Double Taxation: Definition, Examples, Alternatives

"Double Taxation" is the disparity that exists either when residents of municipalities pay county and city taxes and receive benefits or services only from the city, or when city-county agreements provide for joint financing of services with city residents also financing part of the county share.

The objective of this publication is to provide city officials with a simple tool to analyze double county taxation practices on municipal residents in order to
  • Identify and document tax inequities where they exist, and
  • Begin a discussion on how to address and eliminate double taxation of city residents as part of the local Service Delivery negotiation process.
Double taxation generally falls into one of two categories: duplicated services or jointly financed services.

Duplicated Services

City residents are taxed by the county and the city for a service only provided to them by the city. An example of this is the case where both city and county have code enforcement services, but the county provides code enforcement almost exclusively in the unincorporated area - even though funds to support the county code enforcement come from property taxes which are paid by county residents inside as well as outside the city.  

Jointly Financed Services

County residents living within a municipality are taxed by the county and the city for a service provided jointly by the county and city. In such cases, residents of the unincorporated area pay for the service through county taxes only while residents of municipalities pay for the service through county and city taxes.

One example of this is where a city and county jointly finance a recreation center, splitting the cost fifty-fifty. In this example, one half of the county residents live within the city, so municipal residents are actually paying 75% as opposed to 50% of the total cost of the recreation center.  

In the above example, the county digest is $300,000,000 and the city digest is $150,000,000. To calculate what portion your city’s digest is of the total county digest, divide the county digest into the city digest.

Another example is where the county operates a jail which is used by the city police department. The county charges the city a daily fee for each municipal prisoner housed in the county jail. The jail was financed by county bonds, and the personnel needed to run the jail is paid from the county general fund. Both unincorporated area residents and city residents pay county property taxes to pay off county bonds and support the county general fund. Yet city residents are forced to pay an additional fee for every municipal prisoner housed in the county jail. The city residents pay twice for the same service.

Alternatives to Double Taxation

There are three alternatives for solving this problem:
  1. The city and county officials recognize the problem and work out an equitable agreement for both the city and county taxpayers
  2. Establish county taxing districts comprised of incorporated and unincorporated area and set county tax rates for each district based on services received from the county, and
  3. Consolidation of county and city governments.

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