THE PROPERTY TAX BILL
ASSESSMENT multiplied by TAX RATES equals TAX BILL
The amount of the tax bill is determined by two factors: (1) the assessment and (2) the property tax rate for each jurisdiction (state, county, & municipal). Assessments are based on the fair market value of the property and are issued by the Department of Assessments and Taxation, an agency of state government. Property tax rates are set by each unit of government (state, counties, and municipalities). ASSESSMENTSProperties are reassessed once every three years and property owners are notified of any change in their assessment in late December. Counties contain 3 reassessment regions (cycles), which allows for approximately 1/3 of the property accounts to be reassessed each year. Property assessment values are certified by the Department of Assessments and Taxation to local governments, and are then converted into property tax bills by applying that jurisdiction’s property tax rates.TAX RATESProperty tax rates vary widely.. No restrictions or limitations on property taxes are imposed by the state, which gives cities and counties the discretion to set tax rates at the level they require to fund governmental services. These rates can increase, decrease, or remain the same from year to year. If the proposed tax rate increases the total property tax revenues, the governing body must advertise that fact and hold a public hearing on the new tax rate. This is called the Constant Yield Tax Rate process.The effective tax rate is a combination of state, county, and municipal tax rates. Property tax rates are expressed as a dollar amount per $100 of assessment. For example, for a property with a fair market value of $100,000, the property taxes would be calculated by dividing the assessment by 100 and multiplying the product by the property tax rate. Using an effective tax rate of $1.08 per $100 for this example ($1.00 local property tax plus $.08 state property tax), the amount of property taxes due would be calculated like this: $100,000 divided by 100 times $1.08, which equals $1,080.00.
III. THE ASSESSMENT PROCESS
FAIR MARKET VALUE
Article 15 of the Declaration of Rights of Maryland's Constitution requires that all property be assessed and taxed uniformly. State law specifically requires that all taxable property shall be assessed based on its fair market value. The courts have also interpreted this requirement to mean that assessments must be based on the fair market value of the property.
APPROACHES TO VALUE
An assessment is based on an appraisal of the fair market value of the property. An appraisal is an estimate of value. Assessors are the appraisers who estimate the value of the property for tax purposes. Assessors are trained to use standard appraisal approaches and techniques to determine the appraisal estimate. There are three accepted approaches to market value: (1) the sales approach, (2) the cost approach, and (3) the income approach. While differing in the method of calculation, each approach is designed to indicate the property's fair market value.
For any increase in the full cash value of a property, state law requires that the increase in value over the old assessment is "phased-in" over the next three years. Use, as an example, a new appraisal of $130,000 compared to an old appraisal of $100,000. In this example, the new appraisal is $30,000 higher than the old appraisal. That $30,000 increase is "phased-in" equally over the next three years: 1st year, $110,000; 2nd year, $120,000; and 3rd year, $130,000.
IV. THE RESIDENTIAL ASSESSMENT
In Maryland, there are over 2.3 million real property accounts. The Department of Assessments and Taxation must appraise each of these properties once every three years. To accomplish this task, the Department employs and trains assessors to inspect, analyze markets, and value real estate. Assessors are trained and educated in proper appraisal approaches and techniques, and must be familiar with local property characteristics which affect value.The two appraisal approaches used by assessors to estimate fair market value for residential properties are: (1) the sales approach, and (2) the cost approach. The income approach mentioned in the preceding section is appropriate to properties which produce an income stream from rent or lease agreements.
THE SALES APPROACH
The premise of the sales approach is that the fair market value of a given property (called the subject property) may be determined by examining the sale prices of comparable properties. If similar properties sold for approximately $100,000, you can assume that other comparable properties would sell in the $100,000 range. The key to the sales approach is comparability and the availability of sufficient data.
The premise of the cost approach is that the fair market value of a given property equals the total of the cost to construct a similar improvement, less any depreciation for age and condition, and the price of the land. For example, if the cost to construct an 1,800 square foot rancher is $70,000, the cost approach assumes that a prospective purchaser would not pay more than $70,000, plus the cost of the land, for a home which is already built. If the existing house were not new, it may sell for less than $70,000. In general, the older the house, the greater the loss in value due to depreciation. A house which is 10 years old will usually sell for less than a comparable house which was recently built.Assessors in Maryland use a blend of both the sales and cost approaches to appraise residential property. The value of the land is based on the sales approach. However, when limited land sales data is available an allocation, or percentage, method may be used. The value of the dwelling is estimated using the cost approach applied with a neighborhood adjustment factor. The neighborhood adjustment factor is created by analyzing sales of similar modeled dwellings in similar market areas.
VI. THE ASSESSMENT WORKSHEET
VII. APPEALING YOUR ASSESSMENT
(See also Appeal process)
FOCUS OF APPEAL
FIRST STEP - SUPERVISOR'S LEVEL
SECOND STEP -- PROPERTY TAX ASSESSMENT APPEAL BOARD
THIRD STEP -- MARYLAND TAX COURT
301 W. Preston St., Baltimore, MD 21201-2395