Every three months or so we get a bill from the town for property taxes. It seems each year it increases. Why are town officials always raising taxes? Why is the tax rate down, but I’m still paying more? I’m paying more taxes because the value of my house went up and why is my property going up, anyway? These are just a few of the comments we hear each year about this time. The assessors thought we would put together a series of articles that would help explain how the process works.
As a community, there are many services we want provided whether we use them personally or not. For example, we wouldn’t want to eliminate the police just because we hadn’t been robbed? There is value to us having the police on duty everyday. The same is true of streets, schools, etc. So we, the voters, decided years ago to fund certain activities as a community, rather than with user fees. Now, we must figure out each year what we want to spend as a community and find a way to pay for it as fairly as possible. Maynard is a true democracy where any registered resident can participate and vote to decide our spending priorities. Each year Maynard has an Annual Town Meeting (as required by law) in May to set the budgeted expenditures for the financial (fiscal) year that runs from the following July 1 to June 30. Because the final information regarding State reimbursements (the ‘Cherry Sheet’) (name given to the State’s money summary to the Town printed on cherry colored paper) comes after the May meeting and other items change, we usually have two additional meetings as our financial situation evolves. One in the fall and another in the spring (usually in conjunction with the next year’s annual meeting to save meeting expenses). Our town officials organize the information, put together plans and make presentations to the voters at town meeting on what we should spend, but it is we, the voters, who make the final decision – not town officials. This year we voted to spend $30,971,059.69 for the Fiscal Year 2007 (FY2007) budget.
The $30 plus million is what the voters, as a group, felt were worthwhile expenditures. Fortunately, we don’t have to raise all of that from property taxes. We receive money from other sources, such as: the Cherry Sheet, auto excise, state lottery receipts, etc. This year, the sum of these other sources amounts to $12,791,286.53 . The budget ($30,971,059.69 ) minus the other sources ($12,791,286.53 ) is called the levy. Therefore our FY2007 levy is $19,145,690.05 which comes from property taxes. All of this has happened without a tax rate or a set of property values.
The levy, having been established, is now turned over to the assessors to divide up among the property owners in the town. We could simply take the levy ($19,145,690) and divide it by the number of property owners (3934) and come up with a tax bill for $4867 each. However, years ago, a decision was made to vary the tax based on the value of the property. Also, certain properties are not taxed (churches, town buildings, parks, schools and the like). Properties pay taxes based on the relative value of their property proportional to everyone else. Thus, if you have a more valuable property, you will pay more than someone with a less valuable property. You must have noticed by now that I keep using the word “property” rather than “house” or “home”. This is because the calculations apply to raw land as well as commercial and industrial buildings. Taxation terminology can sometimes get in the way of understanding, so I will use an example to illustrate some concepts.
Suppose five families all wanted a boat, but none could afford it individually. They decided to pool their resources and buy a boat together sharing the costs. Doing a budget, they found they could buy the boat on time payments and do the maintenance for a cost of $520 per year (levy). They could have divided the cost equally among the five families at $104 per year per family. However, it turned out that Family A used it in the peak summer weeks and Family B only used it in the late fall. So to be fair, the group took a different approach and agreed to apportion the cost to each family based on the value of their use. Family A paid a larger share than family B because their weeks of usage were more valuable.
Taxation is much the same. Rather than divide the levy equally, we assess a value to each property that closely reflects a selling price in the open market were it to be sold. We then create a fraction with the individual property value on the top and the sum of all values in town on the bottom. For this year the total value of all property in Maynard is $1,380,611,057 of which 1,205,914,855 is residential. The average home, worth $348,329, would thus have a tax bill of $4,830, i.e. the ‘levy’ ($19,145,690) times ‘individual property value’ ($348,329) divided by ‘all values’ ($1,380,611,057) equals $4,830 (19,145,690 x 348,329 / 1,380,611,057 = 4,830). As you can see, dealing with all these numbers can be quite difficult. To simplify things and to provide a single number for individuals to use, we create the concept of a tax rate. This is the ‘levy’ ($19,145,690) divided by the ‘total value of the town’ ($1,380,611,057) or $0.01386754 for each dollar of value. We translate this from ‘per dollar of value’ to ‘per thousand dollars of value’ by moving the decimal 3 places and rounding to the closest penny. Therefore, the tax rate for this year is $13.87 per $1,000 of value.
Going back to our fraction in the previous paragraph of ‘levy divided by value’ and our answer of 0.01386754, we can translate this into percent by moving the decimal two places to get 1.39%. This is a useful number because Proposition 2 ( a primer on Proposition 2 ) passed into law back in the 1980s says that the town will not levy greater than 2.5% of the town’s value. Because the 1.43% is less than 2.5% our budget is legal. If it had gone over, we would have been required to have another town meeting to cut the budget.
Click here to read a primer on Proposition 2 (pdf)
One interesting phenomenon is the effect of value increases on taxes. Or perhaps, I should say the non-effect. We are required by state law to regularly revalue property as close as possible to its real selling or construction value in order for the state to apportion their funds to the towns. So, let’s say that the assessors changed the values of property 10% in a year to reflect more closely the actual sales prices in the marketplace, what would be the impact on the taxes paid by the average home? Increase the average value ($348,329) by 10% and you will get a ‘new value’ of $383,162. If we did this to all properties then the sum of all properties would increases by 10% as well. Ten percent of the total value of $1,380,611,057 equals $138,061,106 and that added to the original total value of $1,380,611,057 equals $ 1,518,672,163. If we now take the ’new values’ and calculate as before, we get the ‘new individual property value’ ($383,162) divided by ‘new all values’ ($1,518,672,163) times the levy ($19,145,690) and come up with $4,830 – the same tax bill we had with the original values! This is not true of the tax rate which would become $12.61 per thousand (the ‘levy’ ($19,145,690) divided by the ‘new total town value’ ($ 1,518,672,163) equals 0.01260686 or $12.61 per thousand). Thus, the tax rate will go down by the same amount the values go up. However, the tax bill for a property does not change.
I make this point because comparing different towns’ tax rates can be misleading. Let’s say that a house in Maynard is assessed for $300,000 and the same house located in a nearby community is assessed in their town for $370,000. Let’s say the tax rate in Maynard is higher at $18.25 for a total tax bill of $5,475 ($300,000 x $18.25 / $1,000). The tax rate in the nearby community may be $16.25 ($2.00 lower) but the tax bill would be $6,012 ($370,000 x $16.25 / $1,000). That is $537 more money in the other town with the lower tax rate.
We now have established a tax rate of $13.87, but this is only an interim step. Additional steps are required before the final rate and tax bills. In the next article we will talk about another concept called “classification”.
Click here to go to the next article on Classification
If you have any questions about this or any other part of the taxation process, please let us know by calling 897-1304 or sending us an email.
