Transit in Nashville: Property Tax Surcharge as a Preferred Option for Funding

Nashville is in the process of embarking on another mission to upgrade its transit system – a task that most agree is a critical and laudable goal. In order to aid in this goal, Mayor Freddie O’Connell has appointed several community leaders to Technical Advisory and Community Advisory committees. Their role is to carefully develop a Transit Improvement Plan that gives vivid descriptions of the proposed updates and shows accurate projections of expected income and expenses over the lifespan of the project.

Overlooking Property Tax as a Viable Funding Option

The committees, drawing upon the IMPROVE Act and the expert advice of external consultants, have so far only considered boosting the sales tax as a means of boosting revenue for the project. Such an approach neglects to take into account other reasonable alternatives for revenue collection. One such method, the use of property tax, has been noticeably left out of the conversation.

The Case for Property Tax Over Sales Tax

When it comes to finding an equitable solution, sales taxes often fall short. The Victoria Transport Policy Institute, in a report it prepared for the 2018 Nashville transit campaign, alluded to the property tax as a worthy contender as a funding source. Property tax is collected by local governments and is often seen as a more equitable means of collecting revenue, unlike a sales tax that extends to even essential items such as groceries.

The clear discrepancy between these two methods of funding transit improvements has led to the urgent question, “Does Metro Nashville have the legal permission to impose a surcharge on property tax to provide steady funding for transit?” Unfortunately, a straight answer has not been forthcoming. However, it serves the interest of the advisory committees to persist in their inquiry, obtain a clear response, and, if favorable, explore the potential benefits of funding transit improvements with property tax rather than sales tax.

Why Businesses Would Prefer Property Tax Over Sales Tax

A variety of businesses that escape the sales tax do, however, pay property tax. These businesses include banks and other financial institutions, corporate headquarters, professional offices, for-profit hospitals, and prisons, as well as entertainment venues, recording studios, lodgings, and real estate speculators. Sales taxes on vehicle sales are capped at the first $1,600 of the purchase price, whereas property taxes on car dealerships have no such limitation.

Better Distribution of Benefits Using Property Tax

Improved transit will increase mobility for those without private transportation, thereby expanding the workforce pool and enabling businesses to maintain a dependable workforce. Additionally, real estate developers and property owners, especially those located near transit developments, stand to benefit substantially from property appreciation and increases in property values due to enhanced transit facilities.

An equitable tax structure should distribute costs proportionally to benefits. Improved transit will result in commercial interests reaping more benefits. A property tax will reflect that. Also, it’s noteworthy that residential properties are assessed at 25% of market value, while commercial properties stand at 40%. Another advantage of property tax is the ability to divide it between the Urban Services District and the General Services District according to the services rendered in each district.

Therefore, it becomes imperative for the advisory committees to consider property tax seriously as a potential source of revenue for transit improvements.