Property Taxes – a general overview of the what, why, and how.

If you look at property tax rates by state across the country and delve even more deeply into rates by individual county in each state, you might be surprised at what you find.

First, the National Association of Home Builders research, looking at property tax rates across the United States, found property tax rates differ substantially, with the southern U.S. states having some of the lowest rates (except Texas) and northeast and midwest states having some of the highest rates.  And, within states and within specific counties in those states, property tax rates may vary significantly.

Adding even more to the disparity is the fact that local governments use different methods to calculate real property tax bases and assessment levels.

Property tax rates are often debated hotly by elected officials and voting bodies. Property tax collections are generally a significant portion of a city and county’s budget. You don’t hear much about property taxes at the state level, even though 36 states collect state property taxes, with the remaining 14 states not levying any state property taxes at all.

Factors that may (depending on where you live) affect property tax rates include:

  • household income
  • home values
  • how recent homes were purchased (or built)
  • exemption benefits
  • occupancy
  • property type

 

Here at home in Tennessee, we realize some of the lowest property taxes in the U.S.; in fact, the median annual property tax paid by homeowners in Tennessee is just $1,024 – ninth lowest in the country and less than half the national average (smartasset.com).

Local governments depend much more on property tax revenue—with many of them depending on these revenues for nearly half of their total revenues.  In some states, like Maine and Rhode Island, local governments depend on property taxes for three-fourths of their revenues. And throughout most, public school systems are the largest expense source of those budgets.

In calculating property taxes, some aspects remain consistent across the board.  In virtually every jurisdiction, according to the Urban Institute (urban.org), three steps are required in determining property tax on an individual property:

  1. Assess the value of each property in the jurisdiction (property assessments are usually determined by an estimate of what the property would sell for at an arms-length transaction),
  2. Determine the taxable value of each property, and
  3. Apply the tax rate to the taxable value of each property. Taxes are calculated on a percentage of the assessed value in Tennessee, not on the total appraised or assessed value of the property.

The next time you hear property taxes discussed at a local gathering, you’ll have a few more facts at your disposal to enter into what is usually a lively discussion.  Happy debating!

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