What is property tax?

Property tax is an ad valorem tax that an owner of property pays on the value of the property that is being taxed. There are three different  types of property: Land, Improvements to Land (eg. homes, buildings or parking lots), and Personal (eg. Automobiles, boats and computers). The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of
property tax used vary between countries and jurisdictions.

There is a form of tax which is often confused with the property tax. This is the special assessment tax. There are two distinct forms of taxation: ad valorem tax, relying upon the fair market value of the property being taxed for justification, and the other, special assessment which relies upon a special enhancement called a "benefit" for its justification. This is typical if for example your road was recently paved and only those in your neighborhood were taxed.

The property tax rate is often given as a percentage (amount of tax per hundred currency units of property value). It may also be expressed as a permille (amount of tax per thousand currency units of property value), which is also known as a millage rate or mill levy. (A mill is also
one-thousandth of a dollar.) To calculate the property tax, the authority will multiply the assessed value of the property by the mill rate and then divide by 1,000. For example, a property with an assessed value of $150,000 located in a municipality with a mill rate of 20 mills would have a property tax bill of $3,000.00 per year.


The distinction between tangible and intangible property is then commonly made by considering any item of personal property that may be seen, touched, or moved about to be tangible personal property. The following definitions are representative of the law in most states.

Real Property - means land, an improvement, a mine or quarry, a mineral in place, standing timber, or an estate or interest in any such property.

Personal property - means property that is not real property.

Tangible personal property - means personal property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does not include a document or other perceptible object that constitutes evidence of a valuable interest, claim, or right and has negligible or no
intrinsic value.

Intangible personal property - means a claim, interest (other than an interest in tangible property), right, or other thing that has value but cannot be seen, felt, weighed, measured, or otherwise perceived by the senses, although its existence may be evidenced by a document.

Who is the taxpayer -

Who owns a given parcel or item of property is important for property tax purposes because the owner of the property on the assessment date is primarily responsible for paying the property taxes. The identification of the owner is also important because property may be exempt from tax
or otherwise receive special tax benefits merely on the basis of who owns the property.

In most cases the owner of the property is straight forward, that being the person on record as the owner on the date of the assessment. However, there are certain situations where it is not so clear.

Agents and Assignees - Agents and assignees may be required to pay tax and file reports on property held in their capacity as such, although their principals and assignors, respectively, remain primarily liable for the tax.

Joint Owners - Any person holding property jointly or in common can be held liable for the tax as to the whole property, or as to his or her proportionate interest.

Lessors and Lessees - Generally, because property is taxable to the owner, lessors are liable for taxes on leased property. However, lessees are not necessarily relieved of any property tax obligations with respect to leased property, and are frequently held liable when:

  • they are in possession of the leased property and the assessor is unable to determine who the lessor is or where the lessor can be located;
  • they make improvements to the leased property that increases its value;
  • they lease property from an exempt entity such as the state or municipality; or
  • when the lease is of such an extended duration that it is considered a permanent or perpetual leasehold.

 

Owners of Severable Interests - The owner of mineral rights, surface rights or crops, timber, quarry and similar interests that have been separated from the land is usually liable for tax on those separate interests.

How is the property being used -

State legislatures can, subject to certain limitations, exempt any persons or property from taxation or provide comparable tax benefits such as abatements, credits, or reduced assessment ratios. In general the tax benefit must serve a public purpose and the classification on which it is
based cannot be arbitrary. In most cases the availability of the benefit will be conditioned on the property being used for a specific purpose.


Do you Pay too Much Property Tax?



 

Top 10 Metropolitan
Areas with Home
Price Depreciation

First Quarter 07-First Quarter 08

Metro Area
Loss
Miami
25.9%
Las Vegas
24.6%
Phoenix
23.0%
Los Angeles
21.7%
San Diego
20.5%
San Francisco
20.2%
Tampa
19.6%
Detroit
17.9%
Wash. D.C.
15.3%
Minneapolis
14.4%
Source: Standard & Poor’s/Case-Shiller


Tax Rates

Property owners can calculate their tax bill by multiplying that taxable value by the tax rate.
In Michigan, the property tax rate is called a millage, and it is figured in mills. A mill equals $1 in taxation for every $1,000 in taxable value.

A parcel may have several millages in its tax rate. There is likely to be a millage to operate local government, and another for the county. Part of the millage rate may include mills for libraries, police and fire or schools.