State, county and municipal governments need revenue to provide services for their residents. To pay for schools, roads, maintenance, police and fire protection, among other things, revenue must be raised in the form of taxes. Though some may use income and sales tax as a form of revenue collection, property taxes are the most common types of taxes at these levels of government.
Almost all real estate property taxes are determined by using a calculator for taxes on the value of the property multiplied by a tax rate set by the government. These types of taxes are known as ad valorem taxes. The tax rate is commonly referred to as a mill levy, or X amount of tax per $1,000 of valuation. If the taxing government has a rate of $8 per $1,000 of valuation, it is said to have a rate of 8 mills.
Valuation of Property
The government tax assessor will periodically value, or appraise the properties in the taxing district. The authority may send out a questionnaire to property owners, asking specific information on the property.
Valuations are made based on several factors, including:
- Lot size;
- Square footage of improvements, such as homes, buildings or garages;
- Quality of materials used in construction;
- Number of bedrooms, baths, etc;
- Type of foundation;
- Property fencing, decks, patios, etc.
Property will then be compared to recent property sales in the area. The tax assessor will attempt to compare the property to be assessed as close as possible to those sold recently. If there are differences between the sale property and the assessed property, adjustments can be made to the valuation.
After the property is valued the tax rate is applied to determine the tax. Some taxing authorities may apply the mill levy to the entire value of the property, or a percentage of the valuation. After the rate is applied, exemptions may be offered by the government. An exemption can either reduce the gross tax amount or tax at a lesser percentage.
If improvements need to be made to an area of properties, such as for sidewalks, curbs or sewers, the government will charge a special assessment. The assessment is usually only paid by the property owners receiving the improvement, rather than the entire city or town. The special assessments are usually paid over a number of years.
Payment and Protest of Taxes
Tax bills are usually sent twice per year. The months in which the tax bills are sent vary by state, but are usually spaced 6 months apart. They are required to be paid a month or so after receipt. Failure to pay timely subjects the owner to interest and penalties. If the taxes remain delinquent for too long, the government has the right to seek a tax sale of the property to pay the delinquent taxes.
If a property owner does not believe the tax amount is correct, there is a right to protest the amount assessed. Though once in a while the wrong tax rate may be applied, or a tax exemption was not credited, the most common form of protest is that the valuation of the property is incorrect.
To properly fight a tax bill, the property owner will need to determine how the property was valued, and point out incorrect methods of valuing. The owner will need to find the recent sale properties used by the authority in appraising the property and show the government authority why the property chosen differs from their property.
Property Tax Loans
Many property owners are now using the services of property tax loan companies to cover property taxes. Often the interest paid on the loan is less than the penalties and interest charged by the taxing authority. In addition, because the taxes become current, there is no risk of a tax sale on the property, nor does a delinquent tax show up on the owner's credit report.