|Real Estate Tax Information|
What is Real Estate Tax?
How is Real Estate Tax Used?
How are Real Property Taxes Levied?
How does the Ohio Constitution Dictate Real Estate Taxation?
Real Estate Tax Reductions
How is Your Real Property Tax Determined?
Property Tax Calculation Steps for County Auditor
|WHAT IS REAL ESTATE TAX?
The tax on real estate is imposed on land and the improvements on it, such as buildings.
HOW IS REAL ESTATE TAX USED?
For the first hundred years of statehood, Ohio’s chief source of revenue was a tax on land. State property taxes for the State’s general fund ended in 1902. Since then, local governmental units have been the beneficiaries of property taxes.
The tax on real property is the main source for financing local government operations and primary and secondary education. School districts receive the largest amount, but municipalities, counties, townships and other local districts also use this revenue to pay a major portion of their costs. Counties are responsible for appraising the property, assessing and collecting the tax, and distributing the proceeds to the governmental unit imposing the tax. The state’s role is supervisory.
The real property tax is Ohio’s largest source of tax revenue. Though it is a local tax, it is a major and integral part of Ohio’s total tax structure.
HOW ARE REAL PROPERTY TAXES LEVIED?
According to Ohio law, property taxes may be levied by any county, township, city, village, school district or other special district by resolution of its governing body. Real property taxes are imposed locally with voter approval.
The taxing authority of each local government unit adopts and files a budget for the coming year. These budgets are reviewed by the County Budget Commission (auditor, treasurer, and prosecuting attorney). The Commission may neither change estimates of expenditures nor authorize a tax rate which will produce more revenue than the proposed expenditures. If the present tax will not produce sufficient revenue to cover expenditures, additional millage must be placed on the ballot for voter approval.
The property tax rate is measured in mills; a mill is one-tenth of a cent. This translates to $1 for each $1,000 of assessed property value.
|HOW DOES THE OHIO CONSTITUTION DICTATE REAL ESTATE TAXATION?
Limitations: The Ohio Constitution requires voter approval for all taxes levied over one percent of true (market) value of the property, unless a higher limitation for a municipality is approved by voters under a municipal charter. The legislature has defined one percent of true value as a tax rate of 10 mills. The 10 mills are referred to as “inside millage” because they are "inside" the constitutional limitation. This millage is allocated among various local taxing districts. Any additional millage must be approved by voters and is called “outside millage”.
Exemptions: Like most states, Ohio exempts churches, charitable institutions, government property, cemeteries, private colleges, hospitals, etc. from property taxes. Ohio also exempts industrial air, water, noise pollution control equipment, and solar, wind, and hypothermal energy systems from property taxes. Exemption applications are administered by the County Auditor and evaluated and granted by the Commissioner of Tax Equalization. Any exemption reduces the base of the tax, thus placing the tax burden on fewer parcels of real estate.
Uniformity: Although voters have approved several exceptions, the general rule in Ohio’s Constitution is that all real property must be taxed on a uniform basis. The purpose of uniformity is to assure that all kinds of real property are taxed on the same basis regardless of ownership.
Assessment: Until the mid 1960s property was in theory, assessed at 100 percent of true market value. In practice, however, there were many inequalities in the way property was assessed. Counties used different percentages of market values or assessed different types of property at different percentages. In 1965, the legislature required that assessment levels be no more than 50 percent of market value. In the late 1960s a series of court cases (i.e., the Park Investment Cases) resulted in a Supreme Court order directing the state to equalize assessment levels within counties and across the state. As a result, all real property is now supposed to be assessed at the same percent (35 percent) of true or market value. Market value is determined by actual sales of comparable property. The effect of applying the 10 mill limitation to an assessed value that is only 35 percent of the true market value means the actual limit on unvoted taxes in Ohio is 3.5 mills.
Classification: In 1980, voters approved a constitutional amendment to the uniform rule provision that established two classes of real property. Each parcel is classified as either residential/ agricultural or industrial/ commercial property. The sole purpose of this classification is to reduce taxes when appraisal results in higher valuations. County auditors now apply separate tax reductions factors to the two classes. This is an effort to stop the shift in taxes to agricultural and residential property that was occurring due to greater appreciation in residential and agricultural property than in industrial and commercial property.
|REAL ESTATE TAX REDUCTIONS
In response to the protests of property owners, the legislature has adopted several property tax relief measures.
10% Rollback: In 1971, a 10 percent across-the-board rollback on all real property tax bills, applicable annually, was enacted. This was added to Ohio’s income tax bill to win legislative support for the package. Effective 2006, House Bill 66 removed this rollback on all commercial and industrial properties, including some agricultural properties.
2 ½ % Rollback (Owner-Occupied Property): In 1979, an additional 2 ½ percent rollback applicable to owner occupied homes was approved.
Homestead Reduction: Since 1971, Ohio granted property tax relief through a partial homestead exemption program for low-income homeowners 65 and older. Authorized by constitutional amendment in 1970, this program was extended in 1974 to permanently and totally disabled homeowners. In 2007, the program removed the income requirements, and is now open to all homeowners 65 and older and permanently and totally disabled homeowners.
Local taxing districts do not lose money as a result of the rollback or homestead exemptions. The state fully reimburses each taxing district using state tax money.
CAUV (Current Agricultural Use Value): Special tax treatment for agricultural land was authorized by Constitutional amendments in 1973. Land used for agricultural purposes may be valued and taxed on the basis of its agricultural use rather than on its “highest and best” use. This gives farmers, especially in urban fringe areas, a tax break. It is authorized in the conservation section of the Constitution with special treatment for certain forest land.
House Bill 920 (H.B. 920): The most controversial and complicated measure to limit property taxes is the use of tax credits to calculate real property taxes. It is an accepted tenet in Ohio that voter approval of a specific number of mills on the ballot is not authorization for a set tax rate into the future, but rather is approval for collecting the amount of money that the approved millage produces when voted. This view of taxation holds that property taxes should not increase through appreciation in property values due to inflation, but only through a vote of the people.
Until 1976, the Ohio legislature subscribed to a policy of reducing outside millage whenever property increased in assessed value so that only the same amount of revenue was collected as the previous year. In 1976, the legislature enacted H.B. 920, a new procedure to limit property tax growth. The law authorized H.B. 920 credits that reduce millage rates to keep increased property valuations from producing “windfall” revenues for taxing districts.
On the other hand, H.B. 920 is also designed to raise rates when property values drop in order to generate the amount originally intended by the levy. The caveat is that the rate on a voted fixed rate levy may not rise above the voted rate. This phenomenon can create a revenue loss for the local government while also returning a savings for the taxpayer, who is paying tax on a lower valuation whose tax rate is "capped" by the voted rate of the levy.
The Department of Tax Equalization calculates the percentage reduction in voted levies necessary to provide the same number of dollars to each local government as it received the previous year from the same millage. That percentage, the tax reduction factor, is applied to each parcel of property in that taxing district. The H.B. 920 credits do not apply to revenue from the inside millage, increases from new construction, emergency levies or taxes levied to repay debt. These areas of property tax are not subject to State tax reduction factors.
H.B. 920 credits offer relief to taxpayers by restricting much of the growth in property tax revenue from inflation, while also providing some protection for local governments in times of declining property values. This "freezing" of the revenue stream also limits future revenue growth. This can cause problems for local governments when costs continue to inflate without a corresponding increase in revenues from the property tax, which remains a major source of revenue for local governments in Ohio. Also, it should be noted that the State does not reimburse revenue to local governments for property tax not collected as a result of these credits.
|HOW IS YOUR REAL PROPERTY TAX DETERMINED?
The first step in taxing real property is to appraise its value. In Ohio, this is the responsibility of the 88 county auditors who hire private appraisal firms or use their own staffs. The Department of Tax Equalization has developed rules to improve uniformity of assessment.
Revaluation: Ohio law requires that each parcel be “viewed and appraised” at its true or market value every six years. This appraising is not done simultaneously statewide. Instead, certain counties are appraised each year in a six-year cycle. By the time the cycle is complete, property valuations in the first counties covered are out of date and behind in the inflation spiral. The next reappraisals may result in a big jump in valuations. To reduce the impact; Ohio has required “paper” updates in the third calendar year following reappraisals since 1976. These triennial updates are based on a three-year average of sales that reflect changes in market value.
The last Triennial Update was effective for Tax Year 2009 (collected in 2010). Lucas County performed it's last Revaluation in Tax Year 2006 (collected in 2007), and the next scheduled Revaluation is in Tax Year 2012 (collected in 2013).
|PROPERTY TAX CALCULATION STEPS FOR COUNTY AUDITOR:
1. Using appraised values, figures taxable (assessed value) of each parcel
Market Value X 35% = Assessed Value
2. Multiply assessed valuation by the tax rate (inside millage + voted millage)
Assessed Value X Tax Rate of Community = Current Real Estate Tax/Year
3. Reduces this amount by the certified percentage received from the commissioner of Tax Equalization (tax reduction factor)
Current Tax X Reduction Factors = Reduction Credits
Current Tax – Reduction Credits = Tax Subtotal
4. Reduce the tax bill by 10% Rollback
Tax Subtotal – 10% Rollback = Tax Subtotal
5. Reduces the tax bill by 2 ½% (owner-occupied homes)
Tax Subtotal – 2 ½% Rollback = Tax Subtotal
6. Calculate a homestead exemption for certain elderly and disable homeowners when applicable
Tax Subtotal – Homestead Reduction = Net Tax
7. Add assessments for such things as street lighting, curbs, sidewalk improvements
Net Tax + Special Assessments = Total Taxes for Year
8. Divide tax to account for billing twice a year
Total Tax / 2 = Current Half Tax Due
9. Give completed Tax Duplicate to the County Treasurer who bills the taxpayer and collects the taxes by half years
Taxpayer complaints about valuation or assessments of real property are heard and investigated by the County Board of Revision (auditor, treasurer, and president of the County Commissioners). This board may revise assessments. Appeals from its decisions may be filed with the State Board of Tax Appeal or in Common Pleas Court. Appeals from decisions of the budget commission relating to tax rates are filed directly with the Board of Tax Appeals.