Is Your Property Tax Assessment Fair?

Consumers' Research Magazine, February 1995 | Go to article overview

Is Your Property Tax Assessment Fair?

Property taxes vary widely across the United States. In 1986, more than 13,500 local governments had authority to determine assessed values for property taxes. All states let local governments set their own tax rates, even though many place caps on the tax rate. Most states permit considerable local discretion in making rules and administering laws. In most states, a state-level appeals board actively oversees the collection of property taxes by local governments.

Although every state's property tax is unique, we can make some generalizations.

An appraisal is the set of methods the assessor uses to estimate what a property sale price--called market value--would be if it were sold on the open market. Major problems are often caused by the inadequate job done by many assessors' offices in determining the theoretical market value.

An appraiser usually determines market value for owner-occupied homes by using either the replacement or the comparable sales price approaches.

Under the replacement approach, the appraiser estimates the cost of replacing a house, subtracts a certain amount for depreciation, and adds land value to determine market value. In finding replacement value, he accounts for construction costs and the costs of heating, plumbing, and other features. Certain states publish official guides for valuing property, setting uniform values for replacing chimneys, toilets, garages, etc. In other states, each individual jurisdiction selects its own replacement value.

In the comparable sales price method, the appraiser compares the value of your property with the sales price of recently sold property similar to yours--that is, with comparable property. Allowances are made for certain differences between the properties, such as age, area, absence of luxuries (e.g., a fireplace), or presence of property damage (e.g., dry rot).

Once the assessor has decided the market value of a parcel of real estate, he multiplies it by a fraction to obtain the property tax assessment. This fraction is known as the assessment ratio and may be the appraised fair market value or a percentage of the fair market value.

The assessor lists all assessed valuations for property in his district on a document called the tax roll, which is usually open for public inspection. Local legislators use the tax roll to determine the total assessed value of property in their districts. The local government then determines the tax rate, usually expressed in terms of so many dollars per $100 or $1,000 of assessed valuation. For example, suppose a piece of property has been appraised at a fair market value of $100,000. If the assessment ratio is 25%, the assessment will be $25,000. The application of a locally-determined tax rate of $10 on every $100 of assessed valuation would yield a property tax bill of $2,500.

In most tax jurisdictions, appraisals are performed once a year. Certain jurisdictions, however, operate an appraisal cycle. This means that after a property is assessed, a certain number of years will pass before another reassessment is performed. Maryland, for example, appraises property once every three years. Even in states where the appraisal is not done every year, however, tax rolls usually are posted annually.

Assessment Tricks

The most important point to remember is that the assessment of your property for tax purposes often represents only a fraction of its true market value. Even if your state's property tax laws require an assessed value equal to fair market value, your property's assessment and its fair market value might not--or should not--be the same.

Indeed, assessment valuations often vary not only from state to state but from jurisdiction to jurisdiction--and this can cause taxpayers to overestimate or underestimate their correct property tax assessment.

In addition to misleading the taxpayer as to the true value of his property, fractional assessments often trick him into thinking he is getting a break on his tax bill. …

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