So, you’re interested in buying property? Well, you’re about to become familiar with property tax millage rates.
With all the excitement that land buying brings, it also comes with some major responsibility…taxes.
State and local governments assess various types of taxes to generate revenue.
Property taxes are no exception to this and actually account for significant revenue each year.
In this blog, we’ll be discussing one aspect of these taxes that you should be aware of as a land owner: the millage rate.
Here are the top things you should know.
1. What is a millage rate?
A millage rate is the tax rate used to calculate local property taxes.
It represents the number of dollars taxed per every $1,000 of a property’s assessed value.
To find the property’s tax amount, millage rates are applied to the total taxable value of the land.
Depending on the municipality, different agencies may have their own millage rates.
For example, in some jurisdictions, a local school board will assess school taxes separate from the regular county or city property taxes.
The school board will use their own millage rate to calculate local school taxes based on a derivation of the total property value within school district boundaries.
Meanwhile, the county or city assessor will use a separate millage rate to calculate the county/city property taxes.
2. Where does the name “millage rate” come from?
Millage rate derives from the Latin word “millesimum” or “mill” for short, which means “thousandth part.”
The millage rate may also be referred to as the “mill rate” or the effective property rate.
3. Why are millage rates important to understand?
Millage rates are important to understand because homeowners can use them to calculate annual taxes.
All you need to do this is the property’s tax-assessed value and the total assigned millage rate.
Assessed values are typically determined by the local governments.
They are usually based on some percentage of the assessor’s estimation of the property’s market value (including the structure and the land).
4. What is a mill?
One mill is equal to one one-thousandth of a dollar of property value.
In other words, $1 for every $1,000.
As a result, millage rates are often expressed mathematically with the symbol %o, as in 1%o.
This symbol means “one part per thousand” or 0.1%.
You can think of 30 mills as being equivalent to $30 for every $1,000 of the assessed value of the property.
5. How do you calculate millage rates?
Annual property taxes are calculated using the property’s tax assessed value and total assigned millage rate.
The tax assessed value is derived from its market value in the form of some percentages.
In some municipalities, the assessment of tax will be 100 percent of the market value while other tax-assessed values will be as little as 10 percent or less in other municipalities.
Millage impacts the property’s tax assessed value as mills are assigned by the municipality.
Here’s an example:
A home has a market value of $200,000.
The area has tax-assessed values equal to 20% of the market value.
Based on this, the homeowner has an assessed value of $40,000.
The home’s total millage rate is 70 mills (70/1000).
This means that, for every $1,000 assessed value, $70 in taxes is due.
Altogether, this means that the homeowner owes $2,800 in property taxes ($40,000 x 7%)
6. Where do millage rates come from?
The millage rate is determined by the municipality.
However, beyond that, the millage itself depends on the level of services that the property utilizes from the town or municipality.
Each public service will charge a certain amount of millage to property owners for the use of their services.
The trick here is that different taxing authorities often have their own millage rates.
As a result, you’ll often need to combine their rates in order to calculate the total tax liability of a parcel of land.
Some examples of entities with taxing authority include:
Emergency service districts
So, for example, if the county charges 30 mills, the municipality charges 15 mills, the emergency services district charges 10 mills, the local community college charges 10 mills, and the school board charges 15 mills, then you end up with a sum total of 70 mills.
The combination of these different milage rates imposed by different taxing authorities gives you the total millage rate for your property.
7. What are property taxes, and how do they work?
Millage rates and property taxes are related because taxing authorities use mills to determine property taxes.
These taxes enable taxing authorities (i.e., local governments, school districts, states, etc.) to generate revenue so they can support their operations.
Property taxes are standard in real estate.
However, some taxing authorities levy them on personal property owned by individuals and businesses.
The two primary components you should know about when it comes to property taxes are as follows:
Property taxes are an ad valorem tax
“Ad valorem” means “according to the value of.”
This means that they’re based on the value of the property.
For real estate, taxing agencies use the assessed value of the property.
For other types of personal property, authorities will typically determine value based on an appraisal or use its depreciated value.
Property taxes use mill rates
After a taxing authority determines the property’s value, they’ll apply the mill rate.
The mill rate dictates the owner’s tax liability, and the authority sets the mill rate each year as part of their budgeting.
8. What does an effective property tax rate mean?
Your effective property tax rate is the percentage of a property’s value that an owner will pay in taxes.
You can determine your effective property tax rate by dividing the total property taxes charged to the owner by the market value of the real estate.
Here’s an example:
If the house is worth $220,000, and your property tax bill is $2,640, then your effective tax rate is 1.2%.
An effective property tax rate isn’t always determined by the millage rate.
This is because some areas charge a flat fee called a parcel tax.
Additionally, the full value of the land may not be subject to tax.
Check with your state and local governments to see if partial tax exemptions are available for certain homeowners.
9. How do I get my property taxes assessed?
Property taxes are based on an estimate of the property’s value.
However, rather than basing it on an appraisal, the assessor will determine the taxable value of the property using their predetermined valuation process.
Keep in mind that the taxable value isn’t necessarily what the property would sell for on the open market.
The method that the assessor uses to value your home will differ depending on your location.
For example, they may estimate it based on a dollars per square foot multiplied by the total square footage of the home method.
Additionally, they will need to periodically update the value of the property.
The assessor may do this by driving or walking around it, conducting a virtual inspection, and applying marketing trends.
It’s uncommon for the assessor to enter a home to update the value of the property as a property appraiser may do.
To let you know that your property value has been updated, the assessor will usually mail a postcard or letter explaining the changes in the property’s assessed value.
You will typically have an opportunity to appeal their determination of your property’s value if you take issue with it.
10. How is property tax derived from the millage rate?
Taxing authorities determine the amount of property tax owed by land owners using the mill rate.
Owners can calculate the property tax by dividing the total mills by 1,000.
Then, take that number and multiply it by the property’s taxable value.
As several taxing authorities can levy a millage rate on a parcel of land, a tax bill might have several line items.
It may look like this:
Count government – 5 mills
School district – 15 mills
City government – 10 mills
Total: 30 mills ($30 for every $1000 in assessed value)
If the property’s appraised value is $250,000, then a homeowner could perform the following calculation to determine their effective tax rate.
30 mills / 1000 = 0.03 millage rate
0.03 x $250,000 = $7,500 tax bill
As a result, the effective property tax rate is 3 percent.
11. Is there a property tax calculator that I can use to help?
Is the math a little much for you?
Millage rates can be confusing.
Fortunately, this Smart Asset Property Taxes Calculator can give you a little shortcut.
Just enter your financial details to calculate your taxes.
12. How have millage rates been adjusted in the last few decades?
Millage rates have varied over the last few decades.
From 1995 to 2005, they were mixed across different local governments.
Then, from 2000 to 2007, they fell for many municipalities.
From 2007 to 2011, the millage rate increased.
These swings reflect the adjustments that local governments make to stabilize the total revenues that properties generate.
The dramatic swings in the 2000s are courtesy of the boom and bust of the mortgage market between 2000 and 2008.
The slump that followed (along with the Great Recession) led to the steepest falls in real estate capita tax.
These ranged from 27 percent to 38 percent between 2007 and 2011 according to the Corporate Finance Institute.
Local governments generally responded to the fiscal stress by raising millage rates to cut capital expenditure.
This choice reflected large capital budgets and aging public infrastructure.
13. How do millage rates affect school funding?
School funding is a mix of federal, state, and local funding.
The local funding comes predominantly from property taxes.
While the numbers themselves can get complicated, the millage rate that school boards decide to set on local property owners can ultimately impact how much their schools are funded.
Millage rates and property tax bills are often confusing to people because tax agencies use millage to determine the amount of taxes they levy instead of a basic rate.
However, you (as a property owner) now have the skill to calculate and convert mills into an easily understandable effect tax rate.
This can help you gain a better understanding of what rate you’re paying in property taxes.
Additional ResourcesIf you are looking to buy affordable land, you can check out our Listings page. And before you buy land, make sure you check out Gokce Land Due Diligence Program. If you are looking to sell land, visit our page on how to Sell Your Land.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.