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(North Dakota Monitor) – A referendum to eliminate taxes based on assessed property value would not only fundamentally reform North Dakota’s residential property tax system, but would also cost local governments hundreds of millions of dollars in annual revenue from taxing other types of property.

The bill, approved earlier this month for a November vote, would prohibit political subdivisions from “levying any tax on real or personal property, except bonds, until they are paid off,” according to the North Dakota Secretary of State’s office.

Adam Mathiak, chief financial analyst for the Legislative Council, told lawmakers at a meeting in June that the measure could cost the state about $1.3 billion in revenue each year.

Only about a third of this comes from property taxes on residential properties, according to data on the tax office’s website. The rest comes from property taxes for agriculture and businesses, as well as taxes on centrally assessed infrastructure such as railways, airlines and investor-owned public utilities.

Rick Becker, chairman of the property tax initiative’s sponsoring committee, said the measure would correct a system that overburdens homeowners and lets big businesses get off lightly.

He said the measure proposes eliminating assessment taxes on all types of property because the committee believes this is the fairest and, in the long run, better for the state’s economy.

“If that benefit extends to all types of property – including commercial – that will be the biggest incentive to bring businesses, new businesses and new industry to the state,” he said.

He said the state could make up for any shortfall in revenue by drawing on its reserves.

“The state easily has the money for this,” said Becker.

Tax Commissioner Brian Kroshus said he has heard mixed opinions from the public about how the measure would affect North Dakota’s economy.

“Some people may think that it’s essentially a business incentive for companies to locate and open a business in North Dakota because they don’t have to pay property taxes on their building and the land it sits on,” Kroshus said. “The counter argument to that is: What does the revenue picture look like in the long term?”

Several business associations have spoken out against the measure for precisely this reason.

“There is no plan to fund this,” said Andrea Pfennig, director of government affairs for the Greater North Dakota Chamber of Commerce.

She said businesses and workers will not want to move to North Dakota if the state votes to destabilize its own tax system.

Pfennig said the chamber was also concerned that it would deepen the economic divide between rural and urban areas of the state. For one thing, rural communities – for which land is the most plentiful resource – would struggle to diversify their tax base.

Second, if the state had to supplement local government revenues with its own funds, urban communities would have more resources to lobby for a share of these funds than rural communities, Pfennig said.

“From a political point of view, that is not the answer,” she said.

According to data released by the Department of Tax Commissioner, the state collected about $513 million in property taxes in fiscal year 2022.

According to the North Dakota Monitor, another $365 million was collected from business taxes, $249 million from agricultural property taxes and $94 million from centrally collected infrastructure taxes. The report also lists $41 million from special taxes and $147 million from special assessments.