Question

As a homeowner in the City of Bloomington you are interested in calculating the Effective Property Tax

Rate you expect to pay on your property. Based on the following information, calculate the ETR of your

property for

BOTH

of the following scenarios. It is fine to work in groups but you must turn in your work

and your work only.

Scenario 1)

You know from government legislation that the legal tax rate on your property is 2.4% and the city’s

assessed value of your property is $145,000. However, your property is currently on the market for only

$60,500 due to a significant downturn in the housing market.

What is your Effective Property Tax Rate?

Scenario 2)

You know from government legislation that the legal tax rate on your property is 2.4% and the city’s

assessed value of your property is $145,000. However, your property is currently on the market for

$175,000 due to a recent boom in the housing market.

What is your Effective Property Tax Rate?

Analysis:

Compare and analyze the two ETRs. How did the change in market value affect the property ETR?

Would you prefer your home to be undervalued or overvalued by government assessors before you pay

your property taxes?

Answer 1

Scenario 1

Effective tax rate calculation;

Assessed value of property=$145000

Legal tax rate=2.4%

Total tax on assessed value=$3480

market value of property=$60500

effective tax rate =Total tax on assessed vale*100/Market value of property=$3480/$60500*100=%5.7521

Scenario 2

Effective tax rate calculation;

Assessed value of property=$145000

Legal tax rate=2.4%

Total tax on assessed value=$3480

market value of property=$175000

effective tax rate =Total tax on assessed vale*100/Market value of property=$3480/$175000*100=1.9886%

On comparing two ETR we found that when market rate increases effective tax rate decrease i.e higher the market value lower the effective tax rate.

AS undervaluation of property by government assessor is recommended due to results in lower effective tax rate .

but it is also advisable that property should be judged correctly if any law determines its resale value for capital tax purposes as taken from government assessor. but from the view point of taxation its lower assesse value is preferred.