PART 2: WHY PROPERTY TAXES CONTINUE TO GROW:
KINDS OF LEVIES AND GOVERNMENT MANIPULATION

Note:The following is part 2 in the original document.

The reader might be wondering why his property tax bill continues to rise despite the reduction factor provided by H.B. 920 and the rollbacks. The most obvious reason for the ever-increasing taxes is that citizens continually vote for new taxes. Some less obvious reasons are addressed below.

Taxes grow because the reduction factor of H.B. 920 does not apply to all levies. For example, according to the Ohio Revised Code (ORC), 319.301, the reduction factor does not apply to taxes “levied within the one per cent limitation imposed by Section 2 of Article XII, Ohio Constitution.” The one percent in the Ohio Constitution refers to the limit at which taxes can be levied on the true value of any property for all state and local purposes unless additional taxes are voted by the electors or are provided by the charter of a municipal corporation. This restriction is called the “one per cent limitation” or “one per cent limit.”

At this point, an inconsistency in definitions needs to be addressed. Contrary to the Constitution, ORC, 5705.02, defines the “ten-mill limitation” as a limit of ten mills of tax on each dollar of tax valuation, or assessed value (unless more is specifically authorized). That is one per cent. It then states that wherever the term “ten-mill limitation” is used in the Revised Code, it refers to and includes the “one per cent limitation.” However, in Section 5705.51, the terms are defined as being different and more in line with how they are generally used in the Revised Code: the “one per cent limit” pertains to true value of property, and the “ten-mill limit” pertains to tax valuation.

Using the last definition, within the ten-mill limitation, ten mills of tax are levied on each dollar of assessed value of property without a vote of the electorate. These are called “inside” mills. Taxes with inside mills grow as property values grow; that is, the reduction factor does not apply. These ten mills are divided among several of the government subdivisions as specified by ORC, 5705.31(D). Each of those taxing authorities is authorized to divide its share of inside mills into separate levies for current expenses (operation), debt charges, and special levies (ORC, 5705.04).

Levies that are permitted beyond the 10-mill limitation are said to have “outside,” or “voted,” mills (even though some are not voted by the electorate). While most levies with outside mills benefit from the reduction factor of H.B. 920, some grow with property values. For example, according to ORC, 319.301, the reduction does not apply to taxes authorized by the charter of a municipal corporation or taxes levied to produce a specified amount of money (called “fixed-sum levies”), such as school “emergency levies” (explained later), or taxes required to pay debt charges.^₄

As pertaining to debts of a subdivision, when certain other funds are insufficient for paying the “exempt obligations” and “any other outstanding non-voted general obligations,” a non-voted tax is to be levied “in excess of the ten-mill limit, but within the one per cent limit as to any property” (ORC, 5705.51). (Here the two “limits” are clearly different, and the reader can see – despite fuzzy definitions in the Code – that not all of the one percent of true value loses the reduction all the time, whereas the one percent [ten mills] of assessed value never receives the reduction.)

Government debt can make the rollbacks on real property disappear, too. The 10-percent non-business rollback and the 2.5-percent and elderly, disability, and surviving spousal rollbacks on homesteads are reduced or eliminated altogether when there would be insufficient funds for payment of debt charges (ORC, 319.302[B]; 323.152[D]).

In addition to those ways that make property taxes grow, local government officials and the legislature (prodded by local officials) have devised more methods to increase revenue from real property taxes. Some of these are discussed here.

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4 As used in ORC, 5727.84 to 5727.86 and 5751.20 to 5751.22, the definition for “fixed-sum levies” includes levies to pay debt charges.

Next: Part 4: “Schooling” the taxpayers

The various levies that a property owner pays generally apply to districts that are of different sizes and that have different types and values of property. The taxing district for a levy could be an entire county, a township, a school district, or so on. The reduction factor that is applied to each levy depends on the makeup of the properties in the taxing district and is therefore different for each taxing district.

After the reduction factor is applied to a levy, a 10-percent rollback (subtraction) is applied to each non-business real property owner’s tax (ORC, 319.302).¹

The “homestead” portion of one’s property is adjusted with an additional rollback of 2.5 percent (ORC, 323.152[B]). The homestead is defined as an owner-occupied dwelling (house) or a unit occupied as a home in a housing cooperative, with the land surrounding it that does not exceed one acre, and with no more than one attached or unattached garage (or comparable outbuilding).

The 2.5-percent rollback is not applied to the tax on any portion of one’s property that exceeds that. A homeowner whose property exceeds an acre or has extra buildings on it can ask the county auditor for the value of the homestead portion of his property so that he can compute his 2.5-percent rollback. The homestead of most city or town homeowners includes their entire property.²

Persons who have a certificate of reduction and are 65 years of age or older, or permanently and totally disabled, or surviving at age 59-64 when their elderly or disabled qualified spouse dies can receive a tax deduction on $25,000 of the true value of their homestead (ORC, 323.152[A]).³ (A note to dampen the gladness over all these rollbacks is that local taxing units are reimbursed for the rollbacks with state money. That means that people who pay state taxes are footing the bill for what would be part of their own property tax and that of some other property owners, as well.) Lastly, county commissioners may grant a partial real property tax exemption to each homestead in counties with major league teams (ORC, 323.158).

In calculating the most typical homeowner’s tax on the assessed value of his primary dwelling (when his “homestead” is his entire property), after the tax is computed with the effective mills, the figure is multiplied by 87.5 percent (100 % – 10 % – 2.5 % = 87.5 %), or .875, to find the total property tax he pays after rollbacks are applied. The tax on a homeowner’s total tax bill and on each individual levy is figured the same way.

Following is the computation for the property tax for a levy with 2.406458 effective mills on a $100,000 home on a typical city lot (assessed at 35 %) that receives the 10-percent and 2.5-percent rollbacks: .35 X $100,000 X $.002406458 X .875 = $73.70.

The above example could very well represent the tax on a renewal levy that might have been voted at 3 mills 15 years ago, for example. The ballot, however, would not show the effective 2.406458 mills. Rather, the ballot would say that the issue is for the renewal of 3 mills, which is the originally voted millage of the existing levy. That is, the levy continues to have its old “name” despite the fact that 3 mills is not the effective rate of the tax to be renewed. After the levy is renewed at 2.406458 mills, it would still be referred to as a 3-mill tax.

The tax on each new or renewal levy can commence (that is, be applied) the same calendar year that it is voted or the following year, depending on the resolution, but the tax is always collected the year after it is applied. Therefore, it is either one or two calendar years after a vote that a person begins paying the tax on a new levy. A property owner’s total tax bill is divided in half and is paid semi-yearly.

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1 With H.B. 66 in 2005, businesses lost their 10-percent real property rollback, but they received gradual reductions on tangible personal property taxes.

2 To keep the explanation of property taxes simple, this treatise does not address taxes on manufactured or mobile homes.

3 H.B. 119 in 2007 removed an income requirement.

Next: Part 3: The REAL growth of government