Property Taxes and Revaluations

Icicles Glittering in the Sun

We’re sensing some confusion over the future direction of property taxes among some of our buyer clients and homeowner friends. We don’t know pretend to know exactly what will happen, but have a theory we thought we should share:

Town Budgets Determine Property Taxes, Not Assessments

You’ll notice that property values (assessments) do not figure into the property tax calculation. Even though your home, or the home you hope to buy, may have fallen in value since the last revaluation, you should not expect that to automatically translate into lower property taxes in the future.

The manner in which property taxes are calculated can be confusing to people, and revaluations add an extra level of complication. Back in the day, when home values only went up, revaluations were met with a combination of excitement and fear. Excitement since someone would be giving us an estimate of how much equity we had earned by owning a home in a rising market. But also fear because, “If my home actually doubled in value, and the mill rate stays the same, then my taxes are going to double!”

Although that statement it true, the mill rate will adjust any time there is a major change in the Grand List (the total value of all property). Every time there was a major increase in a town’s Grand List during a revaluation, the mill rate would decrease to keep the actual taxes paid roughly in line with previous years. Here’s a good example, the history of the mill rate in Newington. You can see that the mill rate actually falls most years in which there is a revaluation.

The goal of a revaluation is distribute the tax burden fairly across property owners. Properties in a town gain and lose value differently, so the state requires that towns catch up with those changes every five years. The only way a revaluation will make a meaningful impact on your individual taxes is if your property’s value changes in a dramatically different manner than the average property in town.

These days it’s difficult to know if a home has increased or decreased in value since the last revaluation – it depends on home price trends and the revaluation schedule in the specific town. But suppose there is a town where the prices have fallen 10% across the board since the last revaluation. Homeowners there should expect to see their individual assessments fall, but are also likely to see the mill rate jump.

At the end of the day, the town budget determines how much must be raised in property taxes. If the town budget is flat, then next year will be the same total tax as this year. The mill rate will be set to ensure that the appropriate amount of money is collected. Decreasing property values, unfortunately, have nothing to do with the level of municipal spending, which is what actually determines our property taxes.