During the budget process every year, Council approves the amount of revenue required to operate the municipality. From this amount they subtract the known revenues, such as grants, licenses or permits. The remainder represents the amount of money to be raised by property taxes. The amount to be raised is divided by the total value of all the property in the municipality and multiplied by 1,000 to decide the tax rate also known as the mil rate. The calculation expressed as an equation is as follows:
amount to be raised
total taxable assessment
X 1,000 = Mil Rate
The word “mil” is derived from the Latin word for one thousand (1,000). In tax terms, one mil is equal to 1/1000 of a dollar or one dollar ($1.00) in tax for every one thousand dollars ($1,000) of assessment.
A sample calculation:
A City needs $22,000 to balance its budget. The total taxable assessment for all properties is $5,939,467.
$22,000 (amount to be raised)
$5,939,467 (total taxable assessment)
X 1,000 = 3.70 = Mil Rate
The mil rate must be applied uniformly throughout the community, although certain properties, such as churches and schools are exempt from real property tax. Council, itself, may exempt certain property owners from paying property tax. That is why the mil rate is calculated on the total taxable assessment.
Property Tax Calculation
This amount of municipal tax payable by a property owner is calculated by multiplying the mil rate by the assessed value of a property and dividing by 1000.
Mil Rate x Assessed Value
= Property Tax Bill
Using 3.70 as the Mil Rate, a taxpayer with an average property valued at $340,000 would be sent a tax bill for $1,258.
3.70 x $340,000