Valuing Leased Property for Property Tax Review

Working backward, the taxes billed are the result of the property's assessed value multiplied by the appropriate tax rates set by the various taxing jurisdictions within which a property is located. The tax rates are derived from that taxing jurisdiction's total budgetary requirements divided into the total taxable assessments available for taxation within that jurisdiction. For example, if a school district funded totally by property taxes requires a budget of $1 million and the assessments of the properties within its jurisdiction total $2 million then for each $1 of assessment, the school district would need to collect 50 cents in taxes. Consequently, if the budget stays the same but the overall taxable assessments within the jurisdiction are increased or decreased, the tax rate is affected inversely, although the total tax dollars collected remain the same.

Under an ad valorem tax system, the formula used to determine a property's share of the tax burden must reflect the value of that property in order to be constitutionally valid. In some jurisdictions, assessments are set at 'full value' so that the assessment is equal to the property's value as of a particular date. In that case, a property worth $250,000 would carry an assessment of $250,000. Full value for assessment purposes has been determined to mean market value, ie, what a willing buyer would pay a willing seller. Assessments may also be based on a uniform fraction of the property's full value. For example, if properties in an assessing jurisdiction are to be assessed at 10% of full value, that $250,000 property's assessment should be $25,000.