I cannot begin to count the number of times I’ve had conversations with clients and customers about property tax values, both here in Chapel Hill and Durham as well as in Vermont where I worked prior to relocating here to North Carolina almost 7 years ago. Most property owners think their tax valuation is too high, though I’ve gotten calls from many through the years who actually were concerned that a new valuation was too low. The common factor in each instance was that the property owner didn’t understand why focusing on the tax value was as unproductive as trying to pick the right card in a Three-Card Monte game. They were trying to focus on one card and while not paying attention to the other two. Most homeowners tend to focus exclusively on their homes tax value when really it not all that significant. (This is particularly true when considering a properties assessed or tax valuation in comparison to it’s actual market value.)

How Property Tax Is Calculated

Here's a simple explanation to help you understand why I say this.

The city or county you live in determines an annual budget sufficient to over all of the expenses they anticipate for the coming year. These expenses include such things as public schools, police, fire and emergency services, trash collection, road and infrastructure work, salaries for city or county employees etc. Based on what how much is needed to meet what they estimate these future expenses to be, they propose a budget which is then voted on by the appropriate town/city/county officials. One voted on and approved this becomes the official Annual Budget.

The Annual Budget is then divided by the total value of the Grand List. The Grand List is the value of every piece of property that is taxed in the area being covered by the Annual Budget and this determines the Property Tax Rate.

Viewed as a math formula it looks like this Total Grand List X Property Tax Rate = Annual Budget

So when the value of the Grand List (Assessed Values) goes down the Property Tax Rate goes up. When the Property Tax rate goes down your Assessed Value must come up. This is why I compare it to a hustler on the street telling you to, "Keep your eye on the card" while he’s busy shuffling three cards around. Your efforts to focus on the single card distract you from the other two.

What Can You Do About Property Tax

The only thing that truly impacts how much you pay in property taxes is the Annual Budget for the community you live in, and while I like a good political debate as much as the next person, I couldn’t possibly address the appropriateness of every communities annual budget. What I can tell you is as long as every property owner in your immediate area is being treated equally and the tax value of your property is inline with those of your neighbors then there’s no reason to complain about it or challenge it. If on the other hand your unhappy about your total tax bill, then ask yourself what services your willing to give up and then start attending your areas budget meetings and see about getting the overall budget reduced.

Property owners should also understand that while market values are constantly changing, tax values are not, they are static. Tax valuations are set every 4-8 years in most parts of the country. Different states have different laws regarding valuations, here in North Carolina, State law stipulates that tax value must equal 100% of market value, but when sale prices for real estate go up or down based on changing market conditions, it's typically not long before tax value and market value are no longer in synch.

Posted by Larry Tollen on
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