Tax implications with voided annexation

After the city annexation ordinance was enacted on Dec. 6, 2011, residents of the annexation had to pay city taxes instead of county taxes. Now with the annexation ordinance invalid after last week’s court decision, there is question about the taxes collected. “The money will be held in a trust account until the court decides what to do with the money,” said Commissioner Ron Smith at the Dec. 3 county commissioner meeting at which many city officials were present.

“The only thing the county has to do with it is collecting taxes. The City has to tell them what is going on with their tax money,” Smith said.“By law we have to collect taxes,” said Glenda Poston, Boundary County Clerk. Poston said they will only hold the taxes collected from the annexation in the trust fund.

According to city attorney Will Herrington, the city will contact the attorney representing the taxpayers to coordinate notifying them of the decision. The city will separately notify any taxpayers not represented. Not only will the trust fund hold property taxes but also fees collected by the city from the annexed area, such as solid waste fees. There is a difference of about $18 dollars between solid waste fees for county residents and city residents.

When the area was annexed into the city limits, the annexed owners had to start paying an extra tax to the city to fund city operations, said Dave Ryals, Boundary County Assessor. Additionally, most of the property values increased according to Ryals. For the city, there is a three percent cap on property tax that they can assess. However by state law, when an area is annexed the city is allowed to consider the growth as new growth, according to Ryals. This allows the city to collect money over and above the three percent limit to help offset the growth. The additional amount collected is the value amount of the annexation properties multiplied by last year’s levy rate.

For the city of Bonners Ferry, the annexation allowed it to garner $25,478 more in taxes to offset the growth. The property value of the annexation was $6,619,470, as of September 2012, and last year’s levy rate was 0.003849019. The additional $25,478 in taxes will be placed in a trust until the court decides what to do. Herrington said the case will be put in motion before the end of the year.

Another implication of the invalid annexation is the levy collected by the Paradise Valley Fire Department (PVFD). After the area was annexed into the city, the PVFD lost the revenue from that annexed area and had to increase the levy among the rest of the district to meet operating expenses. The levy increased $7.50 per $100,000 property value for those in the fire district. This implication was not discussed further at the commissioner meeting.

“This issue is certainly not over,” said Fonda Jovick, the attorney representing the Annexation Opposition Group. “We are breaking new ground challenging it.”