Property tax, also known as valorem tax, is an annual tax set on real properties based on the market value of those assets. At its simplest, this form of tax is something a property or land owner pays to the municipal or local government. The collection of property taxes has been in practice for at least three millennia and is a major source of income for the government.
How does the government determine them?
The amount of property taxes collected by the government is decided on by a number of councils, legislatures, and boards through a budget hearing. In this meeting, these bodies will determine the amount of money that the government will need to cover all its expenses for the year ahead. This form of tax usually comes in the form of a percentage, and is charged either by the state or, in other cases, counties or townships
How are property taxes calculated?
Property taxes are calculated through what is called the mill levy and the assessed property value.
a) Mill Levy – also called millage tax, it is the rate levied on the value of a property. One mill represents one tenth of one cent of the assessed property value. Mill levies for each tax jurisdiction in an area are calculated independently before everything is added up to identify the region’s total mill rate.
The city, school district, and county generally have control to levy against other properties in their areas. As such, each of these entities will calculate the levy that they require which will then be tallied up for the total mill levy.
b) Assessed Value of Property
The assessed value of property is simply the amount to which the mill levy is multiplied to. This value is characterized as the yearly estimation of property value. This estimation will be based on the current real estate market.
The one responsible for this evaluation are the assessors who will review all the relevant information with regards to the property to estimate its value. The process involves studying similar properties that are being sold under the same market conditions as well as the plausible replacement costs of the property and maintenance costs. Other important factors considered are the possible income that the owner can make from the property and the interest charged to construct or create a property similar to the one being assessed.
What are property taxes used for?
Property taxes are used for improvements, maintenance, and support of resources in the local area.
a) Public schools – schools are institutions that usually get the largest support from property taxes. In fact, areas advocating a strong commitment to providing premium education and those with large student bodies often have the highest property values. Though local school systems get funding from other sources like the federal government, fund raising efforts, and the state government, they get their biggest subsidies from property taxes.
b) Government administration– Most communities take a relatively small portion of their local budget for their administration with the cost covering only the benefits and salaries of the municipal administrative staff and the buildings they use.
c) Public roads and parks maintenance– property taxes are used for the maintenance, repair, and improvements of road and public infrastructure. There are some areas where this form of tax includes utility costs (e.g. garbage or sewer collection) in the case that they are provided by the municipality or county. Communities that provide basic utilities via public systems also have higher property taxes.
d) Libraries, police, and public safety– Property taxes are also used to support the salary and benefits of the police force and its support personnel under the premise that a well-supported watch force can lend positive influence to property values in return.
e) Municipal allocations– operations of municipalities and counties rely heavily on property tax revenues to support their allocations. There are jurisdictions where a government agency may collect a tax under one bill then allocate the funds according to a predetermined formula. On the other hand, there are also arrangements where the county and municipality send separate tax bills as well.