Property Taxes in Washington
This Advisor column was originally published in April 2009.
You may have heard comments like, “My assessment went up a hundred thousand dollars. Now my taxes will go way up!” You may know this isn’t entirely correct, yet be a little hazy on why not. This article explains why that may not be the case.
In Washington property tax increases are not based on the increasing value of properties. They are based on last year’s property tax levy, which is simply the amount of the property taxes that were assessed in the prior year. Each year’s levy may be increased by no more than 1 percent, unless the public votes for a greater increase.
So how is it that someone’s tax bill ever increases by more than 1 percent?
Imagine a county that has only one parcel and one house that is brand new. This property is worth $100,000. As its only property, its value is also the entire Assessed Value (AV) of the county. Suppose further that the Millage rate (literally ‘rate per thousand’) in that county is $2.00. That means this property owner must pay $2.00 for each one-thousand dollars that his or her property is worth. In the first year after its construction, the taxes on that home would be calculated by multiplying the:
|AV of the property (and in this case the county) in thousands:||100|
|Times the Millage rate:||x 2.00|
|For a tax bill (and a Year 1 levy) of:||$200.00|
The only time taxes are calculated this way is in the first year after a home is built – i.e. for new construction. In every following year it works differently. In Year 2 the county may only increase its levy by one percent. So following our example:
|Last year’s levy is:||$200.00|
|Plus an additional one percent:||+ $2.00|
|For a tax bill (and a Year 2 levy) of:||$202.00|
Even if the value of this county’s one home had increased by $100,000, to $200,000, its tax bill would still be $202.00. No matter how much the AV in the county increase, its levy may increase only 1 percent. So the county adjusts the Millage rate to make it fit the new AV:
|New levy amount:||$202.00||= 1.01, new Millage rate|
|Divided by the new AV in thousands:||200|
Any new homes that might be built in year 2 would be taxed at this new Millage rate.
To see how increases can be greater than one percent, suppose our imaginary county had started with two new homes, but that each one was worth only $50,000. The AV of the county would still total $100,000 in Year 1.
With the same $2.00 Millage rate, the levy in the first year would still be $200. But instead of one home paying the entire levy, the two equal-value homes would split the levy equally and pay $100 each. In Year 2 the levy would still increase by only one percent to $202. And if the value of both homes together increased to $200,000, the Millage rate would still drop to 1.01.
But suppose to get to that $200,000 value, one home tripled in value to $150,000 and the other stayed the same at $50,000. Then their respective tax bills would look like this:
|Home 1||Home 2||Total County|
|Home AV in thousands:||$150||$50||$200||(Total County AV)|
|Times the Millage rate:||x 1.01||x 1.01||x 1.01|
|For a new tax bill of:||$151.50||$50.50||$202.00||(New Year 2 levy)|
The total levy is still $202, but more of it is borne by the home that increased in value and less of it by the home that did not increase. Assessed value only determines a home’s share of the levy. If all home values were to change by the same percentage, then each home’s share of the levy would stay the same and everyone’s taxes would increase by exactly one percent.
The above example is the only way in which property taxes can increase by more than one percent without a public vote.
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