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Property Taxes Explained
The natural assumption is that if your assessed value decreases that your tax bill will decrease too but this may not be the case. Many people assume that we have a “rate-based" system of taxes where the property taxes are a set percentage of tax levied on the value of a piece of property, but in Washington, we have a “budget-based" system of taxes where the assessor takes the all of the local taxing districts' yearly budgets and divides that amount by the value of all property in within the taxing boundaries. The assessor then assigns a set tax per thousand dollars of value so that enough money is generated to cover the annual budgets of each taxing district. If all of the local taxing districts' budgets stayed the same and no new levies were approved, but the assessed value of everyone's property decreased uniformly, unfortunately, your taxes would stay the same.
This is a strange concept but using this simple example may help explain how budget based systems work. In our example, all of the taxing districts in our county need $10,000 to operate. If we have four homes with assessed values of $250,000 then sum of all properties assessed value in the county is $1 million dollars. To calculate the levy rate the Assessor takes Taxing District's Annual Budget $10,000 and divides it by the Total Assessed Value $1,000,000 to set a tax levy of.01 or $10 per thousand dollars of property value. In this scenario, the owner of a property with an assessed value of $250,000 would pay $2,500 annually in property tax.
This is a strange concept but using this simple example may help explain how budget based systems work. In our example, all of the taxing districts in our county need $10,000 to operate. If we have four homes with assessed values of $250,000 then sum of all properties assessed value in the county is $1 million dollars. To calculate the levy rate the Assessor takes Taxing District's Annual Budget $10,000 and divides it by the Total Assessed Value $1,000,000 to set a tax levy of.01 or $10 per thousand dollars of property value. In this scenario, the owner of a property with an assessed value of $250,000 would pay $2,500 annually in property tax.
Now in scenario two, the assessed values in the county fall by 10%. The taxing district's budget stay the same at $10,000, but with the 10% drop in value the sum of all properties in the county is now $900,000. In this case, the tax levy goes up to .0111 or $11.1 per thousand dollars of property value ($10,000/$900,000). That means the owner of the property that was assessed last year at $250,000 but assessed value is now $225,000 would still pay $2,500 annual in property taxes.
Budgets
Taxing budgets of districts are set by elected board and council member and do change from year to year, but Initiative 747 passed in November 2001 helps control the amount that budgets may increase. This law allows taxing districts to only increase their budgets (levies) by 1% per year. It should be noted that this levy limit applies to total tax revenues within a taxing district and not to an individual taxpayer's tax bill. The assessed value of your property is determined by the market value of your property which may increase or decrease more than one percent per year.
Most taxing districts are authorized by state law to levy a certain rate each year without approval by the voters; these are commonly referred to as regular levies. The state law also limits the statutory dollar rate limits for most types of taxing districts. All together, certain local regular levies cannot exceed $5.90 and with the state levy, these regular levies cannot exceed $9.50 ($5.90 plus $3.60) per $1,000 of assessed value. These statutory limits can only be exceeded when the voters specifically approve an increase in property taxes typically called “excess" or “special" levies.
These levies are approved in terms of total dollars and generally for one year only but can be from two to six years with respect to school districts and fire protection districts. In addition, taxing districts may request the voters to approve an override of the levy limit called a “lid lift." Each year the assessor determines the levy rate necessary to raise the amount of excess levies approved in that year and in previous years and adds those rates to the regular levy rate.