If you ask most home owners how their property taxes are determined, there is a good chance that they have no idea…they only know that they go up every year! So, here is a quick primer on how property taxes work in Ohio.
In a basic sense, property taxes are made up of smaller taxes that voters determine that they want to fund. For example, if there is a campaign for a new 10 mill levy (short for tax levy) to provide funds to build a library, voters are asked to authorize an increase so that money can be collected from each property owner in the district to build the library. If the levy passes, then the rate increases and property taxes go up by 10 mills.
Seems simple, right? But, how much is 10 mills you ask? Here’s where things get a little complicated. When you vote on tax levies, you are voting on a millage rate. Millage rates, or mills, are used to calculate your property taxes in conjunction with your assessed value. So, you need a little more information to figure out exactly how much your tax will go up. For reference, one mill is one tenth of one penny per thousand dollars of valuation.
To find out how much your taxes will be, we’ll make an assumption that this is the only tax on the property (this is a bad assumption, but we’ll use it to keep it as simple as possible).
Assessed Value = 35 % of the Market Value.
If your house is worth $100,000 then your Assessed Value would be $35,000.
To find your current tax, you then multiply the Assessed Value times the number of mills and divide by 1000.
In our case that would be $35,000 x 10 mills / 1000 = $350.
The $350 is your “Current Tax”, which is not what you will actually pay, that would be way too easy!
To get your bottom line Net Tax, you need to subtract your Reduction Credits from your Current Tax to find your Adjusted Tax and then calculate your rollback credits and subtract them from your Adjusted Tax to finally get your Net Tax.
Reduction credits are found by multiplying the Current Tax by the Reduction Factors.
Reduction Factors were enacted into Ohio law back in the 1970’s to limit local government’s ability to take advantage of rising property values so that the only way for local governments to increase their revenue is to either build more taxable properties or pass additional levies. Reduction Factors are a topic for a whole other article that I won’t address here.
A sample Reduction Factor is 0.188764, so in our example, our Reduction Credit would be $350*0.188764 = $66.0674.
So your Adjusted Tax would be: $350-$66.0674 = $289.93.
There are also other credits you receive called Rollbacks that are a percentage of the Adjusted Tax. These are credits that were passed to provide tax relief to specific property owners – in this case there is a 10% credit for non-business properties, and a 2.5% credit for owner occupied properties.
Rollback Non-Business Credit = $283.93 x 10% = $28.39.
Rollback Owner Occupied Credit = $283.93 x 2.5% = $7.10.
Finally arriving at your Net Tax we subtract the Rollback Credits from the Adjusted Tax:
$289.93-28.39-7.10 = $247.90.
Whew! Easy, right?
DISCLAIMER: This was an over-simplified example for purposes of this article. In real life, things are even more complicated because there are many other levies and associated mills to factor in. Making things even more complicated, in 2013 the Ohio legislature repealed the 10% and 2.5% rollback credits ONLY for levies passed after the law was enacted. So, when you look at your tax bill, the numbers don’t immediately make sense since the rollbacks only apply to the older levies.
If you are still reading this article, kudos to you for sticking with it. I applaud your ability to pay attention. For questions regarding your specific property, please contact your county auditor’s office.
I hope this information helps you to make a little more sense of your property taxes. I also hope that it causes you to lobby your State Legislature to simplify property taxes! The complexity of the process is ridiculous and I believe that complexity breeds the potential for misdirection or even fraud by elected officials. I’m not against taxes, I’m for simplicity and clarity, and the current process has neither.