Common Myths and Misconceptions About Property Tax

The New York State Department of Taxation and Finance has prepared a list of several common myths about property tax that can also be applied in other areas. Listed below are these common myths and misconceptions about property tax:

1. Property taxes are set by assessors

This is not true. Assessors only establish a property’s market value. After the assessment is done, the market value is multiplied by the rate of tax in order to arrive at the actual property tax figure indicated on the tax bill. Normally, property tax rates are determined by the local authorities, for example school boards, county legislatures and so on.

2. Assessments lead to high taxes

While this might be true, assessments are only half the story. Although getting a high assessment might play a part in a homeowner receiving a high property tax bill, the tax rate is the main determinant of the amount of tax that an individual will pay. You may have a low property tax assessment, but your tax bill will still be high if the assessment is based on a high property tax rate.

Your property assessment is the only component of your property tax bill that you can do anything about- other than complaining to the local authority in your area about the tax rate or voting against tax rate hikes. Because an assessment can be subjective to some extent, the majority of localities have established assessment appeal procedures if you feel your property assessment is excessively high or it does not reflect the market value.

Contact your local assessor’s office to learn how you can file an appeal yourself or contact a professional property tax reduction service to handle the process on your behalf. Most tax grievance companies charge 50% of your first year’s savings with nothing due upfront and nothing at all if they are unsuccessful. The firm will handle the entire process including the extensive legal filings and court appearances. But beware, never hire a tax grievance company that charges you anything upfront, since savings are never a guarantee.

3. People are charged high property taxes to plug state budget deficits or states get too much money from collecting property taxes

Property taxes are the leading source of revenue for school districts and local authorities-but not the states. The Tax Policy Center notes that taxes collected from property taxes contribute just 2 percent to the states’ total tax revenues. Moreover, a lot of states do not get any tax revenue from property taxes. Instead, they leave all the property tax revenue to school districts and localities.

But states without income tax or sales tax (or both of them) usually have a higher dependence on property taxes. Michigan, Wyoming, Arkansas New Hampshire, Montana, Michigan, Vermont and Washington receive a little over 8 percent of their total tax revenue from the property taxes they collect. States such as New Hampshire, Michigan and Vermont have introduced special property tax levies to boost public school funding.

(Information Source- Tax Policy Center)

4. Equalization rates can rectify inequitable property assessments

By definition, an equalization rate is the ratio of the total value of properties assessed in a particular community to the true market value of the properties.

Equalization ratios are municipal-based measurements and they are intended to make sure that the assessments done in the whole municipality do not vary too much from the market value. In addition, the ratios may also be used to ensure property taxes, for example the public library levies that various communities pay, are shared according to the total market value for every community. This is achieved by setting a specific assessment to market value ratio for the municipalities.

This is a false myth. Equalization rates are not intended to rectify individual assessment

5. Tax rates are good pointers of tax increases

This is not true. A property tax bill is based on two factors: the tax rate and the assessment of the value of the property. The tax rate might rise but if the property values are declining, your property tax bill will remain unchanged. Similarly, tax rates may decrease, but if property values rise substantially, your tax bill may increase. The property tax that you will pay is dependent on these two factors.

6. Assessment caps reduce the assessment on property tax

Assessment caps ensure that assessments do not rise beyond a set limit every year. Having the cap means that properties whose value is appreciating faster than the rest may end up being under-assessed. This is due to the fact that the cap prevents the homes from being assessed at their actual value.

For instance, let’s assume there are customized homes in a fashionable neighborhood whose values are appreciating quicker than other homes in less attractive areas of a town. The values of fashionable homes are rising at the rate of 25% annually while values of the other (older) homes are increasing at a rate of 10 percent annually. In addition, let us say there is an assessment increase cap of 15% per year.

The cap will stop the fashionable homes from being assessed at the rightful market value but the older homes will be assessed using their real market value. The owners of the older homes will be left in the lurch because the owners of the fashionable properties are not paying their equitable share. Obviously, this is not necessarily the case, but it is a potential problem with having assessment caps.

Common terms used in the property tax field

There is plenty of jargon that is associated with property taxes, and sorting through this maze can make you dizzy. Therefore, we have provided the simplified definition of several common property tax terms:

• Abatement- Partial or full writing off of a debt
• Ad Valorem Tax- A value-based tax, for example property tax
• Arrears- A term that describes taxes for the previous year that are still outstanding (or are paid) in the current tear
• Assessment(Appraisal)- The process of establishing the value of a for property tax reasons.
• Circuit Breaker- A relief on property tax that lowers or limits the property tax bill for specified persons.
• Comparable sales method- A way of estimating a property’s market value by comparing the sales of equivalent properties.
• Equalization rate- The ratio of overall assessed property values in a particular community to the actual market values of the properties.
• Homestead deduction(exemption)- A reduction on assessment enjoyed by property owners who use the property as their main residence.
• Millage rate- An alternative term for the tax rate, usually given as a thousandth of a dollar (called one mill)
• Tangible personal property- Property, besides real estate, that can be touched or felt such as office furniture or a car. A number of cities and states tax tangible personal property.