In this article, I will address a common question property managers, landlords, and real estate investors ask, and that is: “If the real estate market continues to lose value, why don’t our local tax authorities adjust our property taxes downward? ?”
The reason is quite simple. In the state of Ohio, your property taxes are based on voted liens, governed by state law and outside the control of the local county auditor’s office.
This is how the county explained it to me:
Our tax laws are designed to protect schools and other government organizations during down markets in the same way that they are designed to “theoretically” protect homeowners during boom markets.
This is accomplished through House Bill 920 in the state of Ohio.
When real property undergoes a reassessment or triennial reassessment update, “tax reduction factors” are applied to create separate effective mileage rates for Class 1 (residential) and Class 2 (nonresidential) properties at each school District.
These effective mileage rates limit the revenue growth of school districts from real estate inflation so that they do not receive more money than the voters approved through their taxes (note: construction of new buildings is an exception to this rule and creates new revenue for districts)
The justification for this bill was twofold:
First, it protects taxpayers from undue increases in their property taxes as a result of inflationary increases in the value of their property.
It’s also worth noting that this bill was enacted 30 years ago when property values were rising at a much faster rate than income levels.
Second, it keeps our local authorities in check by requiring only voter-permitted changes.
Therefore, it is this same law that works in reverse when Columbus investment property values go down. This law ensures that school districts do not see a large drop in revenue.
Here’s another example, provided by County Auditor Joe Testa.
In the City of Columbus, the median residential home value is currently $117,700. If a reassessment were to increase the district’s residential value by 10%, home values would rise to $122,870 and the tax bill would increase by 1.8% or $31.20 per year.
Likewise, if the reassessment were to decrease that value by 10% to $100,530, the tax bill would only be reduced by the same amount, 1.8%, or $31.20 per year.
Using this example, you would have lost $11,170 in equity value and “saved” only $31.20 per year on a reduced tax bill. If nothing had changed (adjusting mileage rates), it would take 358 years for you to recoup that loss through slightly reduced tax bills.
Thus, in both boom and bust real estate markets, tax authorities can adjust effective millage rates up or down to ensure that schools and social service agencies get the revenue they need to operate.
So if you think you’re running out of taxes, don’t wait for your property taxes. The best thing to do is ask the county for a reset of your property market file.