How Are Property Taxes Formulated?
Property taxes are determined on the basis of the property valuation multiplied by a tax rate. The state government gives towns, cities and counties the authority to impose property taxes and regulates how valuations are made. The county, city and/or town actually set the valuation and the rate. Both valuation methods and rates vary between states and within states.
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State Regulation
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Each state determines the "valuation" differently. For instance, in California property valuations are based on purchase price, or on the appraised value of construction if a building is newly constructed after purchase, increased each year not more than 2 percent. In Texas and New York, the valuation is determined by actual appraised value each year. Many states also mandate partial to full property tax relief to classes of people and limit increases to or have a ceiling on tax rates.
Local Regulation
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Implementing the state laws that instruct them how to set property valuations, county tax assessment offices actually determine the valuation of each property within their jurisdiction. Each county has some type of appeals process so that an individual may protest his valuation. A local elected or appointed body or voters set the tax rate, also within the limitations of state law.
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Tax Relief
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Most states mandate partial to full property tax relief to classes of people--for instance veterans and the elderly. Many states have a homeowner exemption which applies to all residential properties that are owner-occupied. For these exemptions a certain amount of money is subtracted from the valuation. For instance, homeowners in Louisiana pay no tax on $75,000 of market value of their homes, while homeowners in California receive an exemption on $7,000 of valuation. In Colorado, homeowners 65 and over who have lived in the same residence for 10 or more years are entitled to an exemption of 50 percent of the first $200,000 of actual value.
Rate and Tax Range
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Both tax rates and the amount of property tax paid varies widely. According to the Retirement Living Information Center, historically, Wisconsin and Texas have had the highest median tax rate while Louisiana has had the lowest. In terms of actual taxes paid, New Jersey has the highest median--because of a combination of a high rate and high valuations--while Louisiana has the lowest. Within states, the largest divergence in rates occurs in New York state where the tax rate was $28.12 per $1,000 of valuation in Niagara, NY--the highest rate in the nation--and $4.79 per $1,000 in Kings County as of 2007.
Determine Your Property Tax
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Multiply valuation by tax rate. Both the property valuation and the tax rate for your property will be available at your county tax assessor's office. Try looking online for the county tax assessor's website or go to the tax assessor's office. Multiply the tax rate by the property valuation. For instance, if the tax rate is 1.14 percent and the valuation of the property is $202,000, multiply .0114 by $202,000 to obtain your yearly tax obligation of $2,302.80 less any amount provided by tax relief laws. For instance, if you occupy the home yourself there may be a homeowners exemption of some part of the valuation. Remember that the tax will change over time because valuations change yearly.
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- Photo Credit paying image by Albert Lozano from Fotolia.com A businessman calculating expenses at tax time image by Christopher Meder from Fotolia.com
