Archive for the 'Taxes' Category
Your Neighborhood Tax Man
Today on CNN Money there is a piece about tax (un)friendly places … Tax Friendly States.
The primary result for us Nutmeggers is that we have one of the highest state and local tax burdens in the country at 12.2%. Connecticut ranks 8th in the Bureau of Economic Analysis’ report that ranks State and Local Tax Burden as a percentage of income. Vermont pays the most at 14.1%, while Alaska pays the least at 6.6%.
Since CT has the highest per capital income in the country, and our percentage paid is 8th, on a dollar basis we are paying the most in the whole country. Now there’s a victory to get excited about; UConn couldn’t get it done, but the tax man can. Go Connecticut!
Once we pile on the Federal income taxes, social security and Medicare our tax picture becomes downright depressing.
Perhaps there is a glimmer of hope. Most people don’t want to move from CT to Alaska, so our best option may be to head north to New Hampshire where they sport the second lowest burden at 8.0%. Or we could follow Killington, Vermont’s lead and try to secede from the state to join NH.
Property Taxes
I am often asked how CT property taxes are calculated and how they may change. Here’s an explanation.
In the state of CT, real estate is taxed at the municipal level. There is no property tax levied by the state. Each town estimates expenses for the upcoming year and sets the local tax rate (called the Mill Rate) that is needed to support the budget. The town generates a list of all taxable properties that includes real estate and autos. This list, referred to as the Grand List, contains an estimated Assessment Value of all properties. Typically the Assessment Value is 70% of market value.
Most years, your property value and taxes will remain the same. Changes to Assessed Value typically only occur when you make improvements to your home, like upgrading your kitchen. However, each town must revalue properties every five years, either by physical observation or statistical analysis, or some combination of both. Physical inspections for reassessment purposes are required by CT law to take place every 10 years.
However, if your town changes the Mill Rate, your tax bill will also change.
Taxes on a property are calculated by dividing the Assessment Value by $1,000 and multipling by the Mill Rate. This gives you your estimated tax bill.
This year we heard a lot about taxes because several towns did reassessments and property assessment values jumped by 75%-200+%. Mill Rates also changed. With the changes came potentially huge tax increases for homeowners. Let’s look at a quick example.
I live in Hartford and my house’s previous assessments for 1999-2005 were based on a fair market value of $158,700. The Mill Rate fluctuated through the years and in 2005 my estimated tax bill was $4,776. But in 2006 the city did an external physical observation and statistical analysis to reassess all city properties and changed the Mill Rate once again. We received our letter from the Assessor’s office indicating that our new fair market value was $425,000. Our estimated property value increased 167%! So what would our new tax bill be?
Assessed Value $425,000 x .70 = $297,500
2006 Mill Rate 42.30 for residential property
Estimated Tax Bill $297,500 / $1,000 x 42.30 = $12,584
Our taxes nearly tripled! While the Mill Rate was lowered from the previous year, the huge change in Assessment Value outweighed the impact of the Mill Rate change.
So that’s how property taxes are calculated. Battling my tax bill will be another story for another day.