Determining Property Tax Rates

How property tax rates are calculated? Taxing land and buildings is one of the oldest forms of taxation in the U.S. Before income and sales taxes, local governments used property-based taxes to finance most of their activities. Property taxes remain a major source of revenue for local governments.

How tax dollars are spent

Tax dollars help support the functions and services of specific local organizations. The tax authority (i.e. the county or municipal government) uses one of two methods to calculate the property tax rate:

1. In the first method, the tax authority calculates its total expenditures of a given period of time. Then, it divides that figure by the taxable or assessed value of all property within its jurisdiction. The result numbers will be the tax rate. This rate is sometimes expressed using percentages; sometimes it is expressed as a dollar amount (i.e. $1 per $100).

2. In the second method, the taxing authority estimates the amount of taxes available from property tax levied at a specific rate. The taxing authority will either increase or decrease its budget based on increases or decreases in the total value of the property’s taxable or assessed value.

Every year, Americans pay their tax bills, but are often puzzled about how government spends the taxes it collects. Many Americans believe that some relatively minor federal programs receive much more in federal spending than they actually do, as the following examples illustrate:

  • Foreign aid: Americans estimate foreign aid at 10 percent of the federal budget, and a fifth think it represents about 30 percent of the money the government spends. Actual spending on foreign aid is less than one percent.

  • Funding for the Corporation for Public Broadcasting: The public estimates that the government spends about 5 percent on public television and radio, when the actual amount is approximately one-tenth of one percent.

  • Pensions and benefits for government workers: On average, Americans think the federal government spends about 10 percent; 3.5 percent is a more accurate estimate.

  • Food and housing assistance for the poor: Americans’ spending estimates are three to four times higher than the actual costs of these programs.

Property Tax Rates Limitations

The state constitutions or state statutes commonly impose limitations on property tax rates. Many states set a maximum rate for each class (e.g. school, city, or county). Since the real estate can overlap in different tax (e.g. schools and cities), the total tax rate will vary from one neighborhood to another. This results in more than one local taxing authority calculating tax rates for the property. Many jurisdictions aggregate these rates, resulting in a single tax levy called a “consolidated”, “overall”, or “composite” levy.

See also: Property Taxes Payment Explained

Watch video How is your property tax spent?

This video shows how property taxes support municipal programs and services.