Assessments Aren't Always the Cause of Property Tax Increases
It seems reasonable to assume a property tax increase is due to a rise in the assessed value of your property, but is this true? Assessed value is only one component in the total equation used to calculate your property tax bill. If you assume the assessed value is the driving factor behind higher taxes, you are missing the full picture and, in many cases, the truth behind a higher tax bill.
Property taxes are based on three primary factors:
1. The assessed value of your property
2. The assessed value of all property within the district and
3. The financial needs of local taxing districts.
Changes in any of these from one year to the next will impact your property taxes. In fact, it is possible to see a decrease in the assessed value of your property yet still see an increase in taxes. On the flip side, you might also see an increase in your property’s assessed value yet have a lower tax bill.
Considering these three factors, assessments have only a moderate impact on property taxes. Tax bills are largely driven by the budgets set by taxing districts serving you and your property. The aggregate amount of money budgeted by your taxing districts determines the amount of taxes needed from property owners – known as the levy. Dividing that levy by the assessed value of all property determines the tax rate. That rate is then multiplied by the assessed value
of your property to determine the taxes owed.
Consider the following scenarios:
Scenario 1: The assessed value of your property decreased. Concurrently, one or more of the taxing districts serving your property increased their budget, resulting in a higher tax rate. The higher rate can lead to an increase in property taxes.
Scenario 2: The assessed value of your property increased. Concurrently, one or more of the taxing districts serving your property decreased their budget, resulting in a lower tax rate. The lower rate can lead to a decrease in property taxes.
Scenario 3: The assessed value of your property decreased, and your taxing districts had only minimal changes in their budgets. Concurrently, the value of surrounding property decreased. For example, a rural business shuttered, removing that property’s value from the total tax base. With the loss of that value, the tax burden will shift to all other properties in the area. This shift can lead to an increase in property taxes.
Originally published in LINK July-August 2022.