The ad valorem property tax is probably the most widely discussed, yet the most misunderstood part of the public finance process. Knowledge of the manner in which the tax is determined is vital to all elected officials and property owners, but a mystery to many.

Once you understand the calculation, you see that the property tax process is not "smoke and mirrors," but straight-forward numbers-- simple math. You may also discover that many of Georgia's elected officials-- your city council members, your county commissioners and your school board-- are taking more money from you than they should... or they're spending your government into a deficit each year.

Simply put, it's simple math

The millage rate is nothing more than the answer to a simple division problem; a number which, when applied to the value of every taxable property, equally and fairly distributes a portion of the cost of government to every real and personal property owner.

The calculation is supposed to be completely predestined and mechanical-- just divide one number by another number-- the resulting number is the millage rate.

To establish the millage rate, only two numbers are needed:

1. a dollar figure representing the portion of the annual budget that must be funded by property tax dollars¹;
2. a dollar figure representing the jurisdiction's net tax digest, which is the total value of all taxable property within the jurisdiction.

Calculating the need

The taxing authority decides how much revenue it needs to provide necessary services. This is known as "setting the budget." As part of this process, the jurisdiction computes how much revenue will be generated by licenses, fees, fines and penalties, user fees and service charges, as well as interest on reserves and investments. The remainder of the budget must be funded by property taxes, borrowing or the sale of bonds.

At the same time, the county tax assessor's office is assessing the fair market value of all taxable property within the county and, for city tax purposes, within the corporate limits of any municipalities. The total value of all taxable property is called the "gross tax digest."  The value of exemptions and exempted properties are deducted to produce the net tax digest. In Georgia, ad valorem tax is levied on 40% of the net tax digest amount.

Once you have those two numbers, the process is very simple.

"Do the math"

To determine the millage rate, you divide the "A" – the portion of the budget to be funded by tax dollars – by the second number, "B"-- which is 40% of the net tax digest. The product of this equation is "C," the millage rate².

One "mill" represents one dollar of tax on every thousand dollars of taxable property value.²

Your City Council, County Commission and School Board⁶ must hold public hearings prior to adopting the millage rate.  The approved rate is provided to the county Tax Commissioner, who uses the rate to calculate and collect your individual tax liability.

Calculate your own tax

To calculate your fair share of the cost of government, the taxable value³ of your property is then multiplied by the adopted millage rate. This produces a dollar figure, the amount of tax to be paid by each property owner. As long as property values are fairly assessed or “equalized,” every property owner then pays his or her proper and fair share of the cost of government.⁴

Your total tax bill will actually be the total of several millage rates. The rates for your county and your school board will be applied to your taxable property value. If you live within the boundaries of a city, you will also be subject to its tax rate. In addition, the state of Georgia charges 1/4-mill.

^{An Example:}

During its budget process, the Smallville City Council has determined that $2,000,000 in tax revenues is needed to balance this year’s budget-- the rest of the $4 million budget will be funded by speed traps and revenue from the city cable TV system. Meanwhile, the County Tax Commissioner’s Office has determined that 40% of the city's gross tax digest is $480,191,862; after all exemptions, the net tax digest (40% figure) is $438,894,502.

The correct millage rate, therefore, is $2,000,000 divided by $438,894,502, or .004557 (rounded).

The number .004557 represents the tax on each dollar of value. To determine the rate on every $1,000 of value, multiply the rate by 1,000 or simply move the decimal point three places to the right. Though not required, millage rates are often rounded to two decimal places, which gives you 4.56 mills or $4.56 of tax on every $1,000 of taxable property value.

John Q. Homeowner's residence is assessed for tax purposes at $150,000. The taxable value is $60,000 (40% of $150,000). John's property tax for the year is therefore $273.60 (60,000 x .00456)⁵.⁷

In other words, John's share of the $2 million, that year's cost of city government that was not funded by fees, fines and other revenue sources, is $273.60, based on the taxable value of his real property.

Next: The Problem

State Legislators & Local Officials: MillageRate.com welcomes your inquiries and comments regarding this site and its recommendations. Representatives are available to provide a staff orientation on the millage rate setting process. Please contact us.

Notes:

1. Ideally, during the budget process the taxing authority computes its expenses, then deducts the expected amount of non-tax revenue (fines, fees, interest on investments, etc.) The amount that remains is the portion of the budget that must be funded by tax dollars. In our opinion, it is good budgeting to look to property taxes last after all non-tax sources are identified and considered.

2. Actually, the product is the tax on each dollar of taxable value. To determine the tax rate on every $1,000 of taxable value, multiply by 1,000 or just move the decimal point to the right three spaces.

3. In Georgia, the taxable value of real property is 40% of the assessed value, after other exemptions.

4. Whether or not the ad valorem tax is an equitable way to fund the cost of government is a discussion for another day.

5. The math can be a little confusing at this point. John's property tax computation is either ".00456 of a dollar on every dollar of taxable value" (.00456 x 60,000) or "$4.56 on every thousand dollars of taxable value" (4.56 x 60). The answer is the same.

6. School Boards are considered "recommending authorities;" they do not have the authority to set their own millage, but must recommend a rate which is officially approved by the County Commission. School Boards are required to conduct public hearings prior to approving and recommending a rate.

7. To simplify the example, homestead exemptions, value offset exemptions and other reductions in taxable value are not considered. All will further reduce your actual tax liability.