Property Tax Assessments
Based on some Twitter chatter this morning, I learned that the property tax assessment letters are going out today in Providence. The citizens of our capital city are learning what value their homes and land will be taxed at. There is always some confusion as to what this means.
First, the city should be using a value that they think is the current fair market value for the land and the building on it. This should be approximately what the property would sell for on the open market. I’ve seen many times when these aren’t even close, especially in my own town and my own property. I tried selling mine for nearly $30,000 less than the assessed value and I couldn’t even get an offer. My solution to this would be to require the town or the company doing the assessing to purchase the property at this assessed price, if the owner is willing to sell, within 30 days. I’m guessing the property values would be set much more closely to what is realistic at that point.
But what do these values mean? If your assessed value goes down, does that mean your property taxes will go down too? Not likely and in most cases, they’ll actually go up. They go up because the town still needs (or thinks it needs) additional revenues every year. Employees get raises, services and goods like electricity, heating oil, natural gas, are all things that cost more.
The way a city derives your tax bill is actually in two pieces. Neither piece means anything by itself. It’s a combination of the assessed value and the tax rate. According to RILiving.com, the last property tax rate for non-commercial property was $31.89 per $1,000 of assessment. If your property is assessed at $300,000, simply mutiply that $31.89 by 300 and you get your property tax bill of $9,567 per year. However, Providence does offer a homestead exemption. This means if the property is your primary residence, Providence cuts that bill in half. Well, unless you’re the Governor, then you can live anywhere you want and still get the homestead exemption.
Seems pretty straightforward. The town has their rate, does their assessments and that’s their revenue. This would seem to be a problem if the property values drop at all. That would mean less revenue for the city, right? Nope. The cities actually do these calculations in reverse. In a way that might not really make sense. First they figure out how much money they need for everything they want to do and everything they want to support. Next, they take the total assessed value, divide one by the other and the result becomes the tax rate.
In a nutshell, your assessed value going down really doesn’t mean anything at all. You need to take both values, assessment and the tax rate into effect. Because the city doesn’t want to have a decrease in revenues along with the decrease in assessed value, they will in turn either increase the tax rate, lower or eliminate the homestead exemption or some combination of both.