The real estate property tax is one of the oldest Ohio laws and has been in effect since 1825. It is what is called an ad valorem tax – meaning that it is based on value – in this case, the appraised value of a property.
Primary responsibility for the assessment of real estate for tax purposes is local, resting with (county) auditors working in all 88 Ohio counties.
What are they used for?
Property taxes are how we pay for public improvements – schools, roads, public buildings, safety services and more. They also pay for the operation of city and county governments.
How do property taxes work?
According to the Ohio Revised Code, the real property tax base is the taxable (assessed) value of land and improvements. The taxable value is 35 percent of true (market) value, except for certain land devoted exclusively to agricultural use.
Mills and Millage
All property taxes are calculated in “millage.” This is a practice that goes back centuries. The term “millage” is based on a Latin word meaning “thousandth,” with 1 mill being equal to 1/1,000th of a dollar. As used in property taxes, a rate of 10 mills would equal $10 per $1,000 of taxable value.
The Ohio Constitution states that property taxes shall be assessed at no more than 1 percent of value unless otherwise approved by the electorate or provided for in a city charter. This means that the Ohio Constitution allows for the first 10 mills (or 1 percent) of property taxes on your tax bill without any prior approval or restrictions. These inside mills are distributed generally among your local governments.
Public improvements – like schools, parks and local roads – require more than that amount. Since these expenses are to be paid for by property taxes and are above (outside) the amount in the state constitution, they are “outside millage,” and must be approved by a public vote.
The millage for each improvement is spelled out on the ballot as part of a bond issue or “levy.” The word levy also refers to the government’s power to seize property to satisfy the value of taxes you haven’t paid.
The millage stated in each levy is based on a calculation of what amount it will take to pay off the total cost of that specific improvement over a specific amount of time. That rate is based on the current taxable value of all the property in the area.
- The appraised value of a home is $100,000
- The taxable value would be $35,000
- A tax levy with a rate of 10 mills would cost the property owner $350
($1 per $1,000 of taxable value – 10 mills = $10 X 35 = $350)
Effective Tax Rate
State legislation has created rules for property taxes that put a cap on the increase of property taxes – primarily for school levies – that can be collected due to a rise in property values.
Remember – levies are calculated on a fixed cost, for a fixed number of years.
That means that voted tax levies do NOT increase because of increases in property value. (The total dollar amount collected can only go up because of new construction that increases the size of the overall tax pool.)
Because the pool is larger and has a greater total value a “reduction factor” is applied to the levy. That means that, for an example, there isn’t an automatic 10% increase in property taxes because of a 10% increase in the market value of a home
This reduces the effective tax rate so that the voted levy collects the same amount of tax revenue as was collected in the prior year. That amount of tax revenue is collected from the entire tax base, not just a single property.
What About Tax Reappraisal
Ohio law requires County Auditors to reappraise the value of property every six years.
The last reappraisal took place in 2011. That was during the early stages of recovery from the Great Recession which also included a collapse in the real estate market.
All 88 counties don’t reappraise in the same year. In Central Ohio, Delaware, Licking, Franklin and Pickaway conducted reappraisals during calendar 2017. As everyone in those 4 counties is well aware, the residential home market is currently extremely strong.
An increase in tax valuation does not generally equate to an equal increase in taxes. This is because of Ohio’s tax-reduction factors that were enacted in the 1970s. The goal of these factors was to limit tax increases in periods of rapidly increasing property values.
For most levies, these reduction factors cap the total amount of taxes raised such that when values increase, the effective tax rate is decreased. As a result, the overall impact of tax valuation increases is limited, and the impact on an individual property can vary depending upon how an individual property’s value changes relative to other properties in the taxing district.
If the average reappraisal value goes up by 10 percent and your value goes up 30 percent, then you’re still going to pay more because your value has increased by more in proportion to the average increase.
If your value goes up 5 percent and the average goes up 10 percent, then you’re going to pay slightly less. But in either case, the levy is only going to collect the same TOTAL amount from the entire tax base that it collected in the prior year.
The reassessment does nothing to change the overall collection amount.