STATE AND LOCAL GOVERNMENT TAXATION OF MANUFACTURED HOUSING L. Kenneth Hubbell

FRP Report No. 29 February 1999

iii

TABLE OF CONTENTS

Page

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Tax Assessment and Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. Administrative Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. Frequency of Required Reassessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

III. Valuation Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

A. Basis for Classification as Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

B. Basis of Valuation of Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

C. Assessment Compared to Site-Built Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

D. Basis of Valuation as Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

E. Personal Property: Method and Form Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

F. Personal Property Assessment Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

IV. Special Exemptions and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

A. Homestead Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

B. State Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

V. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

1 The term manufactured housing pertains to structures—both single-unit and multi-sectionhomes—that are built in a factory to HUD standards, and transported to the site and installed. Theterm “mobile home” as used in the industry refers to manufactured homes produced prior to 1976.The 1980 and 1990 Censuses of Housing, however, do not adhere to this distinction and lump thetwo types together. Motorized recreation vehicles (RVs) are not classified as manufactured or mobilehomes.

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STATE AND LOCAL GOVERNMENT TAXATIONOF MANUFACTURED HOUSING

I. Introduction

In contrast to the extensive literature on the taxation of site-built housing units, little empirical

research exists on the taxation of manufactured housing.1 The dearth of research on this subject is

particularly baffling, given the explosive growth of the manufactured housing market over the past

three decades in terms of the total housing stock. During the period 1970 to 1990, manufacturing

housing more than doubled, rising from 3.1 to 7.2 percent of the U.S. housing stock (U.S. Censuses

of Population and Housing). This increase is even more dramatic when measured against the growth

of the single-family segment of the housing market. In 1970, for example, only about one in every

twenty-five families resided in a manufactured home. By 1990, the figure had risen to slightly more

than one in ten.

A confluence of national and sub-national forces seem to have provided an economic

environment conducive to this expansion. Among those forces, the manufactured housing industry

profited from the following: (1) the movement of people from urban to rural places; (2) the shift in

the population to the south and southwest regions of the country; (3) the repeal or relaxation of

restrictive regulations and laws, and; (4) the improvements in the terms and methods of financing a

manufactured home.

National data show that in the rapidly growing states of Arizona, Florida, Georgia, Nevada,

North Carolina, South Carolina and Texas manufactured housing is sheltering a growing share of the

2 The study concentrates on manufacturing housing as a place of residence and excludesmanufacturing housing used for commercial or business purposes.

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population. Further, manufacturing housing is perceived to be an affordable alternative to site-built

homes in all but the most urbanized areas of the country.

Despite the increase in the number of manufactured homes, most states have not considered

the property tax implications of the growth in manufactured housing. One issue has to do with the

effect of manufactured homes on the fiscal conditions of the communities. Many communities face

a rising demand for public services as manufactured housing increases. But there is concern that the

tax revenue that manufactured housing produces does not match that of site-built housing.

In addition, states have not addressed the difference and inconsistencies in the valuation

methods and tax methodologies applied to manufacturing housing vis-a-vis site-built homes. To

address this issue, this paper discusses the results of a comparative, 50-state study of state and local

government taxation of residential manufacturing housing.2 The study examines three aspects of state

and local government taxation of manufacturing housing: tax administration and assessment of

manufacturing housing;

• the methodologies used to tax manufacturing housing;

• state homestead exemption of manufacturing housing, and;

• retail sales tax policies for manufacturing housing.

The data for this project was obtained from a survey of state Tax Commissioners conducted

in May 1998. The survey was mailed to each state’s Tax Commissioner; Appendix A contains the

survey. We received responses from all 50 Commissioners. For the most part, the reported

responses exclude those from the states of Hawaii and Alaska. The former is excluded from the study

since they have no manufactured housing within their state. Alaska is omitted from the analysis

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because the taxation of property is a discretionary local government tax. Furthermore, comparative

data are not available for Alaska; only 25 of the state’s 163 jurisdictions levy a local property tax.

Appendix B contains the results of the survey.

II. Tax Assessment and Administration

Forty-seven states identify their local governments as being responsible for administrating the

property tax on manufactured housing (Table 1). Included in the administrative function are the

identification of different types and classes of properties, estimating the market value, conducting

assessment appeals, and collecting the taxes due. The two exceptions are Maryland and Montana;

in these two states the state government retains control over the procedures and directly determines

the market value of properties within the state.

A. Administrative Authority

Before discussing the specifics of the administrative arrangements, it should be noted that

manufactured housing used for residential purposes is perhaps unique among value-based taxes, as

it may be classified for tax purposes as either real or personal property. As one might anticipate, such

a possibility complicates the taxation of this housing form and introduces a number of difficulties in

the application of the property tax to manufactured housing. An obvious problem is that of

determining when to tax manufactured housing as real versus personal property. In one sense, the

distinguishing features or circumstances, no matter how well crafted, seem artificial since

manufactured housing is essentially considered a residential home, and homes are universally

classified as real property. A second set of problems revolves around the issue of valuation, i.e., what

method of valuation should be used in establishing the actual or true market value of

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manufactured houses, and how does the resulting valuations stack up against that of site-built homes.

Both of these issues are developed further in Section III of the paper.

One’s initial impression is that taxation of manufactured housing is primarily a local matter.

This is not the case, however, because many states constrain and/or dictate local property tax policies

and practices. In many states, for example, the administration of the property tax on manufactured

housing is delegated to local governments, but not the method of valuation. Laying aside for a

moment the particulars of the valuation methods, the survey asked the Tax Commissioners to indicate

which of the following best described the valuation approach of their state: state-valued (SV), state-

mandated (SM), state recommended with local discretion (SRLD), and total local discretion (TLD).

Of the 47 states in which local governments administer the tax, only 16 states (33 percent)

indicated that local jurisdictions have total local discretion (Table 1). An additional 13 states (22

percent) reported that valuations are state mandated (SM). The remaining 18 states (37 percent)

described the relationship as SRLD, i.e., the state recommends a valuation method but allows local

governments the discretion to select an alternative methodology. Just how much weight is given to

the state recommendation vs. local discretion in these 18 states is difficult to gauge. But, from

follow-up conversations in several states, it is probably fair to say that rural jurisdictions are more

inclined to accept the state’s lead in this area.

B. Frequency of Required Reassessment

The information on the frequency of required reassessment suggests that a little over one-half

(18) of the 32 states responding to this question reassessed annually (Table 1). The frequency of

reassessment for the other states is as follows: two-year, 2 states; three-year, 4 states; four-year, 2

states; five-year, 3 states; and over five-year, 4 states. For reasons that are not clear, sixteen states

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responded “not applicable,” although it may be that these states do not have mandated reassessment

cycles.

III. Valuation Methods

As most assessors will attest, two of the most difficult issues they face are:

• Should manufactured housing be taxed as real or personal property?

• How should assessed value be determined?

The remainder of this section addresses these two issues.

A. Basis for Classification as Real Property

As the survey reveals, there is general agreement among the states on the factors used to

classify a manufactured homes as real property, and to some extent, on the methods of application

in the classification process (Table 2). The major characteristics used in the classification process are

whether the unit is permanently affixed, is owner-occupied, or is sited on the owner’s land. Two-

thirds, or 18 states, make the determination to treat a manufacturing home as real property using just

one of the foregoing tests. The requirement that the unit is permanently affixed to the site is the clear

favorite, 13 states use this factor. Alabama, Wyoming, West Virginia, and Oregon use land ownership

as the delineating criterion, while the state of Louisiana makes the determination solely on the basis

of whether the unit is owner-occupied. In the spirit of fostering greater local government autonomy,

Rhode Island leaves the classification issue to the local communities. Lastly, South Dakota takes

a liassez-faire posture toward the issue and simply lets the owner decide how the manufactured

housing is taxed.

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While a number of states select a single measure for their litmus test, more than half (28)

incorporate multiple measures in their standard. The previously cited “permanently affixed” and

“owner’s land” measures are by far the most popular characteristics. For example, 41 states

incorporate “permanently affixed” as a determinant, while only 31 states cite land ownership as one

of the benchmark criterion. It is interesting to note that just two states, California and Colorado,

indicate that the size or the dimensions of the manufactured housing unit are important elements in

the classification decision.

B. Basis of Valuation of Real Property

Assessors typically employ one or more of three methods in arriving at fair-market-value for

a property: a comparative sales approach, a cost approach, and an income approach. Since the

methodologies of these approaches are well known, a discussion of the estimating techniques used

in arriving at a fair market value by these methods is omitted. What is important to note at this point

is that 25, or 51 percent of the surveyed states claim manufactured housing, when treated as real

property, is assessed at fair-market-value (Table 2). Further, they report that the valuation techniques

employed are the same as those used in the analysis of site-built homes.

Because of the perceived similarities between manufactured housing and automobiles, several

states turn to automobile-type manuals for their valuations. The two most common sources in this

regard are the National Automobile Dealers Association’s, Mobile Home Manufactured Housing

Appraisal Guide, and a similar manual published by Marshall & Swift, Residential Value System. The

important point is that both sources treat manufactured housing as well as automobiles as a

depreciable asset. A little more than 30 percent of the states (15) identify these national manuals as

their source of market valuation of manufactured housing, and twelve of this number adjust the

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published figures to reflect improvements to the manufactured housing units, such as the addition of

a porch or patio.

The remaining 19 percent of the states (9) point to some form of market analysis or a state

manual as the basis of valuation. From the state responses, both methods are similar in their

approaches, but differ in terms of focus. Arizona, for example, uses statewide sales data that include

the value of improvements, plus Marshall & Swift’s valuations in formulating their statewide

valuation manual. South Carolina, on the other hand, relies on national published sources, but

encourages local governments to adjustment the figures for local market conditions.

C. Assessment Compared to Site-Built Homes

There are two aspects of the comparative assessment issue: First, do states assess

manufactured housing and site-built homes at the same rates when manufactured housing is treated

as real property? Second, what is the degree of local discretion in the setting of assessment rates?

In response to the initial question, with the exception of Arizona, all states claim that site-built and

manufactured housing units are assessed at the same rates (Table 2). Arizona assesses manufactured

housing and site-built at 82 percent and 100 percent of their market values, respectively.

Local governments have the latitude to set their own assessment rates in nine states. The bulk

of these states are located in the northeast: Maine, New Jersey, New York, Pennsylvania and Rhode

Island. Comparatively speaking, they represent a small share of the manufactured housing market.

Of the three remaining states, Arizona, South Carolina, and Wyoming, only South Carolina is

considered a significant market area for manufactured housing. Thus, the states with the highest

concentration of manufactured housing do not allow local governments the discretion to set their own

rates.

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D. Basis of Valuation as Personal Property

The administrative difficulties associated with determining whether a manufactured housing

unit should be classified as real or personal property has driven eleven of the 48 states (23 percent)

to assess all manufacturing housing as real property (Table 2). Six of the eleven states are clustered

in the northeast: Connecticut, Delaware, Main, New Hampshire, New York, and Pennsylvania. Four

are southern states, Louisiana, Kentucky, Tennessee, and South Carolina; one is in the Midwest,

Nebraska.

Consistent with the real property classification tests discussed above, land ownership and/or

attachment are the critical factors in the classification of manufactured housing as personal property.

These are the pivotal factors in approximately 84 percent of states (31 out of the 37). Location of the

manufactured housing unit is also an issue in some states. In five states, Iowa, Maryland,

Massachusetts, Michigan, and New Jersey, manufactured housing units situated in mobile home parks

are listed on the personal property tax roll and taxed as such. As noted previously, South Dakota

allows the owner to declare the basis of taxation.

E. Personal Property: Method and Form of Taxation

The basis of valuation for the 37 states which treat at least some manufactured housing as

personal property taxes is quite varied and embraces the traditional sources (Table 2). Sales price,

in one form or another, is the standard in more than 46 percent of the states (18). The preferred

sources of eleven of these states are the publications by NADA and Marshall & Swift. As in the case

of real property, the value of improvements is not included in the states of Mississippi, Missouri, and

South Dakota. A fairly large number of the states, 13, simply state that the property tax is ad

valorem and the assessment is parallel to that of site-built homes.

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License fees, special excise and In lieu of taxes are popular forms of taxation in six states.

Again, the basis for these taxes is quite varied. Alabama and Iowa, for example, tie their respective

license fee and special excise tax to the size or dimensions of the manufactured housing unit.

Maryland, Massachusetts, Michigan, and New Jersey, on the hand, refer to their levies as In lieu

taxes. Maryland calculates the amount owed from rental receipts (mobile home parks), while the

latter three assess flat fees on units in mobile home parks. Many states also require a license fee in

conjunction with other personal property taxes sources. With the exception of Maryland, the fee is

collected in conjunction with an ad valorem tax. Administration, rather than revenue, appears to be

the motivating factor in the imposition of these fees.

F. Personal Property Assessment Rates

As reported above, states are consistent in their assessment of manufactured housing vis-à-vis

site-built homes when both are classified as real property; with the exception of Arizona, all states

assess manufactured housing at the same rate as site- built. The observed equitable treatment of these

alternative forms of housing is less evident, however, when manufactured housing is taxed as personal

property (Table 2). Of the states imposing an ad valorem tax, 5 of 31, or 16 percent, apply different

rates to manufactured housing than to site-built. The latter is assessed at a lower rate, but in most

cases the differences are minor. In the states of Mississippi, Ohio, and Oklahoma, the variances are

from 5 percent to 10 percent. Arizona and Utah are the exceptions, reporting differences of 18

percent and 45 percent, respectively. Effective January 1, 1999, the list is reduced to four as Ohio

moves to equalize the rates.

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IV. Special Exemptions and Other Taxes

Although the questionnaire primarily focuses on the valuation, classification, and assessment

of manufacturing housing, states were queried about two additional tax issues, i.e., exemptions for

homesteads and retail sales taxes. The former issue is examined first.

A. Homestead Exemptions

States generally employ a variety of measures in attempting to reduce property taxes for

specific classes of property or specific types of taxpayers. The exemption of assessed value for

homesteads, limits on assessed value, state government credits or rebates for local residential property

taxes, and special assessment methods for agriculture are the most widely-used tax-relief methods.

Of these four policy instruments, homestead exemptions is the most popular. According to the

survey, 34 states allow some from of homestead exemption for manufactured housing (Table 3).

From the range of responses, it is apparent that homestead exemptions take a number of

different forms and are extended in a variety of ways. Several states, for example, exempt a fixed

amount for all homeowners, manufactured housing as well as site-built. Alabama, Florida, Georgia,

Ohio, Louisiana and Massachusetts take this approach. Other states, like Idaho and Pennsylvania

apply it to all homeowners, but the exemption is limited to a certain percentage of assessed value up

to some maximum. Still other states, Maine, Minnesota, New York, North Carolina, South Carolina

and Texas limit the exemptions to specialized groups: senior citizens, veterans, disabled persons

and/or low-income families. Despite the seemingly countless combinations, it appears that the

exemptions are equally applied in that the tax relief measures are available to both manufactured

housing and site-built homeowners. The lone exception is the state of Illinois.

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B. State Sales Taxes

In 37 states a retail sales tax is added to the purchase price of a new manufactured housing

unit (Table 3). Put differently, there are only seven states, Massachusetts, Minnesota, New Mexico,

Rhode Island, South Carolina, and South Dakota, that exempt manufactured housing totally from

sales taxation, and an additional five states which have no statewide sales taxes and levy no tax on

this housing form.

Among the taxing states, nearly 80 percent (29) require that the manufactured housing units

be taxed at their full purchase price. The remaining 8 taxing states discount the purchase price before

applying the tax, with discounts ranging from 40 percent to 70 percent, with a median rate of 60

percent.

The effective state sales tax rates range from a low of 1.6 percent in Colorado to a high of

7.25 percent in California, with a median value of 4.5 percent. The foregoing rates, however, do not

take into consideration locally imposed rates, thus the true tax incidence is higher in 24 states.

Viewed from the standpoint of horizontal equity, the retail sales tax is justified. This

conclusion follows from the fact that sales taxes are incurred during the construction of site-built

homes and are likely reflected in the selling price of the home. In the case of manufacturing housing,

these same construction materials are exempt from state sales taxes. Hence, from the standpoint of

tax fairness a retail sales tax is warranted. It should be noted, however, that the resulting tax burdens

are not the same. In the case of manufactured housing the tax is paid at the time of purchase or final

stage, whereas in the case of site-built homes it tends to be compounded since marketing and

financing costs are often calculated as a percentage of the selling price.

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V. Conclusions

Three major conclusions can be drawn from the survey. First, taxation of manufactured

housing is a knotty problem for many states. As the survey illustrates, several states grapple with the

issue of classifying manufactured housing as real versus personal property. Second, states appear

divided as to the method of valuation. That is, in some states manufactured housing is assessed and

treated like a depreciable asset such as an automobile, while in other states it is assessed like its close

substitute, site-built homes. Third, the foregoing problems have enormous fiscal implications for local

governments, especially the less urbanized ones. Failure to properly assess and tax this growing

segment of housing may result in a widening gap between the public expenditures required for

manufactured housing residents and the property tax revenue base available to support those services.

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ABOUT THE AUTHOR

Dr. L. Kenneth Hubbell is a Professor of Economics and Public Administration at the

University of Missouri-Kansas City and Principal Associate in the Fiscal Research Program. He holds

B.A. and M.A. degrees from Texas Christian University and a Ph.D. from the University of Nebraska.

Professor Hubbell's teaching and research interests are in the areas of economic urban economics and

public finance. He has published numerous articles and papers in these areas. In addition to his

research, he has served as an economic consultant to the World Bank, IMF, USAID, as well as to

numerous state and local government agencies. He has also been a visiting scholar at U.S.

Department of Commerce and at Syracuse University. The research for this paper was undertaken

while he was a visiting professor in the School of Policy Studies at Georgia State University in 1998.

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State and Local Government Taxation of Manufactured Housing

Publisher(s): Fiscal Research Center of the Andrew Young School of Policy Studies

Author(s): L. Kenneth Hubbell

Date Published: 1999-02-01

Rights: Copyright 1999 Fiscal Research Center of the Andrew Young School of Policy Studies

Subject(s): Housing and Homelessness