Triennial Update tax revaluation scheduled for 2008

By Todd Hanks
Delaware County Auditor

"It was the best of times, it was the worst of times...", wrote Charles Dickens in his classic novel, A Tale of Two Cities. I cannot think of a more appropriate thought that conveys what we are experiencing today in the housing market.

As 2007 came to a close, the Central Ohio home market recorded its 5th best year on record for sales. Yet, one would believe by what is portrayed in the media that all hope is lost. Is it true there are some areas in the Central Ohio area which are still seeing increases in values because of increases in sale prices? Yes. Is it also true there are some areas in Central Ohio that are experiencing a decrease in valuations because of a decrease in sale prices? Yes.

Unfortunately, as we begin the journey into uncertain times, many misunderstandings about taxation and valuation are beginning to become more prevalent. As we are all aware, the state of Ohio dictates that the County Auditor is to assess property values every six years (known as a Sexennial Reappraisal) as well as in the third calendar year following the year in which a Sexennial Appraisal was completed (known as a Triennial Update).

In 2008, many counties throughout the state will be experiencing a Triennial Update. It will be the job of the County Auditor to determine the effects of property values looking back at three years (2005 - 2007) of sales data to determine property values for the next three years.

Obviously, many outside forces have been weighing heavily on sales over the last two years. One can point fingers at any one or more of the following in trying to determine why the market is acting the way it is: the media hysteria which is a direct cause for many to believe that the "sky is falling"; the subprime meltdown; the banks' unwillingness to lend money; or the lack of jobs being created in the state of Ohio.

Whatever the reason, people see and understand only that homes are not selling the way they were two years ago. Because of that, home owners believe that values must be dropping and, along with that, their property taxes as well. To a point they are correct. But, it is a very small point.

To comprehend what is to be paid in property taxes, one must understand exactly what takes place in the calculation of taxes.

Property taxes are calculated by taking the fair market value of a home (35% of the market value less the allowable deductions - 10% rollback & 2.5% home site reduction) and multiplying it by the effective rate of taxation.

It is the effective rate which is the "x" factor in the public's general understanding of the calculation of property taxes. Within the effective rate of taxation are two key areas:

"Inside millage"-- Is a matrix of 10 mills that consists of any of the following political districts: County, City, Villages, Townships and Schools.

In addition to the 10 mills of inside millage, there is another factor referred to as the "20-mill floor" which can have a great impact on the amount of tax a homeowner pays. The "20-mill floor" is a guarantee by the State that any school districts effective rate will not drop below 20 mills.

In addition to the "20-mill floor" guarantee, there is also a "2-mill floor" for Joint Vocational Schools which operates under the same principle as the "20-mill floor". The state of Ohio has directed that the schools, without question, must receive a minimum of 22 mills.

"Outside millage" -- Is the difference between the inside millage and the total effective rate of taxation.

During good times or bad, the "inside millage" along with the "22 mills" portion of taxes from schools, absorb the full impact of any movement up or down of property valuation. It is the "outside millage" which fluctuates to accommodate inflation or deflation of property valuations.

The underlying cause of this movement in taxational rate is that in 1976, the Ohio Legislature passed HB920 which was the direct result of taxes continuing to escalate proportionately as property values increased due to inflation.

At the time of the passage of this legislation, property values were increasing at a much faster rate than were income levels in the state of Ohio. The intention of HB920 is to protect taxpayers from undue increases in their property taxes as a result of inflationary increases in the value of their property.

Therefore, even if property valuations do begin to slide back in the future, effective rates will adjust (because of HB920) to ensure that the original amount voted to be collected by the voters will be collected. One might consider it a "check and balance" for the taxpayer that works both ways when property values increase or decrease because of inflation or deflation.

But, there is a drawback to HB920. During the time of a county revaluation, a taxpayer who sees a higher percentage increase in their property value, when compared to the district's average as a whole, will see an increase in their taxes.

Thus, the taxpayer who resides in the same district, whose property value increased at a lower percentage than the district's average, will see a reduction in their taxes. In essence, in this example, one taxpayer is shouldering the burden of taxation for another in the same taxing district.

With all that has been debated and written on the subject of HB920 since its inception, the verdict is still out as to the benefits and drawbacks of the bill. But one thing must be made clear. HB920 has stopped the "unvoted" increases in taxes that occurred because of inflationary pressures on property values.

All things considered, while it may not be the best of times?it is surely not the worst of times. Unemployment is down, consumer spending is up, interest rates are down, the economy continues to grow and home ownership in this country is at a nearly all time high. We will weather this lull in the market and emerge even stronger than when we entered it.