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“It looks a lot different now than it did on the ballot,” joked West Point Council member Jerry Ledbetter of the Homestead Tax Exemption at the council’s Tuesday night work session, and he was not wrong.

House Bill 581, which was passed in the November statewide election, at its surface offers an exemption to qualifying homeowners across the state on their residential property taxes. However, there’s a lot more that goes into the bill and its language than meets the eye or can be spelled out on a one-page ballot. 

During the work session, West Point City Manager Ed Moon gave an overview of the bill and what steps the city needs to take to either opt in or opt out. 

Origin of the bill

The bill was created in response to concerns from the Georgia Legislature about increasing property values and property taxes. The floating Homestead Exemption’s goal is to control assessments of properties by freezing property values. 

The Property Tax Reform HB 581 was signed into law on April 18, 2024, and was voted on by the voters on Nov. 5. 

It will take effect on Jan. 1, 2025. If the city chooses to opt in, they don’t need to take any action. In that case, it will only affect residential owner-occupied properties. 

So what is the impact?

A floating or base-year homestead exemption works to offset or reduce increases in taxable value. This means that when a property is reassessed any increase will be “floated.” 

Say a property valued at $100,000 is reassessed based on market values and sees a $10,000 increase. The exemption “floats” that $10,000 and the taxpayer sticks with the base-year $100,000. 

Now, HB581 does allow for an adjustment in the base value based on a rate of inflation decided by the State Revenue Commissioner. 

“We feel like this will be the Consumer Price Index (CPI),” Moon told the city council during the work session. 

If the adjustment is based on the CPI, that will be an increase of 2 percent. This means that if a property in West Point has a base-year value of $100,000, with a rate increase of 2 percent, the taxable value will be $102,000. Then, $102,000 becomes the new base value for the next tax year.

If the city does opt in, the tax values for 2025 will just carry over from those in 2024. They will only increase if there’s an increase in the CPI or if there are improvements to the property.

“So if you make improvements to your property, those will increase your tax rate, because that’s going to increase the value of the property. It’s not just based on assessment or market rate,” Moon added.

For homes first receiving the exemption in later years, the base year assessed value will be the assessed value for the immediately preceding year, according to the Georgia Municipal Association.

Another thing to keep in mind is that property value will reset when the property is sold. The exemption-based value is not transferable. 

FLOST 

Now, to offset the impact of the exemption on cities and counties, the state created a new option local sales tax, a Floating LOST. 

The FLOST, similar to LOST or SPLOST, would be a maximum 1 percent sales tax. The sales tax differs from the LOST and SPLOST because it’s only on food, food ingredients, alcoholic beverages and motor fuel that is retail sold when fuel is below $3 a gallon.

The county and cities within it that levy a property tax must have a floating homestead exemption to be eligible. The county and cities representing at least 50 percent of the municipal population cities that levy a property tax must enter an intergovernmental agreement (IGA) calling for the tax. According to the GPA, funds are split between the county and cities based upon the IGA and used for property tax relief. 

The IGA defines the percentage, distribution and length (which can be no more than five years). 

Things to consider

Moon left the city council with final considerations on the bill. For one thing, the exemption does reward homeowners but will likely create tax inequities in the future. For example, two properties assessed at the same time will freeze only until one is sold or transfers hands. Then, the new homeowner will take on a new base-year value based on market value and pay more tax than their neighbor. 

Though there will be no immediate reduction in tax revenue, there could be a possible tax shift to other property types down the line. 

“So your commercial, your industrial, your rental properties, those could all be burdened with higher tax bills in the future to make up the difference,” Moon explained. Still, there will be no shift in tax revenue for 2025 because the tax value is carrying over from 2024. 

If the city decides to opt-out, they are required to have a series of three public hearings, approve a resolution and file with the Secretary of State by March 1, 2025. The process cannot begin until after January 1. 

However, Moon said, “If a number of cities and counties decide to opt out, the General Assembly can come back and pass a local act for a referendum that could put the homestead exemption on our taxes, whether we want it or not. And they made that very clear, that that’s an option…They are serious about controlling property tax.”

More detailed information about the Homestead Tax Exemption can be found at the Georgia Municipal Association website at https://gacities.com/Resources/Reference-Articles/HB-581-Frequently-Asked-Questions.aspx.