MillageRate.com

(First, please review the process for calculating the millage rate at www.millagerate.com/howto.htm . The described procedure has been taught and recommended by the Department of Revenue for as long as Georgia has used a millage to collect property taxes. If your taxing authority (city, county, school board) is not following this procedure, they are doing it wrong.)

The illustrations below are fictitious, but based on budget and tax digest data received from the City of Savannah for 2003 and 2004.

2003
Net Tax Digest (NTD) = $2,942,770,466
Part of Budget To Be Funded by Tax Dollars = $40,216,835
Mathematical Millage = 13.666 ($40,216,835 divided by $2,942,770,466 multiplied by 1,000)

2004
Net Tax Digest (NTD) = $3,201,312,715
Part of Budget to Be Funded by Tax Dollars = $42,293,242
Mathematical Millage = 13.211

From 2003 to 2004, the Net Tax Digest (40% of the total value of all taxable property within the city) increased by approximately 8.78%, from $2,942,770,466 to $3,201,312,715.

From 2003 to 2004, the portion of the budget to be funded by property taxes increased by approximately 5.16%, from $40,216,835 to $42,293,242.

Immediately, you can see the beauty of a mathematical millage rate. When the cost of government (at least, the portion to be funded by your dollars) decreases, remains stable or rises at a LOWER rate than does the NTD, then the MATHEMATICAL millage MUST decrease (in this example, from 13.666 to 13.211), simply as a function of the math.

In this example, elected officials were able to hold increases in the cost of government (at least, the part that you have to pay) below the rate of appreciation in the NTD. The result is that the BENEFIT of increasing property values can be passed to you in the form of a lower millage rate, as long as YOUR property didn’t increase by too much (explained below).

YOUR TAX BILL

Following the correct procedure, the millage rate MUST go down as long as the cost of government doesn’t increase at the same rate as does the NTD. The higher the NTD rises in relation to the cost of government, the lower the millage. But this doesn’t necessarily mean a tax cut for you….

To receive a benefit from the lower millage rate, your taxable property value cannot increase at a rate greater than the DIFFERENCE between the NTD increase and the increase in the portion of the budget to be funded by tax dollars. With our example data, the NTD increases by approximately 8.78% from 2003 to 2004 while the budget figure increases by roughly 5.16%. To qualify for a lower tax bill, your taxable value cannot increase by more than 3.62% (8.78% – 5.16%) in the same tax year.

To illustrate this, let’s look at the impact on your individual tax bill under three different scenarios using our example data–

(1) your value stays the same from 2003 to 2004;
(2) your value increases, but less than the difference between the increase in the NTD and the budget; and
(3) your value increases at a higher rate than the difference between the NTD and the budget.

For this example, the Fair Market Value (FMV) is $250,000. Exemptions are not considered, for clarity of the example. However, any exemptions can affect your final tax bill (more about exemptions later).

>> Same Value

If your value stays the same and the NTD increases at a faster pace than does the cost of government, you receive a tax cut:

In 2003, your tax bill for this millage is $1,366.63 ($250,000 x .40 = $100,000 x .013666*) In 2004, your tax bill is $1,321.12, a decrease of $45.51

(*The millage rate is the amount of tax, in dollars, on every thousand dollars of taxable value. To compute your tax bill correctly, simply move the millage decimal point three spaces to the left and multiply by the full taxable value.)

Conclusion: Rising property values jurisdiction-wide can provide a significant benefit for properties in older, more stable areas as long as elected officials hold the line on the cost of government.

>> Value Increase Less than Difference Between Budget and NTD

Your value increases by 2% ($5,000), less than the 3.62% difference between the increase in the NTD and that of the budgeted tax revenue.

In 2003, your tax bill for this millage is $1,366.63 ($250,000 x .40 = $100,000 x .013666) In 2004, your tax bill is $1,347.54 ($255,000 x .40 = $102,000 x .013211), a decrease of $19.09

Conclusion: As long as your property is not in one of the “hot” areas driving the increase in the NTD and increases in the cost of government are held in check, you will qualify for a lower tax bill.

>> Value Increase Greater than Difference Between Budget and NTD

When your value increases by a greater percentage than the difference between the increase in the NTD and the budgeted tax revenue, your tax bill can increase. In this example, your FMV value increases by 4% ($10,000) from 2003 to 2004.

In 2003, your tax bill for this millage is $1,366.63 ($250,000 x .40 = $100,000 x .013666) In 2004, your tax bill is $1,373.97 ($260,000 x .40 = $104,000 x .013211), $7.34 more than the previous year

Conclusion: If you live in a faster-appreciating area and/or elected officials do not hold the cost of government in check, you may experience a higher property tax bill.

The ideal situation is that the Net Tax Digest grows at a healthy pace while the cost of government decreases or, more realistically, doesn’t increase significantly. Under certain circumstances, you could have one of the highest increases in FMV in the jurisdiction, yet STILL receive a tax cut. Here’s how:

Let’s say that the NTD grows by a whopping 10%, but the portion of the government to be funded by tax dollars does not increase. Your home could be assessed almost 10% higher, yet you would still receive a tax cut because it would have appreciated at a lower rate than the difference between the increase in the NTD and the budgeted tax revenue (10% – 0% = 10%).

You can see that, if your property is assessed at a higher percentage increase than the NTD increases overall, you’re going to pay more in taxes. Also, if the cost of government increases at a faster pace than does the NTD, nobody gets a tax cut.

You can also now see how the PRIMARY operator in our equation is the cost of government (at least, the part to be funded by tax dollars). Increases in the Net Tax Digest can be a good thing, but only so long as elected officials keep the part of the budget to be funded by tax dollars in check. A mathematical millage has the following benefits in this area:

1. It focuses ALL attention on the budget; specifically, the part to be funded by tax dollars. The lower elected officials hold this number in relation to the NTD, the more property owners who will experience a tax cut;

2. It encourages officials to seek out and implement NON-TAX revenue sources such as user fees, impact fees on new development, etc. Borrowing is not an easy way out because the repayment of debt requires its own millage rate and, thereby, affects your tax bill.

FAIR MARKET VALUE

In other articles in this blog, we have contended that limitations on Fair Market Value” (such as that proposed by HR-162) would not benefit taxpayers in the long term and may actually result in higher tax bills. The following example will illustrate that, with a mathematical millage, it really doesn’t matter what number is used as your assessed value; what matters is your value IN RELATION TO the values of all other property (the NTD).

Example Data:

Your 2004 FMV = $250,000 (equals assessed value of $100,000, 40% of $250,000)
Net Tax Digest = $3,201,312,715 (40% figure)
Property Taxes Required for Budget = $42,293,242
True Millage = 13.211
Your Tax Bill = $1,321.12

Now let’s tax everybody at 100% of their FMV:

Your 2004 FMV = $250,000 (100%)
Net Tax Digest = $8,003,281,787 (100%)
Property Taxes Required for Budget = $42,293,242
True Millage = 5.284
Your Tax Bill = $1,321.12

As you can see, the cost of government is being spread over more taxable value ($8,003,281,787 instead of $3,201,312,715), resulting in a lower millage rate (5.284). Therefore, even though you are being taxed at 100% of your FMV your tax bill remains unchanged ($1,321.12) because the true millage is significantly lower.

Now, let’s tax everybody at 50% of FMV:

Your 2004 FMV = $125,000 (50% of $250,000)
Net Tax Digest = $4,001,640,893.50 (50% of FMV)
Property Taxes Required for Budget = $42,293,242
True Millage = 10.569
Your Tax Bill = $1,321.12

Even at 50% of Fair Market Value, your actual tax bill remains the same because EVERYBODY is being taxed at the same rate and a true (mathematical) millage spreads the tax burden equitably over every dollar of taxable value, regardless of the percentage.

FREEZES INTRODUCE INEQUITY

The ONLY reason that property tax freezes “work” is because they introduce inequity into the Net Tax Digest. Freezes reduce your tax bill by lowering your assessed value in relation to similar properties that do not receive the exemption. No longer are similar properties taxed in a fair and equitable manner, as required by the Constitution. For every person for whom the tax bill goes down, there is another for whom it must go up to make up the difference. Freezes and other exemptions don’t reduce taxes; they SHIFT them.

In addition, keep in mind that your property is part of the Net Tax Digest. As your taxable value is removed (via the freeze exemption) from the NTD, everybody’s millage rate INCLUDING YOURS must increase as the cost of government is spread over fewer taxable dollars. In other words, “freezes”
and other exemptions are self-defeating for lowering the millage rate.

>> Tax cuts eliminated

In fact, we believe that if a freeze such as Rep. Lindsey’s HR-162 were to be enacted, property tax cuts would become a thing of the past.

As you saw above, property tax reductions are possible when the pace of growth in the Net Tax Digest exceeds the pace of increase in the cost of government. A taxing authority can (or be required to) reduce the millage rate because the cost of government can be spread over more taxable dollars.

If you limit market-driven growth in the Net Tax Digest to a maximum of 3% a year while the cost of government continues to increase, you eliminate the opportunity for taxing authorities to pass the benefit of a growing tax base to the people in the form of a lower millage rate.

THE ‘FREEZE’ WILL HAVE KILLED THE TAX CUT.

In fact, an increase in the cost of government exceeding 3% for any particular year will FORCE a tax INCREASE.

At the very least, HR-162 would eliminate any possibility that a taxing authority might adopt a lower rate in ANY particular year; they will be forced to bank any surplus in the event that costs rise more than 3% in a subsequent year.

FMV VS. “UNREALIZED GAIN”

“Fair Market Value” is just a standard of measurement– it was the 100% level in the examples above. As I illustrated above, it really doesn’t matter at what level you are taxed so long as all are taxed by the same standard. FMV is determined by the market, measured by recent sales. It is a fair and equitable standard for the assessment of property taxes. It takes into consideration not only value but desirability.

The proponents of “freeze” exemptions argue that property owners shouldn’t be taxed on “desirability” or “unrealized gain.” As I have shown above, with a mathematical millage it doesn’t matter what standard you use in a fair and equitable tax program. Again, the problem with the “freeze” is INEQUITY– similarly-situated properties are not taxed at a similar level.

THE ALTERNATIVE? ARBITRARY TAXATION — Today’s Reality

There are several additional benefits to requiring a mathematical millage– the primary one being that government takes no more tax dollars from you, the taxpayer, than is necessary to fund the budget. Because there is currently no requirement that taxing authorities “do the math,” here is what often happens (using our example data):

Let’s assume that, for 2003, your taxing authority adopts the correct millage rate.

2003
Net Tax Digest (NTD) = $2,942,770,466
Part of Budget To Be Funded by Tax Dollars = $40,216,835
Correct Millage = 13.666
Your Tax Bill (FMV = $250,000) = $1,366.63

When the adopted millage rate is applied to the Net Tax Digest ($2,942,770,466 multiplied by .013666) the taxing authority receives $40,216,835, EXACTLY what is required to fully fund the budget– no more and no less. You pay exactly what you should, based on your taxable value in relation to all other taxpayers.

(Again, this isn’t entirely true… ALL exemptions, not just “freezes,” introduce inequity into the tax process. You are probably paying LESS than your fair share compared to a commercial property, but MORE than your fair share compared to a senior citizen who receives more exemptions.)

From 2003 to 2004, the NTD grows by 8.78% percent and the cost of government grows by 5.16%. As you have seen above, the millage rate SHOULD decrease to 13.211. But in our example, your City Council or County Commission reasons:

“Nobody fussed last year when we set the millage rate at 13.666. Let’s leave it there again this year; that way, we can tell everybody that we didn’t ‘raise taxes’.”

2004
Net Tax Digest (NTD) = $3,201,312,715
Part of Budget to Be Funded by Tax Dollars = $42,293,242
Adopted Millage = 13.666
Your Tax Bill (FMV = $250,000) = $1,366.63
Correct Millage = 13.211
Your Correct Tax Bill = $1,321.12

So, if the millage rate didn’t go up for 2004, you should be happy, right? If your assessed value didn’t increase, then neither did your tax bill.

But if you “do the math,” you see that the growth in the Net Tax Digest SHOULD HAVE resulted in a tax cut for you ($1,366.63 to $1,321.12). This is the infamous “back door tax increase”– although in this example your actual tax bill didn’t go up, but it didn’t go down either, as it should have.

With the incorrect millage, the taxing authority receives $43,750,100 in tax revenue, $1,456,858 MORE than it needs to fully fund the budget. In other words, it receives a built-in and unaccounted-for SURPLUS.

YOU should have received the benefit of the growing tax base. That surplus cash should remain in YOUR pocket.