Property taxes have been on the minds of many since property assessments were released. I have received several inquiries, so I asked our county’s Assessor-Treasurer, Mike Lonergan, if he could elaborate on what these massive increases in property values meant. Below is his response:
“Residential property VALUES went up by an average of 19% this year, so we are getting a lot of calls, too. The key fact which many homeowners don’t understand is that our annual Re-valuation is only to determine everyone’s SHARE of next year’s taxes. The procedure for this process is explained on our website as follows:
Property Assessment Procedure
According to the state law RCW 84.40.030, assessors are required to value all taxable property at 100% of its true and fair market value taking into consideration the highest and best use of the property.
Revaluation of real property is performed on an annual basis in Pierce County using current market value trends. All property is physically inspected at least once every six years (RCW 84.40.030 and 84.41.041). Revaluation is an additional aspect to the continuous appraisal of new construction, remodeling and other characteristic changes.
Real Property Assessment
Pierce County appraisers take into consideration a wide range of factors to ensure accuracy and equity when estimating the assessed value of all types of property. Each of the three approaches to value has a distinctive method to measure and understand the motives of the buyers, sellers, investors, developers and financiers in the current market place. An appraiser determines value for residential properties by using either the cost or the market approach. The income approach is used primarily for commercial properties.
Approaches to Value
- Cost Approach: This method applies the principle of substitution. A knowledgeable individual would not pay more than the cost of a comparable property with similar location and utility. The appraiser estimates the cost new to replace or reproduce the improvements deducts from cost new, physical, functional and economic conditions that affect its value, adds the estimated land value to determine the total assessed value of the property.
- Market Approach: This method is a process of analyzing sales of similar properties that have recently sold. Adjustments are made for certain differences between the properties such as age, condition, area and amenities to determine the total assessed value.
- Income Approach: The income capitalization approach to value is used primarily for commercial properties. Value is based on the property's income generating potential. An analysis of income, vacancy, credit loss and operating expenses with an appropriate capitalization rate is necessary to properly determine a valuation by this method.
The description of tax calculation that you asked about is found under “Levies:”
The Assessor-Treasurer's Office must determine the property tax base for each taxing district and ensure that district levies are not more than allowed by law. There are 121 taxing districts in Pierce County. With irregular and overlapping boundaries there are 241 tax code areas.
Regular levies are subject to various limitations. Excess levies are determined by the voters and are not included in these levy limitations. Pro-rating occurs when one or more taxing districts has the same statutory right to levy for taxes. Levy rates are limited by either the $5.90 or the 1% constitutional limit. RCW 39.67.010 and .020 allow taxing districts to contract or transfer funds between the districts for the purpose of reducing pro-rationing.
101% Levy Limit
This limit prohibits a taxing district from levying regular property taxes in any year more than 101% of the highest amount of regular property taxes that could have been lawfully levied in that taxing district in any year since 1985, plus an additional amount calculated for new construction, improvements to property and the increase in the value of state assessed property. (RCW 84.55.010)
All Regular Levies such as County Roads and General Fund are under this limit. Flood has the capacity to go up to 25 cents per thousand, but has stayed around 10 cents by Council decision, since that was the figure used when the district was voted in. Special Levies and Bond Issues are not under the 1% but must raise only the amounts approved by voters.”
I found a publication, Homeowner’s Guide to Property Tax, from the WA State Department of Revenue that may help with understanding the system. Also, MRSC offers a detailed explanation of how property taxes are determined and collected.
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