The concepts of an assessment and property tax have proven to be a point of confusion for some business owners—are they one and the same, or two different things? In fact, assessment is an integral function of the tax cycle, but taxation and assessment are two distinct things. The rationale behind the separation: It protects property owners from possible unfair treatment. As a taxpayer, that’s good for you, but there’s more you need to know to ensure you’re being taxed fairly.
This article explains tax assessment vs. property tax in some detail, and briefly touches on how to appeal a property tax assessment if you feel you’ve been assessed unfairly.
Tax Assessment Vs. Property Tax: Definitions
Assessment: A tax assessment is a value attached to your real property and business personal property by the local government, specifically for the purpose of levying and collecting tax money that is used to support your community.
Under this broad definition, there are three types of specific values related to the assessment:
- The appraised value of your property is based on the fair market value, which is the price a willing seller would sell to a willing buyer through an arm’s length transaction (a transaction where both parties have equal bargaining power).
- The assessed value is an adjusted value: Appraised value/market value multiplied by the assessment ratio. (Sometimes exemptions are also then subtracted.) The assessed value does not affect the property’s appraised value or fair market value; it only affects the tax bill.
- The taxable value is the assessed value minus any exemptions. The taxable value is multiplied by the jurisdiction’s tax rates to arrive at the tax liability. That number may then be adjusted further if necessary by applying any exemptions or penalties. Tax rates are not set by assessors, they are set by taxing jurisdictions (a county or a city, for example). Public hearings are often held to discuss proposed tax rates.
Property tax: Property tax is a tax levied by a government on the buildings, land, and certain types of personal property bought or owned within their jurisdictions. Property tax liability is based on the tax assessment.
Should you appeal your property tax assessment?
If you disagree with your property’s assessed value, appealing is an option. (Here’s some guidance on how to know if you should appeal your property tax assessment.) It’s important to note that an appeal isn’t always about value; it may be about some other aspect of the tax, such as a denial of an exemption, a clerical error, a dispute over the taxing jurisdiction, or something else. Also, assessors generally do mass appraisals of buildings in their jurisdiction, so they may not know the specific details regarding your property that could affect its value.
If you do choose to appeal, you may make either an informal or formal appeal.
- An informal appeal may be settled in an informal manner, possibly over the phone with the assessor or by visiting the assessor’s office to discuss it in person. Often, the issue is settled during this informal process.
- If the taxpayer and the assessor are unable to come to a resolution, a formal appeal is usually the next option. (Or, depending on the assessor, informal appeals may not be accepted.) If a formal appeal is necessary, a specific appeal form may be required or a letter of appeal may be accepted. Be sure to check the particular assessor’s requirements.
If you are successfully able to reduce your property’s value, it is the appraised value that is being reduced. As a result, the assessed value is then indirectly reduced because the appraised value is the starting point for assessed value, before any assessment ratios and exemptions are applied.
Want more information about business personal property tax or real property tax?
Check out our blog for more helpful articles about commercial property tax assessments and appeals. Also, visit our website to find out about how our property tax software can help your business manage the property tax cycle more effectively, saving you time and money.