Demystifying Property Tax Terminology
When shopping for a home or comparing property taxes across different counties, real estate listings frequently display "millage rates" or "tax rates per $100." However, comparing raw millage rates across state lines can lead to misleading conclusions.
What is a Millage Rate?
One mill equals $1 of tax for every $1,000 of assessed property value. For example, a millage rate of 25 mills means you pay $25 in annual taxes per $1,000 of assessed valuation. However, assessed valuation is rarely 100% of fair market value in every state.
What is the Effective Tax Rate?
The Effective Tax Rate is the annual tax payment divided by the true fair market value of the home. This provides a standardized percentage rate that allows direct apples-to-apples comparison between any two counties in the nation.
Why Assessment Ratios Matter
In states like New Mexico or South Carolina, homes are assessed at a fraction of market value (e.g., 33.3% or 4%). Therefore, a high millage rate applied to a small assessed value yields an effective tax rate that may actually be lower than states with low millage rates applied to 100% market valuations.