Millage rates are set by local jurisdictions and vary widely across the country and even within the states themselves. Millage rates are set every year, so it’s important to stay informed of changes as you determine your company’s property tax liability.
What goes into determining your local millage rate? How are they impacted by property tax reform efforts?
Let’s take a look.
What Is a Millage Rate?
The term “millage rate” is sometimes used interchangeably with “effective property tax rate” or the shorthand “mill rate.” The word itself comes from the Latin “millesimum,” which translates to “thousandth part.” In property tax, a mill is one thousandth of a dollar. The millage rate, then, is dollars of tax levied for each $1,000 of property value. Whatever millage rate is set by the local jurisdiction each year is then multiplied by the total taxable value of your property to calculate the property taxes due that year.
How the Millage Rate Is Determined
Millage is largely determined by how much a property draws on public services from the town, municipality, county, etc. When you look at your property tax bill, it will likely include several entities’ millage rates totaled together, such as emergency services, school boards, and community colleges. This means that millage rates tend to be highly specialized and zeroed in on their respective entity or municipality.
Even at the state level, you can see how widely millage rates vary. In 2018 for example, the highest effective rate in the US was New Jersey at 2.21%, and the lowest effective rate was Hawaii at 0.30%.
Millage Rate Reform Often Fails
Attempts to shift certain public services’ revenue stream away from local property taxes have largely been unsuccessful. For example, in 2012 North Dakota allowed voters to weigh in on whether local property tax should be eliminated altogether. This measure would have replaced lost revenue for school districts, counties, etc. with other tax revenue at the state level. But the measure was overwhelmingly voted down—property owners in North Dakota preferred to keep their property tax rates highly localized.
In another case, the 2008 Florida Tax and Budget Reform Commission recommended that local property taxes for schools be limited to 5 mills and suggested a few sales tax reform options to make up for the lost revenue. This recommendation was set to be on the November ballot as Amendment 5, but courts pulled it off (along with several other proposed amendments based on the Commission’s recommendations) for misleading language.
Rather than dispense with any property tax altogether, many states do impose property tax rate limitations.
Why Millage Rates Are So Localized
Millage rates are highly localized because each city differs in its property value, its reliance on property tax as a source of income, and its revenue needs. As a result, when reform measures are proposed to unify tax rates, set limits, or get rid of property tax all together, they are met with intense scrutiny because each jurisdiction has different needs. For instance, Texas has one of the highest overall millage rates in the country. However, they also have no state income tax, so they rely heavily on local property taxes as a source of revenue. Many cities also tax commercial properties at a higher rate than residential properties—on average, commercial properties pay a 64% higher property tax rate.
While there are obviously many factors that go into determining local millage rates and, by extension, many reasons why property owners largely prefer to keep them local, one particular reason jumps out. By and large, when reform efforts propose eliminating or sharply limiting local millage rates on property, they offer up other types of taxes (like statewide sales taxes) to make up the lost revenue. But property tax is known to be much more stable and reliable than sales tax, income tax, etc. Localities like school districts depend on local property tax revenue to keep offering their services, and being able to set their own millage rates (rather than relying on the state to collect and distribute enough revenue from other less-dependable sources) gives them a great deal more control and agency over their revenue stream.
Keeping Up with Millage Rate Changes
Because each locality sets their own millage rate each year, it can be difficult to stay on top of changes as they happen. To help with your research, we’ve compiled a state-by-state guide to the rules and limitations that govern rate changes. Our TaxFeed customers can also easily access millage rates by jurisdiction, including year-over-year changes, in our online portal.
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