Can an Arkansas city lower or eliminate its personal property tax while keeping the real property tax the same?

Plain-English summary

State Representative Kim Hammer asked whether the City of Benton could eliminate its personal property tax over four years while keeping its real property tax in place, relying on Article 12, § 4 of the Arkansas Constitution. He also asked whether the legislature could authorize that disparate treatment if Benton lacked authority to do it on its own.

The AG said no on both counts. Amendment 79, § 4(b) of the Arkansas Constitution provides: "The millage rate levied against taxable personal property and utility and regulated carrier property in each taxing unit in the state shall be equal to the millage rate levied against real property in each taxing unit in the state." That language is plain and unambiguous. The AG found Representative Hammer's reliance on Article 12, § 4, which says no municipal corporation may "levy any tax on real or personal property to a greater extent, in one year, than five mills on the dollar," misplaced. That provision is a cap on the taxing power, not an authorization to tax, and reading "or" as permitting different rates would conflict with the constitutional principle that all classes of property must be taxed uniformly.

Amendment 79 was added in 2000 to mitigate sticker shock from statewide reappraisals. It works together with Amendment 59 (1980), which followed Pub. Svc. Comm'n v. Pul. Co. Equalization Bd., where the Arkansas Supreme Court ordered all 75 counties to reappraise and reassess real property to equalize tax rates. The "overall intent" of Amendment 59, according to Clark v. Union Pac. R.R., was to equalize assessments and millage rates for personal and real property.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Three constitutional provisions structure Arkansas ad valorem taxation:

• Article 12, § 4 caps city and county ad valorem taxes at five mills on the dollar. It is a "constitutional limitation," in the words of Adamson v. City of Little Rock. It does not grant taxing power.
• Article 16, § 5 requires that "[a]ll real and tangible personal property subject to taxation shall be taxed according to its value" and that "no one species of property for which a tax may be collected shall be taxed higher than another species of property of equal value." This is the historical uniformity guarantee.
• Amendment 79, § 4(b) ties the millage rate on personal property and utility/regulated carrier property to the millage rate on real property in each taxing unit. The connection is mandatory and is not contingent on any reappraisal cycle.

The opinion also notes Amendment 57 (1976) authorizes the General Assembly to classify "intangible personal property" for valuation, and Amendment 71 (1992) exempts personal property used within the home that is not held for sale or commercial use. These are constitutional carve-outs, not legislative discretion.

The AG also rejected the argument that the city's proposal could be saved because it was not being done as part of a countywide reappraisal. Amendment 79's equal-rate requirement "stands alone and is not tied to any periodic reappraisals."

Common questions

Did Representative Hammer's reading of Article 12, § 4 have any traction?

No. He read "no municipal corporation shall be authorized to ... levy any tax on real or personal property to a greater extent, in one year, than five mills on the dollar" as letting cities pick different rates for the two species. The AG, citing Op. Att'y Gen. 2003-036 and the historical commentary by Dean Barnhart, said Article 12, § 4 was adopted in the post-Reconstruction era to limit municipal taxing power, not to grant authority for selective taxation. It sets a ceiling. It does not say a city must tax real and personal property at the same rate; Amendment 79 does that.

Could the legislature authorize the disparate rates by statute?

No. The same constitutional barrier blocks legislative action. Amendment 79 is a constitutional rule, and the General Assembly cannot override it by ordinary statute. Changing the rule would require another constitutional amendment.

What about a city that wanted to lower its property tax overall?

The AG's opinion did not address that question, but the implication is straightforward. A city can reduce its millage rate, but the reduction must apply equally to real and personal property within the taxing unit. Cutting one in half while leaving the other untouched is what Amendment 79 forbids.

Did the opinion address Amendment 71's home-use exemption?

Only in a footnote. Amendment 71 exempts personal property used within the home that is not held for sale, rental, or commercial use. That exemption is constitutional in origin and does not turn on local decisionmaking, so it sits outside the equal-rate requirement.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

STATE OF ARKANSAS
THE ATTORNEY GENERAL
Dustin McDANIEL

Opinion No. 2014-097
October 24, 2014

The Honorable Kim Hammer
State Representative
1411 Edgehill
Benton, Arkansas 72015-3128

Dear Representative Hammer:

You have requested my opinion on the following questions concerning the levy of property taxes by the City of Benton, Arkansas:

1. May the City of Benton reduce and eventually eliminate the annual tax levy on personal property within the City while at the same time maintaining the tax on real property at a different rate pursuant to Article 12, Section 4 of the Arkansas Constitution?

2. If the answer to question one is "no," may this issue be addressed legislatively?

As background for these questions, you explain that the City is considering eliminating the personal property tax levy over a four-year period while maintaining the real property levy at the current rate, and that this proposed modification is not being done in conjunction with a countywide reappraisal.

RESPONSE

The answer to both of these questions is "no," in my opinion, based on the express language of Amendment 79 to the Arkansas Constitution wherein it provides:

"The millage rate levied against taxable personal property and utility and regulated carrier property in each taxing unit in the state shall be equal to the millage rate levied against real property in each taxing unit in the state."

In interpreting this constitutional provision, we are guided by the same rules of construction applicable to statutory laws. As noted by the court:

The fundamental rule is that the words of the constitution or statute should ordinarily be given their obvious and natural meaning. Gipson v. Maner and Gibson v. Young, 225 Ark. 976, 980, 287 S.W.2d 467 (1956). If the language used in a constitutional provision is plain and unambiguous, the court should not seek other aides [sic] of interpretation in determining the intent of the framers and voters. Ellison v. Oliver, 147 Ark. 252, 264, 227 S.W. 586 (1921).

As also observed by the court:

The first rule in considering the meaning and effect of a statute is to construe it just as it reads, giving the words their ordinary meaning and usually accepted meaning in common language. Weiss v. McFadden, 353 Ark. 868, 120 S.W.3d 545 (2003). We construe the statute so that no word is left void, superfluous, or insignificant; and meaning and effect are given to every word in the statute if possible. Ozark Gas Pipeline Corp. v. Arkansas Pub. Serv. Comm'n, 342 Ark. 591, 29 S.W.3d 730 (2000). When the language of the statute is plain and unambiguous, there is no need to resort to rules of statutory construction. Weiss v. McFadden, supra. When the meaning is not clear, we look to the language of the statute, the subject matter, the object to be accomplished, the purpose to be served, the remedy provided, the legislative history, and other appropriate means that shed light on the subject.

In my opinion, the above-emphasized text of section 4(b) of Amendment 79 is unambiguous with respect to the questions you have posed. This provision of Amendment 79 clearly mandates that personal property and real property shall be taxed at the same millage rate. The language is simple, direct, and unequivocal. Giving the words their obvious and natural meaning compels a negative answer to both of the questions you have posed.

I note that in presenting these questions, you have placed emphasis upon Ark. Const. art. 12, § 4, wherein it states that "[n]o municipal corporation shall be authorized to ... levy any tax on real or personal property to a greater extent, in one year, than five mills on the dollar of the assessed value of the same[.]" You report a belief that the word "or" in this provision allows for taxation of real and personal property at different rates. In my opinion, this belief is mistaken. My immediate predecessor had occasion to trace the history of this portion of art. 12, § 4, which was part of the original 1874 Constitution. As my predecessor noted, this history reveals art. 12, § 4 to be a limitation on the exercise of the taxing power:

... [A]rticle 12, § 4 was one of the provisions of the Arkansas Constitution of 1874 that was adopted in reaction to the state's recent experience with reconstruction and the "heavy taxes" levied during that period. In describing the 1874 constitution, Dean Barnhart noted:

The General Assembly itself was limited in the rate of taxes that might be levied, as were counties and municipalities, and loan of public credit by state, county, city and or other municipalities was prohibited. . . . In short, the constitution reflected distrust of the executive, the legislative and the judicial branches of the government and kept controls to a very great extent in the hands of the people. . . . The constitution of 1874 was a reaction against the government which preceded it with all of the abuses and dissatisfactions fresh in mind. The eyes of the draftsmen were on an immediate and unhappy past and not upon the visions of a new world.

Consistent with this intent to limit the taxing power of counties and cities, the Arkansas Supreme Court has identified art. 12, § 4 as an "inhibition of the Constitution" that "[denies] the right to levy ad valorem taxes in excess of 5 mills for any purpose." It thus seems clear that art. 12, § 4 is not affirmative authority to tax at all. Rather, it sets a maximum rate of taxation; or as stated by the court, a "constitutional limitation."

I believe it also bears noting that to read Ark. Const. art. 12, § 4 as authority to levy different rates on real and personal property would appear to be contrary to our constitutional requirement of nondiscrimination in the classification of property for taxation purposes:

The theory of our constitution is that the common burden shall be borne by common contributions. All property is to be taxed according to its value. 'All' does not mean all the legislature may designate, or all except such as the legislature may exempt. If this were so the whole burden of taxation might be thrown upon land, or upon any one species of property. It means all private property, of every possible description, or all property other than that belonging to the state, or the general government. The legislature cannot discriminate between different classes of property in the imposition of taxes. The only discretion with which it is invested, is in the ascertainment of value, so as to make the same equal and uniform throughout the state.

This language was cited with approval and emphasized in Pub. Svc. Comm'n v. Pul. Co. Equalization Bd., where the court held that Ark. Const. art. 16, § 5 requires that real and personal property be taxed on an equal basis and that assessments of real property at other than present market value violate art. 16, § 5. The court noted "the constitutional mandate of equal taxation for all species of property" and ordered that all 75 counties in Arkansas undergo the process of reappraisal and reassessment of real property to equalize ad valorem taxation rates throughout the State. In response to Pul. Co. Equalization Bd., and to avoid sudden and dramatic increases in tax bills, the General Assembly in 1980 proposed, and the voters approved, Amendment 59 to the Arkansas Constitution.

This history is informative in addressing your questions concerning a proposed reduction and eventual elimination of ad valorem taxes on personal property. As stated by the court, the "overall intent" of Amendment 59 to the Arkansas Constitution "was to equalize the assessments and millage rates with respect to personal and real property taxes after completion of reappraisal." The language of Section 4(b) of Amendment 79 quoted above (requiring that personal and real property be taxed at the same millage rate) is in all respects consistent with Amendment 59's purpose to proceed toward an equalization of assessments and millage rates. If different millage rates are levied once assessments are equalized, there will be a different tax burden on personal and real property, contrary to the principles identified above. In sum, the millage rate must be the same to create the same burden.

In presenting your questions, you have pointed out that the City's proposal to reduce and eventually eliminate the tax on personal property is not being done as part of a countywide reappraisal. But Amendment 79's requirement of equal millage rates with respect to real and personal property stands alone and is not tied to any periodic reappraisals.

In sum, and in response to your specific questions, it is my opinion that the City may not tax real and personal property at different rates, and that the legislature may not authorize such a disparity in taxation between different species of property.

Deputy Attorney General Elisabeth A. Walker prepared the foregoing opinion, which I hereby approve.

DUSTIN McDANIEL
ATTORNEY GENERAL

DM/EAW:cyh