In most states, property taxes are assessed at the same rate across the entire state. In some places, however, different jurisdictions assess taxes at different rates. Under those circumstances, governments can use equalization rates to distribute taxes fairly. Equalization is used to make sure that each individual property owner pays a fair share of taxes to the community and that each municipality pays a fair share of taxes to the county or to a school district that serves more than one town.
How are Equalization Rates Calculated?
The state determines the full market value of properties in each municipality and the total amount of taxes that should be collected from that jurisdiction. Equalization rates measure how close a property’s assessed value is to its actual market value. The equalization rate is calculated by dividing a municipality’s total assessed value by its total market value.
Property tax assessors periodically reassess properties to make sure that their assessed values are consistent with local market values. If several years go by between assessments, the assessed values of properties can differ from their current market values.
If a city or town has an equalization rate of 100, that means the local government is assessing properties at their current market value. An equalization rate below 100 means that properties are being assessed below their current market value, while an equalization rate above 100 means that property assessments are higher than current market values. Equalization rates can change each year due to changes in both property assessments and the local real estate market.
How Can Equalization Rates Affect Tax Bills?
The equalization rate can be used to adjust the values of all properties in a jurisdiction so they are in line with their current market values. In that way, all homeowners will pay taxes in accordance with the market values of their properties, not their assessed values. Equalization rates can ensure that homeowners who have properties with similar market values will pay equivalent amounts in taxes.
Equalization rates can ensure that each municipality pays its fair share of taxes. They can also be used to set local tax and debt limits and to allocate costs for resources shared by multiple communities, such as a hospital, and for other purposes.
Equalization rates are not used to make adjustments to individual property tax bills if homeowners believe their houses were assessed unfairly. Homeowners may, however, be able to use the equalization rate as a piece of evidence when appealing assessments that they believe to be unfair. If a property’s assessed value is higher than its fair market value, the homeowner may be eligible for an abatement.
