A millage rate is the number that determines how much property tax you pay. It’s a tool local governments use to calculate tax bills based on a property’s value. The term "millage" comes from the Latin word "millesimum," meaning "thousandth." Essentially, one mill equals $1 in tax for every $1,000 of a property’s assessed value.
How Is the Millage Rate Set?
Local governments — like your city, county, and school district — each set their millage rates based on their budgets. These rates combine to create your total property tax rate.
For example, if your county charges 5 mills, your school district adds 10 mills, and your fire department needs 3 mills, your total millage rate would be 18 mills. That means you’d pay $18 in taxes for every $1,000 of your taxable property’s assessed value.
How Does the Millage Rate Affect Your Annual Property Tax Bill?
Your property tax bill is calculated by multiplying the millage rate by your property’s assessed value.
Example Calculation:
Property’s assessed value: $250,000
Total millage rate: 20 mills (or 2%)
Property tax owed: (250,000 / 1,000) × 20 = $5,000
If your property’s assessed value increases due to a reassessment and the millage rate stays the same, your tax bill will also increase. This is often referred to as a millage rate increase in practice, even if the rate itself remains unchanged, but the taxable value goes up.
Residential vs. Commercial Property Taxes
Millage rates apply to both residential and commercial properties, but the tax burden can differ:
Homeowners may qualify for exemptions or tax caps that limit how much their assessed value can increase each year.
Business owners and commercial property owners often face higher tax rates and fewer exemptions, resulting in greater fluctuations in their tax liability.
How Millage Rates Affect Investment Properties
If you own a rental home, office building, or other non-homestead property, your taxes may increase faster than those of a homeowner. Many local governments allow homestead exemptions that cap annual assessment increases, but investment properties don’t qualify.
For example, if a rental property’s assessed value jumps 15% in one year and the millage rate remains unchanged, the property owner’s tax bill will rise significantly.
How County Assessors Determine Your Property Value
The county assessor plays a key role in calculating your tax bill. They determine the assessed value of your property, which is then multiplied by the applicable millage rate. Assessors use different valuation methods, including:
Sales comparison approach: This method examines the recent sales of similar properties to determine the value of your property.
Example: Imagine two nearly identical homes in the same neighborhood. One recently sold for $300,000. If your home is similar in size, age, and condition, the county assessor might value it close to that price using the sales comparison approach.
Cost approach: This method estimates the cost to rebuild the property from scratch, factoring in materials, labor, and depreciation.
Example: Suppose a storm damages a commercial building, and rebuilding it from scratch would cost $500,000. If the building has depreciated by $50,000 due to wear and tear, the assessor may set the property’s value at $450,000 using the cost approach.
Income approach: This approach is primarily used for commercial properties, estimating value based on the rental income the property generates.
Example: A small office building generates $50,000 in annual rental income. If similar office buildings in the area are valued at 10 times their annual rental income, the assessor may estimate the building's value at $500,000 using the income approach.
Can Millage Rates Change?
Yes, millage rates can change every year. Local governments adjust actual millage rates based on their budgets, voter-approved measures, and economic conditions.
If tax revenues fall short, governments may raise millage rates to make up the difference. On the other hand, if property values rise significantly, some areas may lower millage rates to avoid drastic tax increases.
Understanding Property Tax Exemptions and Their Impact on Millage Rates
Property tax exemptions can significantly lower your taxable property value, reducing your overall tax liability. These exemptions vary by state and locality but can make a big difference in how much you owe each year. Since your tax bill is determined by multiplying the millage rate by your taxable value, exemptions directly reduce the amount subject to taxation.
Example of Exemptions in Action:
A homeowner qualifies for a $50,000 homestead exemption on a home valued at $250,000. If the local millage rate is 20 mills, their tax bill is calculated as:
Before exemption: (250,000 / 1,000) × 20 = $5,000
After exemption: (200,000 / 1,000) × 20 = $4,000
The homeowner saves $1,000 annually thanks to the exemption.
For business owners, understanding which tax incentives apply can help lower operating costs. Some areas offer tax breaks for new developments, while others provide reductions for energy-efficient upgrades.
Appealing Your Property Assessment To Lower Your Tax Bill
If you believe your property has been overvalued, you can reduce your tax liability by filing an appeal.
Steps For an Appeal Filing:
Review your assessment: Check your valuation notice from the county assessor for errors.
Gather evidence: Collect recent sales data, independent appraisals, or evidence of damage that could lower your property’s value.
File a formal appeal: Submit your appeal within the required timeframe.
Attend an appeal hearing: If needed, present your case to an appeal board to argue for a lower assessed value.
Reducing your assessed value through a successful appeal can lower your annual property tax bill, even if the millage rate remains unchanged.
How Business Owners Can Manage Property Tax Increases
For business owners, property taxes can be a significant operating expense. Since commercial properties don’t usually benefit from homestead exemptions, tax burdens can fluctuate significantly. Here’s how businesses can manage property tax increases:
Monitor reassessments: Stay aware of property reassessment cycles in your area.
Plan for millage rate increases: Budget for potential tax hikes by analyzing local tax trends.
Explore tax incentives: Some commercial properties may qualify for economic development tax breaks.
Appeal assessments: Challenge unfair assessments to reduce tax liability.
Final Thoughts
Millage rates play a major role in determining property taxes for both homeowners and business owners. Understanding how they work can help you plan ahead, budget effectively, and take steps to reduce your tax bill when possible.
Ownwell specializes in helping property owners lower their tax bills by filing appeals and finding tax-saving opportunities. On average, clients achieve 31% higher savings with Ownwell compared to competitors.
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