Setting Tax Rates
Once the ARB approves the appraisal records, the chief appraiser prepares an appraisal roll for each taxing unit. An appraisal roll lists the taxable property within the boundaries of the taxing unit. The appraisal district’s job is finished for the current year. It has provided a set of equal and uniform values for all local taxing units to use.
Now the taxing units decide what services they will provide in the coming year and how much money they will need. Each taxing unit adopts a tax rate that will raise the needed tax dollars.
How do tax rates work?
As a taxpayer, it’s important for you to understand how government spending, property values, and tax rates affect the size of your own tax bill.
- Property values determine each taxpayer’s share of the total taxes.
Changes in property values may affect the tax bills of individual owners, but they do not necessarily increase or decrease the total amount of taxes to a taxing unit.
- A taxing unit’s budget determines the total amount of taxes.
A change in the tax rate by itself does not reflect an increase or decrease in taxes. Total taxes increase only when government spending increases.
- The only meaningful way to compare tax rates is to compare the amount of tax revenue they produce. State “truth-in-taxation” laws give taxpayers a voice in decisions that affect their property tax rates. Beginning in early August, taxing units take the first step toward adopting a tax rate by calculating and publishing the effective and rollback tax rates.
The effective tax rate would provide the taxing unit with approximately the same amount of revenue it had the year before on properties taxed in both years. For example, if property values go up, the effective tax rate goes down. Comparing property tax revenues from one year to the next year tells you whether there will be a tax increase.
The rollback rate provides the taxing unit approximately the same amount of tax revenue it spent the previous year for day-to-day operations plus an extra 8-percent cushion, and sufficient funds to pay its debts in the coming year. For school districts, the cushion is six cents per $100 of property value, not 8 percent. If a unit adopts a tax rate that is higher than the rollback rate, voters in the unit can circulate a petition calling for an election to roll back — or limit — the size of the tax increase. For school districts, no petition is required. The school board calls for an election to ratify the adopted rate if the adopted rate exceeds the rollback rate.
Each taxing unit (other than a school district) publishes the rates in a local newspaper, along with a list of the debts it must pay and the amount of money left over from the previous year. A school district has a special notice.
If taxpayers believe that the taxing unit hasn’t calculated and published in good faith, they can ask a court to stop the taxing unit from adopting a tax rate until it complies with the law.
What if a tax increase is planned?
Taxing units hold budget hearings to discuss what services to provide in the coming year and where to get the money for these services. Taxpayers concerned about spending should attend these hearings.
If a governing body wants to increase the tax rate more than 3 percent above the effective rate, it must publish a quarter-page notice in a local newspaper, announcing a special public hearing. This notice shows the proposed percentage increase, the difference between the proposed tax rate and last year’s actual tax rate, and the effect of the proposed increase on average home taxes. School districts must publish a notice and hold a public hearing.
The public hearing gives taxpayers an opportunity to voice opinions about the proposed tax increase and ask questions of the governing body.
Before the hearing ends, the governing body must set a date, time, and place for formally adopting the tax rate. The taxing unit then publishes another quarter-page ad announcing the meeting for the governing body to adopt the tax rate.
If you believe that your taxing unit failed to comply in good faith with the laws on adopting a tax rate, you can file a lawsuit in district court to stop tax collection until the taxing unit complies with the law. You must file the lawsuit before substantially all of the tax bills are mailed.
How can you limit a tax increase?
If a taxing unit adopts a tax rate that exceeds the rollback rate, the taxpayers may petition for an election to roll back the tax increase to the rollback rate. If a school district adopts a tax rate above the rollback rate, the district holds an election on the question to ratify the adopted tax rate. No petition is required.
For taxing units other than school districts, petitions for holding a tax rate rollback election must:
- Use specific legal wording. An attorney can provide assistance on the proper wording for a petition.
- Be signed by at least 10 percent of the registered voters in the taxing unit. The number of registered voters is the number of voters from the most recent official voter list.
- Be given to the taxing unit’s governing body within 90 days after the date it adopted the tax rate. Once the governing body receives a petition, it has 20 days to determine if it is valid. If the governing body determines that the petition is valid or if the governing body takes no action during the 20 days, it must set the date for an election within 30 to 90 days.
If a majority votes in favor of the tax rollback, the tax rate is reduced to the rollback rate immediately. For school districts, if a majority votes not to ratify the school district’s adopted tax rate, the calculated rollback rate is the school’s tax rate. In school districts, however, a rollback election is not required if the tax rate increase is to respond to a natural disaster.