WHAT IS REAL ESTATE TAX?
The tax on real estate is imposed on land and the improvements on it, such as buildings.
HOW IS REAL ESTATE TAX USED?
For the first hundred years of statehood, Ohio’s chief source of revenue was a tax on land. State property taxes for the State’s general fund ended in 1902. Since then, local governmental units have been the beneficiaries of property taxes.
The tax on real property is the main source for financing local government operations and primary and secondary education. School districts receive the largest amount, but municipalities, counties, townships and other local districts also use this revenue to pay a major portion of their costs. Counties are responsible for appraising the property, assessing and collecting the tax, and distributing the proceeds to the governmental unit imposing the tax. The state’s role is supervisory.
The real property tax is Ohio’s largest source of tax revenue. Though it is a local tax, it is a major and integral part of Ohio’s total tax structure.
HOW ARE REAL PROPERTY TAXES LEVIED?
According to Ohio law, property taxes may be levied by any county, township, city, village, school district or other special district by resolution of its governing body. Real property taxes are imposed locally with voter approval.
The taxing authority of each local government unit adopts and files a budget for the coming year. These budgets are reviewed by the County Budget Commission (auditor, treasurer, and prosecuting attorney). The Commission may neither change estimates of expenditures nor authorize a tax rate which will produce more revenue than the proposed expenditures. If the present tax will not produce sufficient revenue to cover expenditures, additional millage must be placed on the ballot for voter approval.
The property tax rate is measured in mills; a mill is one-tenth of a cent. This translates to $1 for each $1,000 of assessed property value.
HOW DOES THE OHIO CONSTITUTION DICTATE REAL ESTATE TAXATION?
Limitations: The Ohio Constitution requires voter approval for all taxes levied over one percent of true (market) value of the property, unless a higher limitation for a municipality is approved by voters under a municipal charter. The legislature has defined one percent of true value as a tax rate of 10 mills. The 10 mills are referred to as “inside millage” because they are "inside" the constitutional limitation. This millage is allocated among various local taxing districts. Any additional millage must be approved by voters and is called “outside millage”.
Exemptions: Like most states, Ohio exempts churches, charitable institutions, government property, cemeteries, private colleges, hospitals, etc. from property taxes. Ohio also exempts industrial air, water, noise pollution control equipment, and solar, wind, and hypothermal energy systems from property taxes. Exemption applications are administered by the County Auditor and evaluated and granted by the Commissioner of Tax Equalization. Any exemption reduces the base of the tax, thus placing the tax burden on fewer parcels of real estate.
Uniformity: Although voters have approved several exceptions, the general rule in Ohio’s Constitution is that all real property must be taxed on a uniform basis. The purpose of uniformity is to assure that all kinds of real property are taxed on the same basis regardless of ownership.
Assessment: Until the mid 1960s property was in theory, assessed at 100 percent of true market value. In practice, however, there were many inequalities in the way property was assessed. Counties used different percentages of market values or assessed different types of property at different percentages. In 1965, the legislature required that assessment levels be no more than 50 percent of market value. In the late 1960s a series of court cases (i.e. the Park Investment Cases) resulted in a Supreme Court order directing the state to equalize assessment levels within counties and across the state. As a result, all real property is now supposed to be assessed at the same percent (35 percent) of true or market value. Market value is determined by actual sales of comparable property. The effect of applying the 10 mill limitation to an assessed value that is only 35 percent of the true market value means the actual limit on unvoted taxes in Ohio is 3.5 mills.
Classification: In 1980, voters approved a constitutional amendment to the uniform rule provision that established two classes of real property. Each parcel is classified as either residential/ agricultural or industrial/ commercial property. The sole purpose of this classification is to reduce taxes when appraisal results in higher valuations. County auditors now apply separate tax reductions factors to the two classes. This is an effort to stop the shift in taxes to agricultural and residential property that was occurring due to greater appreciation in residential and agricultural property than in industrial and commercial property.
REAL ESTATE TAX REDUCTIONS
In response to the protests of property owners, the legislature has adopted several property tax relief measures.
The Non-Business Credit (formerly known as the 10% Rollback): A 10% across-the-board rollback on all real property tax bill was enacted in 1971. This real property tax benefit was added to win legislative support for Ohio’s first enacted income tax. Over time, this benefit has undergone changes. In 2006, House Bill 66 removed this rollback on all commercial and industrial properties. The benefit was further diluted with the elimination of the credit for residential and agricultural parcels, beginning with “new money” levies passing in the November 2013 election. Levies categorized as “new money” levies include additional (new) levies, replacement levies (that increase the effective tax rate), and the “increase” portion of levies classified as “renewal with an increase.” The benefit remains intact for any old/original levies passed prior to November 2013.
Owner Occupancy Credit (formerly known as the 2 Ѕ % Rollback): In 1979, an additional 2 Ѕ percent rollback was applied to owner occupied homes. However, like the 10% rollback, this benefit was also diluted with the elimination of the credit for residential and agricultural parcels, beginning with “new money” levies passing in the November 2013 election. Again, covered under “new money” levies include additional (new) levies, replacement levies (that increase the effective tax rate), and the “increase” portion of levies classified as “renewal with an increase.” The benefit remains intact for any old/original levies passed prior to November 2013.
Homestead Exemption: Authorized via a constitutional amendment in 1970 and beginning in 1971, Ohio granted property tax relief through a homestead exemption program. Originally designed for low-income homeowners aged 65 and older, the program included 3 tiers of possible amounts exempted from taxation, based upon income. The program was overhauled in 2007. The changes removed the income requirements, making the homestead benefit available to all homeowners age 65 and older, and those permanently and totally disabled. Moreover, the computation of the homeowner benefit changed substantially. The new benefit was fixed with a reduction of $25,000 in the market
value of the homestead property. Existing recipients at the time that the 2007 change was made received the greater of their original benefit, or new benefit available on the 2007 ($25,000 market value reduction) program.
Beginning in 2014, means testing (income requirements) again apply to new recipients. Therefore, the homestead benefit has become more restrictive, and new recipients are eligible only if their income is equal to or less than the amount prescribed by State law, adjusted to annually correspond to changes in consumer price index (CPI). At the time of legislative passage, that amount was $30,000 of Ohio Adjusted Gross Income. The amount for the first year that the means test will be in effect, considering the CPI changes is $30,500. The benefit for those homestead recipients previously qualifying remains intact in the most beneficial of the previously determined methodologies.
Although local taxing authorities do not lose funds as a result of the rollback and homestead exemptions, recent changes in the homestead and rollback laws shift the burden of property tax from the State of Ohio to local homeowners.
Local taxing districts do not lose money as a result of the rollback or homestead exemptions. The state fully reimburses each taxing district using state tax money.
CAUV (Current Agricultural Use Value): Special tax treatment for agricultural land was authorized by Constitutional amendments in 1973. Land used for agricultural purposes may be valued and taxed on the basis of its agricultural use rather than on its “highest and best” use. This gives farmers, especially in urban fringe areas, a tax break. It is authorized in the conservation section of the Constitution with special treatment for certain forest land.
House Bill 920 (H.B. 920): The most controversial and complicated measure to limit property taxes is the use of tax credits to calculate real property taxes. It is an accepted tenet in Ohio that voter approval of a specific number of mills on the ballot is not authorization for a set tax rate into the future, but rather is approval for collecting the amount of money that the approved millage produces when voted. This view of taxation holds that property taxes should not increase through appreciation in property values due to inflation, but only through a vote of the people.
Until 1976, the Ohio legislature subscribed to a policy of reducing outside millage whenever property increased in assessed value so that only the same amount of revenue was collected as the previous year. In 1976, the legislature enacted H.B. 920, a new procedure to limit property tax growth. The law authorized H.B. 920 credits that reduce millage rates to keep increased property valuations from producing “windfall” revenues for taxing districts.
On the other hand, H.B. 920 is also designed to raise rates when property values drop in order to generate the amount originally intended by the levy. The caveat is that the rate on a voted fixed rate levy may not rise above the voted rate. This phenomenon can create a revenue loss for the local government while also returning a savings for the taxpayer, who is paying tax on a lower valuation whose tax rate is "capped" by the voted rate of the levy.
The Department of Tax Equalization calculates the percentage reduction in voted levies necessary to provide the same number of dollars to each local government as it received the previous year from the same millage. That percentage, the tax reduction factor, is applied to each parcel of property in that taxing district. The H.B. 920 credits do not apply to revenue from the inside millage, increases from new construction, emergency levies or taxes levied to repay debt. These areas of property tax are not subject to State tax reduction factors.
H.B. 920 credits offer relief to taxpayers by restricting much of the growth in property tax revenue from inflation, while also providing some protection for local governments in times of declining property values. This "freezing" of the revenue stream also limits future revenue growth. This can cause problems for local governments when costs continue to inflate without a corresponding increase in revenues from the property tax, which remains a major source of revenue for local governments in Ohio. Also, it should be noted that the State does not reimburse revenue to local governments for property tax not collected as a result of these credits.
HOW IS YOUR REAL PROPERTY TAX DETERMINED?
The first step in taxing real property is to appraise its value. In Ohio, this is the responsibility of the 88 county auditors who hire private appraisal firms or use their own staffs. The Department of Tax Equalization has developed rules to improve uniformity of assessment.
Revaluation: Ohio law requires that each parcel be “viewed and appraised” at its true or market value every six years. This appraising is not done simultaneously statewide. Instead, certain counties are appraised each year in a six-year cycle. By the time the cycle is complete, property valuations in the first counties covered are out of date and behind in the inflation spiral. The next reappraisals may result in a big jump in valuations. To reduce the impact; Ohio has required “paper” updates in the third calendar year following reappraisals since 1976. These triennial updates are based on a three-year average of sales that reflect changes in market value.
The last Triennial Update was effective for Tax Year 2009 (collected in 2010). Lucas County performed it's last Revaluation in Tax Year 2006 (collected in 2007), and the next scheduled Revaluation is in Tax Year 2012 (collected in 2013).
PROPERTY TAX CALCULATION STEPS FOR COUNTY AUDITOR:
1. Using appraised values, figures taxable (assessed value) of each parcel
Market Value X 35% = Assessed Value
2. Multiply assessed valuation by the tax rate (inside millage + voted millage)
Assessed Value X Tax Rate of Community = Current Real Estate Tax/Year
3. Reduces this amount by the certified percentage received from the commissioner of Tax Equalization (tax reduction factor)
Current Tax X Reduction Factors = Reduction Credits
Current Tax – Reduction Credits = Tax Subtotal
4. Reduce the tax bill by the approved non-business credit.
Tax subtotal – the approved non-business credit = Tax Subtotal
5. Reduces the tax bill by owner occupancy credit.
Tax Subtotal – owner occupancy credit = Tax Subtotal
6. Calculate a homestead exemption for certain elderly and disable homeowners when applicable
Tax Subtotal – Homestead Reduction = Net Tax
7. Add assessments for such things as street lighting, curbs, sidewalk improvements
Net Tax + Special Assessments = Total Taxes for Year
8. Divide tax to account for billing twice a year
Total Tax / 2 = Current Half Tax Due
9. Give completed Tax Duplicate to the County Treasurer who bills the taxpayer and collects the taxes by half years