Understanding Your Assessment

UNDERSTANDING YOUR ASSESSMENT

Prior to Proposal A, property taxes were based upon the State Equalized Value (SEV). With the implementation of Prop A, property taxes are now based upon Taxable Value (TV). Each year, the Assessing Office must calculate the SEV for every property based upon the period as outlined by the State Tax Commission. This may be a 1 or 2 year time frame. A properties taxable status is determined as of December 31, which is called Tax Day. Additionally, each property has a Capped Value. Capped Value is calculated by multiplying the prior year’s Taxable Value, with adjustments for additions and losses, by the Consumer Price Index (CPI), as calculated by the US Department of Labor, and cannot increase by more than 5% or the CPI whichever is less.  Taxable value, which property taxes are based on, is defined as the lower of the SEV or Capped Value. Generally speaking, this means that unless the current year SEV is less than the previous year TV multiplied by the CPI, the current TV will increase by the CPI. If the CPI is negative, the TV will be reduced by that percentage unless there is new construction or the property was sold in the previous year.

When a property owner receives their new assessment notice, they will see two sets of numbers on the notice: SEV and TV. The SEV is simply 50% of the assessor’s estimate of the market value of your property. This number may change from year to year by any amount without limitation. The TV is limited to an increase of 5% or the CPI, whichever is less. It may change by more than that if there was a sale the previous year or there was new construction. For many property owners a large gap has developed between the SEV and the TV. This demonstrates the benefit to long term property owners created by Prop A. Prior to Prop A you would have paid taxes based on the SEV. It is entirely possible that your taxable value may increase when your SEV decreased.

TAXES WILL NOT GO DOWN UNTIL THE SEV FALLS BELOW THE TAXABLE VALUE OR THE CPI IS NEGATIVE.

For many long term property owners, a very large reduction of their SEV would have to take place before any change in the property tax bill would be made. If the difference between your SEV and TV is 30%, then the SEV would have to be changed by more than 30% to affect your tax amount.

ACTUAL SALE PRICE IS NOT A TRUE CASH VALUE

The law defines True Cash Value as the usual or most probable selling price of a property. The Legislature and Courts have very clearly stated that the actual selling price of a property is not a controlling factor in the True Cash Value or State Equalized Value as calculated by the Assessor. For this reason, when analyzing sales for determining assessment changes the assessing office will review all sales but exclude non-representative sales from the analysis.

FORECLOSURE SALES

Inherent in the definition of usual selling price is the assumption that the sale does not involve any element of distress from either party. The State Tax Commission has issued guidelines concerning foreclosure sales and generally speaking, these guidelines preclude the assessor from considering them for assessment purposes. If the assessor has verified additional market information, then these sales may be considered. For this reason, all distressed sales, such as sales involving mortgage foreclosure are usually not considered as typical sales in the valuation for assessment purposes nor are they reliable indicators of value when making market comparisons for current assessed values or appeals.

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