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Real Property Tax

Nearly all American localities subject real property, land and buildings, to taxation. The taxing authority is usually the county, town or school district. The rates for annual taxes on homes range from a fraction of a percentage of the home’s value in some communities to several percent in others. Properties are periodically taxed on the value of the building and its improvements and on the value of the land on which the building stands. The proceeds from real property taxes support schools, police and fire departments, parks and other local community needs. In the case of most local governments, the real property tax is the major source of revenue. When housing values fall, communities often undergo budget crises as tax revenues plummet. In many communities property tax rates are the subject of much political controversy.

In most communities, a board of assessment, or an official called an assessor, computes the tax, based on the equation: market value, times assessed value, times the tax rate. Market value can be based on the sales value of comparable properties in the neighborhood or on the actual price in the case of a recent sale. Its computation can be problematic in many instances. The assessed value is a proportion of the market value, called the “assessment ratio,” always less than 100%, changed from time to time, and applied to all homeowners equally. The tax rate is sometimes expressed as a “millage rate,” based on the tax dollars per thousand dollars of assessed value.

After making an assessment, the assessor notifies the property owner of the assessment amount (and presumably the amount of the ultimate tax), allowing the owner to make an appeal to a board of local officials. Once the appeals process, if any, is completed, the municipality sends a tax bill to the owner. The tax puts a lien on the property for the tax amount. If the owner fails to pay the tax within a reasonable period of time, the lien allows the municipality to seize the property and sell it to recoup the tax owed.

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