News analysis: Rate changes tax the mind

Wednesday, May 5, 2010

If eyes glazed over in the audience at last week's meeting of the Marshall County Commission, it's not unexpected since the discussion included references to the value of a penny on the property tax rate and what a half-cent increase in the sales tax rate might raise in county revenue.

It's all because voters will be asked to authorize an increase in the local option sales tax. As a result, computations were being made to get a grip on what new revenue might come from more sales tax revenue, but that figure was used in another formula to see how that sales tax revenue compared to the property tax rate.

Here's one way to look at it, step by step.

Marshall County's total value - the combined price of everything if all the real estate and real property were sold yesterday, was about $1.8 billion, according to Property Assessor Linda Haislip. She provides property values. From that a property tax rate may be computed. County commissioners set a property tax rate.

The current property tax rate is $3.09 per $100 of assessed value. A home valued at $100,000 is assessed at 25 percent, therefore the assessed value is $25,000. The tax rate is multiplied by 250, which is 100th of the assessment. So the tax bill is ($3.09 times 250) $772.50.

Last fall, when commissioners set the property tax rate at $3.09, the budget office said each penny on the property tax rate would raise $48,800. That tax revenue per penny on the property tax rate is from residential, commercial and industrial properties.

Bankruptcies, foreclosures, demolition, fire, and a lack of growth because of a weakened economy are expected to lower the amount of revenue generated on each penny on the property tax rate. In other words, the value of the penny is going down.

That complicates budget deliberations.

It also creates confusion when the value of that penny is compared to what a half-cent increase in the sales tax rate might raise in county revenue.

Recent sales tax revenue figures indicate the dollar amount from the half-cent sales tax rate hike would generate $1.2 million. But that total must be shared with schools and municipalities.

If there was a property tax rate hike to benefit the county's general fund budget (for everything other than schools) that rate hike would have to be 12 cents to raise an amount of money that the general fund would get from a sales tax rate hike. That's according to discussion at the April 26 meeting of the county commission.

Another way of looking at it is like this: If the sales tax referendum failed, then to increase revenue for the county general fund, 12 pennies would have to be added to the property tax rate of $3.09, leading to a new rate of 3.21 per $100 of a property's assessed value.

With that property tax rate, a home valued at $100,000 would still be assessed at $25,000. But the higher property tax rate of $3.21 would be multiplied by $250, which is 100th of the assessment. As a result, the tax bill would be $802.50, or $30 more than the current tax bill of $772.50.

Much of the discussion on April 26 was theoretical and commissioners warned each other that the next county budget shouldn't be based on results of a sales tax referendum.

Therefore, these computations are based on theoretical figures that are presented to explain the system. The actual value of the penny on the property tax rate hasn't been computed because appeals to property reappraisals are incomplete.