As you prepare budgets, it’s helpful to have a basic familiarity with the property tax rate limitations in states where your company owns property. When setting yearly property tax rates, most jurisdictions are looking to maintain the same property tax revenue that they levied the year before. So, if the assessed value of property goes up, the tax rate goes down. If assessed value goes down, the tax rate goes up.
Due to the COVID-19 pandemic, you may be hoping the assessed value of your commercial property goes down, but we know that counties will need to continue generating revenue for public services. So, will jurisdictions raise their tax rates to compensate for falling assessment values?
Below, we outline how each state limits property tax rate increases. Much of this information was found using Lincoln Institute of Land Policy’s database, which is a fantastic resource if you want more of a detailed breakdown of each state’s policies.
Property tax rate changes come from either a vote of the citizens or by the county commission.
Municipalities have the power to levy property taxes, but not all take advantage of this tax. Only 15 out of 19 boroughs, and nine cities outside of boroughs, levy property taxes.
If the property tax rate is being increased, a Truth in Taxation hearing is required by Arizona law.
Arkansas has a cap on property tax rates: 5 mills for counties and 5 mills for municipalities.
California has a property tax rate limit of 10 mills. Jurisdictions can exceed this amount only to produce revenues needed for annual debt service payments. To do so, the increase must be approved by ⅔ of voters (or 55% if for debt service on school facilities).
Colorado legislates the ratio between commercial and residential property tax contributions. The commercial property tax rate is set at 29%, so the residential rate has dropped over the years to maintain the mandated ratio. However, many municipalities, and the state as a whole, are looking to repeal this amendment, or at least exempt it for 2020.
Connecticut has generic property tax legislation and does not set a statewide limit or mandate voter approval for municipalities’ property tax rates. So, you’ll need to research your municipality for more details on their tax rates and any self-imposed limits.
Because Delaware has only three counties, the state plays less of a role in adjusting or equalizing rates between the counties. Local governments are also much less reliant on property tax than in other states. Delaware restricts increases in the property tax levy following a reassessment to 15% or less.
Florida allows county, city, and school districts to levy property taxes up to 10 mills each, and special districts can levy additional taxes (usually under 2 mills).
Georgia requires that municipalities use a “rollback millage rate” to offset increases in assessed value due to inflation. If the county wants to set a higher rate, they must hold public hearings.
Hawaii has no statewide limits on property tax rates or increases in assessed value. There are only four local governments, and the state is highly centralized.
Each taxing district can increase its property tax budget by no more than 3% unless voters approve a larger increase or the taxing district applies new construction or annexation. There is no cap on the property tax rate itself. So, if property values decrease in value, districts can adjust the rate as needed to meet their budget.
Illinois has the highest average property tax rate in the country. Illinois limits counties’ ability to increase their property tax revenue to 5% or the increase in the Consumer Price Index, whichever is less. If a local government needs more property tax revenue, there must be a referendum of voters.
Indiana has a few caps on property tax rates:
- Tax bills on individual parcels are capped at 1% of assessed value for homestead properties, 2% for non-homestead residential properties, agricultural land, and long-term care properties, and 3% for all other properties.
- The sum of all tax rates for political subdivisions cannot exceed 6.667 mills inside a city or town, or 4.167 mills outside a city or town (excluding debt service).
Iowa has multiple limitations on counties and cities’ property tax rates, and if the taxing authorities want to increase property tax rates above those caps, they can do so through a special election with majority votes.
The Kansas Senate is currently trying to pass a bill that would prohibit local governments from increasing the total amount of property tax revenue collected each year unless officials vote to do so and hold a public hearing. This legislation would replace the current property tax “lid” that limits property tax revenue increases at the rate of inflation and requires voter approval to exceed the cap.
Kentucky allows taxing districts to increase property tax revenue no more than 4 percent before the rate is subject to petition for recall and voter approval. Also, property tax rates in Kentucky are capped at 5 mills for counties and 7.5-15 mills for cities, depending on their size.
Louisiana places property tax rate limits on municipal governments, parishes, and schools, but each limit can be overridden by a majority vote of the electorate. There is also a levy limit that applies after a reassessment, but this can be overridden after public notice, public hearings, and a super-majority vote of the government board.
In Maine, property tax levy increases are limited to a formula based on inflation, assessment growth, and income. The limit can be overridden by a local government majority vote, but 10% of the electorate can call a referendum.
Maryland does not have any statewide restrictions on property tax rates.
Massachusetts has two limits on property tax rates:
- Property tax rates are capped at 2.5%
- Annual increases in property tax revenue are capped at 2.5%.
Anything beyond these limitations requires voter approval.
Michigan limits annual property tax revenue growth to the rate of inflation and requires a “rollback” of property tax rates if the increase in assessed value leads to revenue exceeding inflation.
Right now, there are no statewide caps on local county and city property tax levies, but the Minnesota Department of Education provides guidelines for school districts.
Mississippi limits property tax revenue increases but does not have limits on property tax rates specifically.
Missouri limits property tax rates to 27.5 mills for school districts, 10 mills for municipalities (up to 13 mills with voter approval), and 3.5-5 mills for counties.
Montana limits property tax rates to one sufficient to generate the same property tax revenue as the prior year plus half of the average inflation rate over the prior 3 years. There are a few exceptions and some provisions for jurisdictions taxing under the maximum rate.
In Nebraska, cities, counties, and political subdivisions are subject to revenue limits, and the state has several property tax rate caps:
- Local governments - 4.5 to 10.5 mills
- School districts - 10.5 mills
- Other jurisdictions can be held to a cap upon petition from 10% of registered voters
Nevada limits property tax rates to 50 mills. There is also a limit of 36.4 mills for public purposes of overlapping districts.
New Hampshire places no statewide limit on property tax rates or levies and has no statewide revenue limit or expenditure limit
New Jersey has two limits on property tax:
- Counties/cities cannot increase property tax budgets by more than 2.5% or the increase in cost of living (up to 3.5% through referendum).
- Property tax levies cannot increase by more than 2% over the previous year without voter approval.
New Mexico limits the total property tax rate to 20 mills, with anything greater requiring voter approval. New Mexico also has a provision to reduce certain property tax rates after reassessment to control property tax revenue.
New York limits increases in annual property tax levies to 2% or the rate of inflation. There are a few exceptions, and the limit can be overridden by voter approval.
North Carolina caps the total property tax rate at 15 mills, which can be overridden by referendum.
North Dakota limits property tax rates to 60 mills for counties, 105 mills for cities, 18 mills for townships, and 70 mills for school districts. There are a few exceptions and special funds that can levy taxes outside of these limitations. With voter approval, cities can levy an additional 10 mills and townships an additional 18 mills.
Ohio limits the total property tax rate for overlapping jurisdictions to 10 mills. Jurisdictions can override the limit with voter approval.
Oklahoma limits the total property tax rate to 15 mills, but various additional levies in excess of the 15 mills are permitted with voter approval.
Oregon caps the property tax rate at 1.5%, but taxing districts can exceed the limitation with voter approval, called a local option tax. Local option taxes are limited to 5 years for operational expenses and 10 years for construction projects.
Pennsylvania has several property tax rate limitations:
- Political subdivisions - 12 mills
- Counties - 25 to 30 mills, depending on class
- Cities - 25 to 30 mills, depending on circumstances
- Boroughs - 30 mills
- Institution districts - 10 mills
- Townships - 14 to 30 mills, depending on class
- School districts - 25 to 32.25 mills, depending on class
- Some jurisdictions can impose an additional 5 mills if approved by a court
Rhode Island limits property tax increases to 4% of the previous year’s levy. Voter approval is required to exceed that limit.
South Carolina limits property tax rate increases to the increase in the Consumer Price Index plus the local entity’s percent population increase over the previous year. For reassessment years, taxing jurisdictions must use a rollback millage. These limitations can only be overridden to address specific conditions and require vote by the local council.
South Dakota has set various property tax rate limitations, with voter approval required to override the caps:
- State - 2 mills
- Counties - 12 mills
- Municipalities - 27 mills
- Townships - 3 mills (excluding debt service and fire protection)
- School districts - 1.512 to 7 mills
There is no statewide cap on property tax rates, but legislation is in the works that would limit cities and counties to a 5% annual tax rate increase before requiring voter approval.
In Texas, municipalities need voter approval to increase property tax rates by more than 3.5%, but some counties are arguing that COVID-19 qualifies as a disaster, which would allow them to raise rates by 8% without approval.
Utah has set caps on property tax rates that range from 3.2 to 7 mills. Utah also requires taxing entities to maintain a property tax rate that levies the same property tax revenue as the previous year. If they want to exceed the previous year’s revenue, they must hold a public hearing.
There are no statewide limits on property tax rates in Vermont.
Virginia limits property tax increases by preventing increases of 1% or more. If a reappraisal would increase property taxes by more than 1%, the tax rate is reduced accordingly. Any municipality that wants to go above the reduced rate must hold a public hearing.
In Washington, taxing districts can only increase property tax revenue to account for new construction. If they want to further increase their property tax levy, the district must pass an ordinance and cannot exceed 1% or the rate of inflation, whichever is less. Anything beyond that requires voter approval.
West Virginia sets property tax rate limits in its Constitution, but these caps can be exceeded for up to 5 years with voter approval in a special election.
Wisconsin limits taxing jurisdictions ability to increase property tax revenue, but there is no cap on the property tax rate itself.
Wyoming has set both state and county property tax rate limits, and there is no process for overriding these caps:
- State - 17 mills
- Counties - 18 mills
- Cities - 8 mills
- School districts - 25 mills
Additional limits are imposed on special districts, and there are additional allowances for debt service.
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Although there’s much about the future that’s uncertain, we can use each state’s policies and legislation as a foundation from which to prepare. As you budget for the coming months and years, you can only stand to gain by gathering as much information as possible.
Our property tax experts at PTX Tech can help you put your data to work so you can plan with confidence. Get in touch with us for a free consultation to see how you can use clean, consistent data to improve your property tax process.