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PROPERTY TAXES AND THE REAL ESTATE MARKET
Everyday there is news about the “declining” and “troubled”
Real Estate Market. So, I wasn’t surprised recently when a taxpayer asked when
he could expect his taxes to go down, since home values were obviously going
down. The sad truth is, they probably won’t. If market prices decline (and so
far, that isn’t apparent in all segments of the market), assessments may go
down, but generally tax bills will not. Why? Real estate taxes are based on the
spending of your local taxing bodies. If the spending of these taxing bodies
doesn’t go down, taxes won’t go down.
This fact is the least transparent part of the property tax
process and one that many elected officials either do not understand or do not
want to admit. Instead, the truth that spending creates the tax bill. The tax
rate is nothing more than a calculation that is made by the county and the
schools do not control it. A larger assessment base will LOWER the Tax Rate.
To understand why, we have to look again at the basic tax rate
formula:
BASIC TAX RATE FORMULA
Tax Rate = Levy ÷ Assessed Value
The Tax Rate is nothing more than a
calculation; the result of dividing the LEVY by the ASSESSED VALUE
The Levy is the amount of tax dollars that your taxing body
requests
The Assessed Value is the total of the assessments in the
taxing district
WHAT IF THE LEVY STAYS THE SAME BUT MY ASSESSMENT GOES
DOWN….
This is an EXAMPLE:
If our taxing body requests $100,000 (which is the LEVY) and total assessments
for the area are 2,000,000. The tax rate is .0500.
If your assessment is 10,000, then your tax will be 10,000 x .05 or $500.
Now, getting back to the question “If property values go down, won’t my taxes go
down?’ Let’s see……
Our taxing body is still requesting $100,000 (the LEVY), but total assessments
are 1,800,000 (down 10%) The tax rate is now .0556
If your assessment is 9,000 (down 10%) then your taxes will be 9,000 x .0556,
STILL $500.
Taxes didn’t change even though assessments went down-because the LEVY
didn’t change.
The LEVY DRIVES THE TAX BILL
WHAT IF THE LEVY INCREASES BUT MY ASSESSMENT GOES
DOWN?
This is an EXAMPLE:
The LEVY is 110,000, 10% MORE, and assessments are 1,800,000,
down 10%.
The tax rate is now .0611 ($110,000 ÷ 1,800,000).
If your assessment is 9,000 (down10%), then your tax bill will be 9,000 x .0611
or $550.
Up 10% like the LEVY, not down 10% like your assessment.
THE LEVY DRIVES THE TAX BILL!
DISTRIBUTION OF THE TAX BURDEN
Generally, taxes do not go up because of increasing
assessments and they will not go down with falling property values. On an
individual basis, if the assessments in one area of the township go down and all
the others go up, the declining area may see some relief in their taxes – the
tax burden has been redistributed. And if one area of the market appreciates
while most of the market is stagnant, the appreciating area may see taxes
increase while the others stay the same-the tax burden has been redistributed.
But, if all assessments decrease by a similar amount, say 10%, there will be
absolutely no change in your tax bill - unless the levy changes.
LEVIES go up because local government spending goes up and
taxes go up because LEVIES go up – even when assessments go down. Assessments
and tax rates do not create the tax burden and they do not change the tax
burden; they only distribute the tax burden that is created by the levies.
The services we want from our schools and local governmental
bodies are not free; we pay for them with our property taxes. When we see a
downturn in the economy and housing market and find ourselves having to cut back
in our own lives, we want our taxing bodies to do the same. It is up to each of
us, as voters and taxpayers, to question how much money is needed by our taxing
bodies to operate, because…….
THE ONLY WAY TO CONTROL TAXES IS TO CONTROL LOCAL
GOVERNMENT SPENDING!
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