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How property assessment and taxation works


I want to explain to you how assessment
and taxation work. Let’s start off by creating a small town with only three
houses. Each house is different and has a different value. The first house has a
market value of $200,000. The second house has a value of $250,000. And the third house is valued at $350,000. The city supply services and the money
to pay for these services is recovered through property taxation. Let’s imagine
that the town needs to collect $1,200 to pay for these services. To calculate the tax rate you divide the
cost to provide services by the total assessed value of all the properties in
the town. This establishes a tax rate. Now to
calculate how much tax each home pays, we multiply the tax rate by the assessment. As you can see the first house would pay
$300. The second home would pay $375 and the highest valued home would pay five
hundred and twenty-five dollars. Let’s summarize what we’ve covered so far. One: assessment places a market value on each property. Two: the total assessment is used to calculate the tax rate. Three:
taxes pay for the cost of city services like roads fire protection snow removal
parks etc. Let’s imagine that another year has
passed and that property values have increased by 4%. Now let’s imagine that
the cost of providing services has remained the same $1,200. The tax rate is
the cost of services divided by the total assessment. The result is that all owners still pay
the same taxes before because the cost of services has not changed. Let’s summarize what we’ve covered so
far. One: assessment increase does not
necessarily mean more taxes are collected. Two: if all assessments go out
the equally everyone pays the same as long as the cost of services stays the
same. Now let’s imagine another year passed and values did not increase at the same rate. Home one remained at the same value
$208,000. Home two increased by 1%, $262,600 home three increased 3%, $374,920. The cost of services stayed the same at
$1,200. Here’s the math: $1,200 divided by the new assessment
total equals the new tax rate. The net effect of the new values sees House One
paying less tax and the house that went up 3% paying a higher proportionate
share. If all assessments do not go up equally, there’s a redistribution of the tax. However, the total tax collected remains the same. What happens if the cost of services
goes up. Let’s do the math. Services now costs $1400. The result is a different tax rate. As
you can see, an increase in service costs result in a tax increase. But suppose
that the cost of services went up but also one more home was now built in the
town and it was worth $300,000. The new total assessment is now $1,145,520. This results in a new tax rate. The new house now helps pay for the
cost of services and the result is that everyone pays less. This is a hypothetical representation of
how the process works. The key points are, one: total assessment
value is used to calculate tax rates. Two: an increase in property value does not
always mean an increase in taxes. Three: new construction helps pay the
overall tax burden. Four: taxes are based on the cost of providing services that
citizens want and need. And that explains how assessment and
taxation work.

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