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In many communities in Massachusetts, there has been a substantial increase in the sale prices of residential homes in the last several years. These increases not only pertain to single family homes, but also include multi-family homes. Banker & Tradesman (8/19/2019) reported that the median sale price of a single-family home in Massachusetts increased over 17% from $365,000 in June 2015 to $429,000 in June of 2019. The Worcester Telegram & Gazette (4/21/2019) reported that in Worcester County, “the median price of a two-family home hit $233,750 at the end of 2018, up 38% from $169,000 five years earlier. For three-family homes over the same period, the jump was 58% to $300,000 at the end of 2018. The median price five years earlier was $190,000.”

The DLS Municipal Databank produces a report of assessment levels over the past six fiscal years (FY2014 -FY2019), grouped by major class. In other words, the report has the total assessed value of the Residential and Open Space (RO) classes and the total assessed value of the Commercial, Industrial and Personal Property (CIP) classes. The two totals (RO plus CIP) represent 100% of the taxable assessed value of the community. Both class totals are reported as a dollar amount and as a percentage of the total assessed value of the community. Considering the reported increases in sale prices of residential properties, let’s examine assessment levels over a similar period.

The report shows a wide range of results. At one end of the spectrum, the small town of Florida (675 taxable parcels in FY2019) had a 28.8% shift in assessments to the CIP class in the last six fiscal years and the larger town of Medway (5,068 taxable parcels in FY2019) had a 17.4% shift to the CIP class. At the other end of the spectrum, Somerset (7158 taxable parcels in FY2019) had a 21% shift to the RO class and the small town of Whately (1162 taxable parcels in FY2019) had a 12.6% shift to the RO class over the same six fiscal years. During the same period, other communities have had little to no shift in value between the classes. For example, while the City of Boston has had rising sale prices and values in both RO and the CIP classes, there’s only been a shift in assessed value of 1.6% to the RO class in the past six fiscal years.

Why are the differences so varied? Smaller communities are more likely to experience a shift in the assessed values between classes caused by just a few properties. A large new commercial or industrial property could produce a significant increase in the CIP class for that community. Even a moderate size community can experience an impactful shift in assessed values between classes, significantly influenced by changes to high value properties. In Somerset, a town of 7158 taxable parcels, the 21% shift to the RO class has largely been caused by the combination of the closing of two power plants, as well as increasing residential values during the six fiscal years included in the report. In that period, Somerset has lost $208,514,825 in value in the CIP class, while gaining $289,964,145 in value in the RO class. Larger communities are less likely to have a significant shift in value between classes caused by just a few properties. When there is a significant shift in value between classes in a larger community, it tends to be more indicative of a trend in the market that affects values within a whole class.

A closer look at the Municipal Databank report shows that of the 28 communities that have had a 5% or greater shift in value to the CIP class in the past six years, 23 are smaller communities with less than 1 billion dollars in total taxable value. In the same six-year period, of the 38 communities that have had a 5% or greater shift in value to the RO class, 31 are moderate size or larger communities that range from $1,167,873,673 (Boxborough) to $15,941,086,982 (Quincy) in total taxable value.

When there is a shift in the percentage of total taxable value between the property classes (RO and CIP), it affects the total amount of taxes paid by each class. The higher the percentage of total taxable value for a property class, the higher the amount of taxes paid by that class. Conversely, the lower the percentage of total taxable value for a class of property, the lower the amount of taxes paid by that class. For communities with a single tax rate, the percentage of total taxable value is equal to the percentage of the total property taxes paid by that class. For communities with a split tax rate, the percentage of total property taxes paid is affected by the amount of the shift in the tax rate from the RO class to the CIP class. However, a shift in the percentage of total taxable value between the classes still results in a change to the percentage of the total property taxes paid by each class.

Have residential value increases caused a significant shift in value to the RO class? The answer is, only in some communities. However, in communities that have experienced the largest shifts in the total taxable value to the RO class, the residential taxpayers are paying the largest increased percentage of the total property tax dollars. Whether residential values will continue to increase in Massachusetts in the future is unknown. However, it is clear, in many communities, residential value increases have caused a shift in the communities’ total taxable value to the class, which has increased the tax burden shouldered by the residential class.

Data Highlight of the Month: Commercial, Industrial and Personal Property Taxes (CIP)

Donnette Benvenuto - DLS Municipal Databank

Massachusetts municipalities may shift tax burden onto commercial and industrial properties by setting a CIP shift factor, which is a ratio between commercial, industrial, and personal (CIP) property tax rates and residential and open space (RO) tax rates. Communities with a CIP shift of 1.0 tax all property at the same rate, while communities with higher rates, today some as high as 1.75, tax CIP property at considerably higher rates than residential property. You can find CIP tax shift data here.

The Data Analytics and Research Bureau has many reports related to Property Tax Data and Statistics found here. Among the reports, you will find Tax Rates by Class from 2003 to present and Assessed Values for each class into the 1980's. Another great tool to utilize is the Community Comparison Report. With this report, users can create a snapshot to compare their community to others. In the report, CIP and Assessed Value Data would be found under the Values by Class tab.

For more information or help using any of our reports, contact us directly at databank@dor.state.ma.us or (617) 626-2384.