movables - any...
. 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.
Vehicle excise tax
The excise taxVehicle excise duty
Vehicle Excise Duty is a vehicle road use tax levied as an excise duty which must be paid for most types of vehicle which are to be used on the public roads in the United Kingdom...
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%), one of the highest automotive taxes of its kind in the United States. Proposition 2½ lowered this rate to only $25.00 per $1,000 of car valuation, resulting in a 2½ per cent excise tax rate, unless overriden by referendum, that is meant to override the mandated 2-1/2% property tax rate in a city or town.
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;
- "Debt exclusion": For pre-1980 municipal debt or new debt issued for a designated purpose (e.g. bondsBond (finance)In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
issued for a multi-year capital expense); or - Water/sewer debt: For certain water and sewer system debt.
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.
- "Underride": The levy limit is reduced. Such a vote can be initiated by popular petition or the municipal legislature.
Since 1983, municipalities have requested, via referendum, 4,449 overrides of Proposition 2½, and 1,798 of them have passed. Sixteen underrides have also been requested, and nine of them have passed.
See also
- Proposition 13California Proposition 13 (1978)Proposition 13 was an amendment of the Constitution of California enacted during 1978, by means of the initiative process. It was approved by California voters on June 6, 1978. It was declared constitutional by the United States Supreme Court in the case of Nordlinger v. Hahn,...
, the California tax limitation law that inspired the passage of Proposition 2½.
External links
- Levy Limits: A Primer on Proposition 2½ from Massachusetts Dept. of Revenue, Division of Local Services