Preparing a Local Budget

During the first half of the year, local officials prepare a budget for the coming year. As part of the budget process, local elected officials estimate the cost of services they intend to provide. The proposed tax levy (total dollars to be raised with property taxes) is computed by subtracting estimates of state aid and revenue from other sources (i.e., building permits, user fees, interest income, fines, etc.) from estimated budget needs. The net tax rate for a local unit is computed by dividing the tax levy by the total net tax capacity of all properties in the jurisdiction. Each individual's tax bill is equal to the property's tax capacity times the tax capacity rate. The local tax rate is the percentage charged to the property owner and will reflect the combined tax levies of all jurisdictions governing each piece of property.

Consider Anywhere City and property owner A. Anywhere City's council determines that to provide the services they want at the desired level, they will spend $100,000. State aid and other revenue (fines, user fees, interest income, etc.) for their city totals $25,000, leaving them with $75,000 to raise through local property taxes (tax levy):

Budget State Aids and Other Revenues Tax Levy

$100,000 –$25,000 $75,000

In Anywhere City, the total tax capacity for all the properties in the city is $250,000. The tax rate is then calculated by dividing the tax levy by the tax capacity to obtain a percentage.

Calculate tax rate as follows:

Tax Levy/City's Tax Capacity 75,000/250,000

= =

Tax Rate .30 (a tax rate of 30%)

Once the tax rate is calculated, each property in the city is taxed at that percentage of its tax capacity. So, for our example house, the property tax for Anywhere City would be calculated by multiplying the house's tax capacity times the tax rate.

Calculate property tax as follows:

Property Owner A's Tax Capacity ($1,000) x Tax Rate (.30) $1,000 x .30

= =

Property Tax $300

So the property owner pays the city an effective tax rate of $300/$86,000, or 0.34%.

In other words,

You can estimate what your property taxes will be if you know the "assessed value" of your property and the tax levy rate.

For example, if the assessed value of your property is $200,000 and the levy rate is $13 per thousand dollars of value:

 

	VALUE	200 ($200,000 divided by 1,000)
	x LEVY RATE	x $13
	--------------------	--------------------
	TAXES	= $2,600 estimated tax