Property Tax Evasion

Ralph Nader

[Reprinted from The People's Land, A Reader on Land Reform in the United States, edited by Peter Barners for the National Coalition for Land Reform, printed by Rodale Press, 1975]

Throughout the country, large landholdings are notoriously underassessed. This is particularly true of the holdings of coal, timber and oil companies. A minimal remedy would be taxation of all kinds and sizes of property at the same rate. Even better would be a progressive property tax that, like the income tax, taxed larger units at a higher rate than smaller units.

In the following selection, consumer advocate Ralph Nader discusses some of the most blatant property tax abuses. His statement is taken from testimony before the Senate Select Committee on Equal Educational Opportunity, September 30, 1971.

The underassessment of coal begins with self-assessment. Local assessors have no idea who owns what and how much it is worth. The owners of coal lands simply tell their version of what they own, where, and its value. Ill-equipped, frequently untrained local assessors have no way to check the owner's statement. The "Tax Commissioner" of Knott County, Kentucky, described the process thus to the St. Louis Post-Dispatch:

The coal companies pretty much set their own assessments.... We have no system for finding out what they own. Like they may tell us they own 50 acres at a certain place, when actually they own 500 acres. ...If a company says an area is barren or mined out, we have to accept it.

Or as one local Tax Commissioner told the Appalachia Lookout, "People (meaning coal companies) just paid what they thought they should. Still do, mostly."

This system is not exactly air-tight. In fact, a good deal of rich coal property - one authority puts the figure at tens of thousands of acres - never gets onto the tax rolls at all. A fact-finding team appointed by the Pike County, Kentucky school board in 1967 found that 40 to 60 percent of the county's land was either unlisted or underassessed. That year the Pike County schools had a deficit of almost $113,000 and 45 percent of the people were below the poverty level. Yet at the same time $65 million worth of coal was being hauled out of the county.

Even when Kentucky coal land does get onto the tax rolls, the owners, some of the largest and most profitable corporations in the nation, pay hardly a pittance. "Thousands of acres of coal land worth $200 to $300 an acre get on the assessment books at $2 an acre," the Louisville Courier-Journal said in 1965. For example, National Steel Company currently is developing a huge new mining complex on 14,200 acres of coal land in Knott County. It is building a large, ultra-modern tipple and a preparation plant that is expected to produce 1,250,000 tons of first-quality coal annually. A new railroad is being built to get at this coal. The owner of this tract of coal land, Elkhorn Coal Corporation, has paid its shareholders a staggering 35 percent of its gross receipts in dividends. Yet Elkhorn Coal Corporation has been paying Knott County taxes of less than 22 cents per acre on land so rich as to warrant the new railroad and preparation plant.

Or consider Harlan County, where U.S. Steel has strip-mined the Big Black Mountain, the tallest in the state, into a colossal wreck. In 1966 more than $30 million worth of coal was mined out of Harlan County, and U.S. Steel's subsidiary, U.S. Coal and Coke, was the county's largest single producer. U.S. Steel paid taxes of only $34,500 to the county on two producing mines valued - probably by itself - at $9,300,000. In Arizona, U.S. Steel would have paid almost ten times as much on the same operation. With that much extra revenue from U.S. Steel, Harlan County could have provided close to twice the $41 per pupil it could afford in 1968 - still not much, but at least a start.

In Kentucky, property taxes levied are not always property taxes paid. Several years ago a reporter from the Hazard, Kentucky, Herald found that large mining companies owed Perry County over $75,000 in back taxes. The New York Mining Company alone owed over $4,200. Apparently the county was making no effort to collect.

Throughout Appalachia, the story is the same. The people are poor, the schools are poor, but the owners of coal land enjoy a property tax field day. Tennessee's five most prolific coal counties, which produced 6 million tons of coal in 1970, are losing several thousand dollars per year in property tax revenues, according to a study done at Vanderbilt University last summer. Coal land owners control over one-third of the total land area of the five counties but they provide less than four percent of the property tax revenues. One owner collects royalties of $4,500 per week on land assessed at $20-25 an acre - the same value the county assigns to unused woodland and one-quarter of what it assesses farms!

The pattern continues across the country. The largest and wealthiest corporations flout or evade the property tax laws, victimizing the public schools. A report released recently by a team of law students led by Maine lawyer Richard Spencer disclosed that Maine has been losing over $1 million annually in property tax revenues because its timberlands are underassessed. According to the report, the State Property Tax Division does not even have a trained forester to check the work of the private appraisal firm, James W. Sewall, Inc., that assesses the timber land under contract. The president of that appraisal company, which also performs substantial private work for the timber companies, is Joseph Sewall, chairman of the appropriations committee in the Maine state legislature.

In Augusta, Georgia, a so-called Committee of 100 of "prominent citizens" touched off an epidemic of underassessments some ten years ago by offering illegal tax concessions to firms as an inducement to locate there. The concessions were supposed to be temporary and available only to new industries; but nobody enforced these restrictions and in time the prominent 100 had filched, according to the Richmond County Property Owner's Association, $300 million worth of property from the assessment rolls. Meanwhile many of the county's schools are on double sessions and there is a shortage of 147 classrooms, not including 119 "nonstandard" ones.

School districts in Texas have fared little better. In the Permian Basin the underassessment of oil and gas properties belonging to some of the world's largest producers has cost one school district at least $1 million a year for the last seven years. A 1970 study of oil and gas properties by Texas University law students in Ector County, Texas, found that producing properties were undervalued by about 56 percent and that a non-producing property which Texaco had leased for $460,500 was not on the assessment rolls at all. Homes, on the other hand, were assessed at very close to actual market value.

A survey of timber land in six counties and four school districts in east Texas by the same law students disclosed a pattern of underassessment which, if projected over the entire 37-county east Texas region, signified a loss of approximately $38 million in local revenues each year. In the Newton Independent School District alone, six companies, including Champion-U.S. Plywood and the Kirby Corporation, underpaid by more than $133,000 in 1969.

The states themselves have been at least silent partners in much of the systematic undertaxation, the magnitude of which has barely been suggested. Weak local property tax administration, and a lack of effective checks and appeals procedures for the small taxpayer, isolate abuses from public scrutiny and pressure and lets them flourish. Weak property tax administration, and an absence of procedures through which citizens can protect their interests, do not just happen. A state legislature must establish and then preside over them. Property tax administration in many states is a shambles because, in a manner of speaking, the state legislatures have wanted it that way.

The states are vying to offer "favorable tax climates" that will hold old industry and lure new industry in. But a "tax climate" which suits business is not always the one which can provide the public services, including education, that people need. What the businesses won't pay falls upon the individual taxpayer.