How to Calculate Tax Mill Rate
A tax mill is the number that, when applied to the value of a taxable property, helps to fairly distribute the tax burden among a county's owners of real estate. Mills are used to compute the tax rates that fund a district's schools and other community services. While local taxing authorities follow certain steps to compute the property taxes levied on the owners of real estate, it may help to understand how tax mill rates are actually calculated.
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Instructions
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Establish the total amount of the municipality's annual budget to be funded by the dollars collected through property taxes. A taxing authority determines how much money it will need to fund police, roadway, fire department, library and other essential services to the community's residents. Elected county officials begin by identifying all non-tax sources of income. The next step is to estimate how much money will be generated through non-tax revenues such as licenses, fees, fines and other penalties, service charges, and interest on investments. Whatever expenses are left over will be funded through property taxes. In some cases, a county may still need to borrow money to cover the budget for that fiscal year.
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Assess the fair market value of all taxable real property within the county's jurisdiction. Real property includes land and any buildings, structures or other improvements located on that parcel of land. The County Tax Assessor's Office arrives at a total value of all taxable properties. The value of any exempted properties (such as churches and government buildings) is then subtracted from this gross tax digest to reach what is referred to as the net tax digest.
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Divide the portion of the annual budget to be funded by tax dollars by the taxable value of real estate. This value is calculated by multiplying the net tax digest by the ad valorem tax, or the percentage of the assessed value of a property determined by the taxing authority. The answer equals the mill rate. An ad valorem tax varies among different taxing jurisdictions. Some taxing authorities even divide taxable property into several classes, assessing a separate tax rate to each. It may help to understand that one mill represents $1 of tax for every $1,000 of taxable property value. The number of mills is usually rounded to two decimal places.
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Multiply the taxable value of a property by the mill rate to arrive at the annual real estate tax for a particular property. The tax bill essentially includes several different mill rates, which are applied to the taxable property value, as the mill rates for county and school taxes normally differ.
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Follow this example of how tax mill rates and taxes are computed: A city council determines that $5 million in tax revenue is needed to balance the $10 million budget. The county tax commissioner's office determines that 25 percent (ad valorem) of the city's gross tax digest of $160 million is $40 million after allowing for exemptions. Dividing $5 million by $40 million equals .0125. Multiplying the number .0125 by 1,000 equals 12.50, which is the mill rate. In other words, the mill rate is 12.50 or $12.50 for each $1,000 of taxable property value. If your home is assessed at a fair market value of $150,000, then 25 percent of that, or $37,500, is the taxable value. To calculate the amount of property tax, multiply $37,500 times the number of mills. Note that the numbers used in calculating this example are fictitious.
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