These days Property Taxes are all the rage. With significant declines in property values there is an abundance of reporting on how to reduce property taxes. This has brought with it a lot of incomplete and incorrect information. Today I stumbled upon an article that touched upon what I think is a common misunderstanding of an important aspect of property taxation, the assessment ratio. 

This particular article stated: 

“A property tax assessment is the market value of the property.” 

This is not necessarily true. It is very important to distinguish the difference between market value and assessed value. In fact, in my opinion, it is the first thing that should be done when reviewing the fairness of an assessment. 

An assessment may indicate what the taxing jurisdiction is “valuing” the property at. However, in many instances it does not. 

Enter the assessment ratio. 

An assessment ratio is basically the ratio of assessed value to market value. Many states assess property at 100% of market value. However, there are many other states or jurisdictions that assess property at less than market value. Take GA for example. GA has an assessment ratio of 40%. Therefore, if your assessment is $1,000,000 the county is opining that the market value of the property is $2,500,000. Big difference. 

There are quite a few states that have “statewide” assessment ratios; AZ, CO, NV, OH, KS, MD, CT, just to name a few.  Some states have different ratios depending on the type of property (residential, agricultural, industrial, commercial, etc.). Other states like PA, NY and NJ have ratios that vary by jurisdiction. Therefore, one town may have a drastically different ratio than the next town over. Not to mention, these local ratios typically change annually. 

When we are reviewing property tax assessments we are interested in market value. Therefore, it is critical to know what the assessment ratio is. Otherwise, how can we know what we are reviewing?