Proposition 2½

Proposition 2½ (Mass. Gen. L. c. 59, § 21C) is a Massachusetts statute that limits property tax assessments and secondarily, automobile excise tax levies by Massachusetts municipalities. The name of the initiative refers to the 2.5% ceiling on total property taxes annually as well as the 2.5% limit on property tax increases. It was passed by ballot measure, specifically called an initiative petition within Massachusetts state law for any form of referendum voting, in 1980 and went into effect in 1982. The effort to enact the proposition was led by the anti-tax group Citizens for Limited Taxation. It is similar to other "tax revolt" measures passed around the same time in other parts of the United States. This particular proposition followed the movements of states such as California.

Under Proposition 2½, a municipality is subject to two property tax limits:

These limits refer to the entire amount of the annual tax levy raised by a municipality. The property taxes are the sum of: (a) residential real property; (b) commercial real property; (c) industrial real property; and (d) business-owned personal property. In practice, it usually limits the tax bills of individual taxpayers, but only as an indirect result.

A side effect of Proposition 2½ is that municipality income will decline in real terms whenever inflation rises above 2.5%. Historically inflation has been above 2.5% for a significant majority of the years since 1980 (22 out of the 28 years to date), thus resulting in a real decline in local tax rates and local spending ability.

An exception allows the citizens of each municipality to override the 2½ restriction to address specific needs of the community thus giving the citizens direct control over their taxation.

The property tax levy is the revenue a community can raise through real and personal property taxes. It is the largest source of revenue for most cities and towns. Proposition 2 ½ puts constraints on the amount of the levy raised by the city and how much it can be increased each year. It had two types of levy limits. The first of the two stated that a community cannot levy more than 2.5 percent of the total full and fair cash value of all taxable real and personal property. The full and fair cash value limit is known as the levy ceiling.The second type stated that it can only increase a certain amount from year to year. This is known as the levy limit. The levy limit will always be below or equal to the levy ceiling. The limits for each community is calculated by the Department of Revenue.

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