Applied Math - Mill Rate

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Introduction

http://www.ci.guilford.ct.us/wp-content/uploads/assessor-how-mill-rate-calculated.pdf

Property taxes on a home are determined by a town or city’s mill rate. The mill rate in a town or city is basically a percentage that determines how much tax is owed on a home every year. If you rent, you’re still probably impacted by a mill rate because your landlord will factor in taxes when determining rent.

The mill rate is determined based on what the town decides they need for their budget. A town that has a lot of expenses will probably have a higher mill rate.

The mill rate of a town is determined using the following steps:

  1. Determine the town’s yearly expenses through the budget process.

  2. Determine any income the town receives other than through property taxes (taxes collected from your car, money received from federal grants, etc.).

  3. Determine the total property value in the town or city. This is an estimate of what a house or land is worth. The town assessor(s) gather these numbers.

  4. Subtract the expenses by the income. This represents how much money the town needs to raise through property taxes.

  5. Divide the result by the total property value.

  6. Multiply by 100. The result is the town’s percent mill rate.

Example:

1.

The town assessor for Farmington, Maine estimates that the total property value of the town is $528,000,000. The town budget estimates that they need to spend $12,000,000 for schools, roads, police, etc. The town estimates that they will bring in $1,000,000 from other taxes and will receive $1,000,000 from other income sources. What is the town’s mill rate?

answer:

1. The town has $12,000,000 in expenses.

2. The town has $1,000,000 in other tax income.

2. The town has $1,000,000 in income other than property taxes.

3. The assessor has calculated that the town has $528,000,000 in property.

4. The town needs to spend $12,000,000 this year. Subtract out the $1,000,000 that they will get from taxes other than property taxes, and subtract the $1,000,000 that they will receive from other income.

\[\$12,000,000 - \$1,000,000 - \$1,000,000 = \$10,000,000\]

In order to meet their budget needs, the town needs to raise $10,000,000 in property taxes.

5. Divide the budget needs by the assessed property value:

\[\$10,000,000 \div \$528,000,000 = 0.0189\]

(rounded to the thousandth’s place)

6. Multiply part 5 by 100 to convert it to a percentage:

\[0.0189 \cdot 100\% = 1.89\%\]

Farmington’s mill rate is approximately 1.89%

2.

How much will a person have to pay in taxes for the year if their home is assessed at $150,000?

answer:

We multiply $150,000 by the decimal form of the percentage to calculate the amount of taxes for the year:

\[\$150,000 \cdot 0.0189 = \$2835\]

Practice Problems

1. Look up your town or city’s mill rate.



2. A town estimates that the total property value in the town is $800,000,000. The town will have $18,000,000 in expenses. The town will receive $2,500,000 in other tax income and in federal grants. What is the town’s mill rate? How much will a person have to pay in taxes if their property is assessed at $200,000?



3. A town’s budget calls for $1,800,000 in expenses for the year. The town’s assessor has determined that the town has $400,000,000 in property value. The town receives approximately $500,000 in income other than property taxes. What is the town’s mill rate? How much money will a person have to pay in property taxes if their property is assessed at $400,000?

4. A city budget has outlined $10,000,000,000 in expenses for the year. The city’s assessor has determined that the total property value in the city is $500,000,000,000. The city gets approximately $205,000,000 in income other than from property taxes. A person has inherited an empty plot of land inside the city. The plot of land is estimated to be worth $80,000 due to its proximity to the downtown area. How much does this person have to pay in taxes for the year?

Theory Questions

1. We often have to program computers to make these calculations automatically (Microsoft Excel/Google Sheets, or any other spreadsheet software). To do that, we need to create an equation to represent the problem. Write an algebraic equation that calculates what the mill rate, m, is based on the following variables:

e, the town’s total expenses

o, the town’s income (other than property tax)

p, the town’s total property value



2. A crazy person in the town says that they should destroy half the property in order to cut the mill rate in half. Why are they wrong? Use numbers in an example to support your answer.



3. Someone in the town claims that the assessor is determining that the buildings are worth too much, thus, making the mill rate too high. How will the mill rate be impacted if the assessor drops the value of each property by 10%? Will dropping property value make the mill rate go up or down?

4. Will dropping property value make the mill rate go up or down?

5. Will dropping property value make people’s taxes go up or down?

6. What steps can be taken to reduce people’s property taxes?