The property tax manager’s glossary of terms

If you’re new to managing property tax, you may encounter many unfamiliar terms. That’s why we created this helpful glossary, so you can worry less about the lingo and focus more on the essential tasks, like filing on time and using the proper forms. And if you’re a seasoned pro already, a refresher guide always comes in handy.  

Ad valorem tax is based on an item's assessed value, such as real estate or personal property. This tax is typically imposed at the time of a transaction, such as the sale of property, and is calculated as a percentage of the property's value. "Ad valorem" is Latin for "according to value," meaning the tax amount is directly proportional to the value of the item being taxed.

The assessment ratio is the percentage of a property's market value subject to taxation. This ratio is used to determine a property's taxable value, which is then multiplied by the tax rate to calculate the property tax owed. For example, if a property has a market value of $200,000 and the assessment ratio is 80%, the property's taxable value would be $160,000. The property tax is then calculated based on this taxable value.

A public tax assessor assigns a property a value to calculate property taxes. This value is often a percentage of the property's market value, determined through various appraisal methods. The assessed value is used as the basis for calculating the property tax the property owner owes. For example, if a property is valued at $300,000 and the assessment ratio is 80%, the assessed value would be $240,000. Property taxes are then calculated based on this assessed value.

Assessment roll is an official list or record of all the properties within a specific authority, including their assessed values as determined by the tax assessor. Local governments use this document to determine the property taxes owed by each owner. The assessment roll typically includes details such as property descriptions, ownership information, and the assessed value for each property. It’s the foundation for calculating and levying property taxes within the district.

Capital improvements refer to significant upgrades or additions to a property that enhance its overall value, prolong its useful life, or adapt it to new uses. These improvements go beyond regular maintenance and repairs, often involving substantial investment. 

Examples of capital improvements include:

• Adding a new room or building extension
• Installing a new roof or major HVAC system
• Upgrading electrical or plumbing systems

Capital improvements may increase the property's assessed value and will lead to higher property taxes. 

Depreciation refers to the decrease in the value of a property over time due to factors such as wear and tear, aging, and obsolescence. This concept is primarily used in the context of appraising the value of properties, especially for commercial and industrial properties. Depreciation accounts for the reduction in the property's market value as it becomes older and less efficient or desirable compared to newer properties.

Depreciation can impact the assessed value of a property, which in turn affects the amount of property tax owed. Tax assessors may consider depreciation when determining the property's assessed value, potentially lowering the value to reflect its diminished condition and functionality. This process helps ensure that property taxes are based on a more accurate representation of the property's current value.

Equalization rate is a factor used to ensure that property assessments are fair and equitable across different municipalities or taxing authorities within a state. It represents the ratio of the assessed value of properties to their market value. The equalization rate helps adjust for discrepancies in property assessments and ensures that the tax burden is distributed fairly, especially when different areas have varying assessment practices.

For example, if a municipality's properties are assessed at 90% of their market value, the equalization rate would be 90%. If another municipality's properties are assessed at 70% of their market value, the equalization rate would be 70%. The state uses these rates to equalize the assessed values, ensuring that taxpayers in different municipalities are taxed based on a consistent measure of property value.

An exemption refers to a provision that reduces or eliminates the tax liability of certain properties or taxpayers based on specific criteria. These exemptions are designed to provide tax relief to qualifying individuals or organizations and can apply to all or part of the property's assessed value. 

Common types of property tax exemptions include:

• Homestead exemption: Reduces the taxable value of a primary residence for homeowners, often with additional benefits for senior citizens, veterans, or disabled individuals.
• Senior citizen exemption: Provides tax relief for elderly homeowners who meet certain age and income requirements. 
• Veteran exemption: Offers tax reductions for properties owned by veterans, sometimes extending to surviving spouses.
• Disability exemption: Reduces property taxes for homeowners with disabilities.
• Charitable or religious exemption: Exempts properties owned by nonprofit organizations, such as churches, schools, and charities, from property taxes.
• Agricultural exemption: Provides tax relief for properties used for farming and agricultural purposes. 

Exemptions help lower the amount of property tax owed by reducing the assessed value subject to taxation.

A levy refers to the process by which a government authority, such as a city, county, or school district, imposes a tax on property owners to raise revenue for public services and projects. The levy is the amount of money that the taxing authority needs to collect from property taxes within a specific period, usually a fiscal year.

Key points about a property tax levy include:

• Total amount: The levy represents the total amount of money that needs to be raised through property taxes.
• Tax rate: The levy helps determine the property tax rate, which is the percentage of the assessed value of the property that will be paid in taxes. The tax rate is calculated by dividing the total levy by the total assessed value of all taxable properties within the authority.
• Allocation: The funds collected from the levy are used to finance various public services, such as education, public safety, infrastructure, and other community needs.

The property tax levy ensures that local governments have the necessary funds to operate and provide essential services to their residents.

Market value refers to the estimated amount for which a property would sell in a competitive and open market under normal conditions. It represents the most probable price that a property would bring in a fair sale between a willing buyer and a willing seller, both having reasonable knowledge of relevant facts and neither being under any compulsion to buy or sell.

Market value is determined through various appraisal methods, including:

• Comparative market analysis: Comparing the property to similar properties that have recently sold in the same area.
• Income approach: Estimating the value based on the income the property generates, typically used for commercial properties.
• Cost approach: Calculating the value based on the cost to replace the property with a similar one, accounting for depreciation.

The market value is a critical factor in property taxation as it’s used to determine the assessed value, which is then used to calculate the property tax owed by the property owner.

Mill rate (or millage rate) is the amount of tax payable per dollar of the assessed value of a property. The term "mill" is derived from the Latin word "millesimum," meaning thousandth; thus, one mill is equal to one-thousandth of a currency unit, or $1 in tax for every $1,000 of assessed value.

The mill rate is used by local governments to calculate the total property tax owed by a property owner. 

Personal property refers to movable items that aren’t permanently attached to or part of real estate. Unlike real property, which includes land and buildings, personal property consists of tangible and intangible assets that can be owned by individuals or businesses. In most cases only business personal property is taxed if it’s in one of the states that tax personal property.  

Examples of personal property include:

• Tangible personal property: Physical items such as furniture, machinery, equipment, vehicles, and inventory. 
• Intangible personal property: Nonphysical assets like stocks, bonds, patents, and trademarks.

Personal property is typically assessed and taxed separately from real property. The tax rate and regulations governing this type of property tax vary by authority. Personal property taxes are commonly levied on businesses for their equipment and inventory but can also apply to individuals for items like vehicles and boats. The purpose of these taxes is to generate revenue for local governments to fund public services.

Property tax is a tax imposed by local governments on real estate and, in some cases, personal property. The tax is based on the assessed value of the property, which is determined by a public tax assessor. 

Key points about property tax include:

• Assessed value: The value of the property as determined by the tax assessor, which is used to calculate the property tax owed. This value can be based on factors such as market value, location, size, and improvements to the property.
• Tax rate: Also known as the mill rate or millage rate, this is the rate at which the property is taxed. It’s usually expressed as a percentage of the assessed value.
• Calculation: Property tax is calculated by multiplying the assessed value of the property by the tax rate. For example, if a property's assessed value is $200,000 and the tax rate is 1.5%, the annual property tax would be $3,000.
• Collection: Property taxes are typically collected annually or semi-annually by the local tax authority. Failure to pay property taxes can result in penalties, interest, and eventually a tax lien or foreclosure on the property. 
• Exemptions and deductions: Various exemptions and deductions, such as homestead exemptions or senior citizen exemptions, can reduce the amount of property tax owed.

Reassessment refers to the process of reevaluating the value of a property to determine its current market value. This process is typically conducted periodically by a tax assessor or assessment authority to ensure that property values reflect current market conditions and to adjust the tax base accordingly. Reassessment can result in an increase, decrease, or no change in a property's assessed value.

Key points about reassessment include:

• Purpose: To ensure fair and equitable property taxation by updating property values to reflect changes in the market, improvements, or deterioration.
• Frequency: The frequency of reassessments varies by authority and can occur annually, biennially, or at other regular intervals. Some areas may also conduct reassessments after significant property changes, such as renovations or new construction.
• Impact on property tax: Changes in assessed value due to reassessment will affect the amount of property tax owed. An increase in assessed value typically leads to higher property taxes, while a decrease can reduce the tax burden.
• Process: Reassessment involves property inspections, market analysis, and comparisons to similar properties. Property owners are usually notified of the new assessed value and may appeal if they disagree with the assessment. 

Reassessment helps maintain a fair property tax system by ensuring that property taxes are based on accurate and up-to-date property values.

Real property refers to land and any permanent structures or improvements attached to it, which includes buildings, houses, commercial properties, and any other infrastructure permanently affixed to the land. Real property is also known as "real estate" or "realty."

Key components of real property include:

• Land: The earth's surface extending downward to the center of the earth and upward to the sky, including everything permanently attached by nature, such as trees and water bodies.
• Improvements: Man-made additions to the land, such as buildings, fences, roads, and any other structures that are permanently attached and add value to the property.
• Fixtures: Items that were once personal property but were attached to the land or building are considered part of the real property (e.g., plumbing fixtures and heating systems).

Real property is subject to property taxes, which are calculated based on the assessed value of the land and its improvements. Tax assessors determine this value periodically to ensure that property taxes reflect the current market conditions and the value of the property.

A tax lien is a legal claim or hold placed on a property by a government authority due to the owner's failure to pay property taxes. This lien ensures that the government can collect the owed taxes by securing the debt against the property.

The amount of tax imposed per unit of value, such as per $1,000 of property value.

The tax roll is an official list or record of all taxable properties within a specific authority, along with the assessed value of each property and the corresponding property tax amount owed by each property owner. The tax roll is prepared by the tax assessor's office and is used by local governments to levy property taxes and generate revenue for public services.

Key points about the tax roll include:

• Property listings: The tax roll includes detailed information about each property, such as the owner's name, property address, parcel number, and assessed value.
• Assessed values: The assessed value of each property, determined by the tax assessor, is listed on the tax roll. This value is used to calculate the property tax owed.
• Tax amounts: The tax roll shows the amount of property tax due for each property based on the assessed value and the applicable tax rate.
• Public record: The tax roll is typically a public record, allowing property owners to review their property assessments and tax obligations. 
• Updates and maintenance: The tax roll is updated periodically to reflect changes in property ownership, improvements, reassessments, and other factors that affect property values and tax liabilities.

The tax roll is essential for local governments to ensure accurate and fair property taxation, helping to distribute the tax burden equitably among property owners within the authority.

Valuation is the process of determining the monetary value of a property for taxation. This value is known as the assessed value and is used by tax authorities to calculate the amount of property tax owed by the property owner.

Key points about valuation include:

• Assessment methods: Property valuation can be determined using various methods, such as the market approach (comparing the property’s value with similar properties), the cost approach (calculating the cost to replace the property), and the income approach (basing the value on the income the property generates).
• Purpose: The primary purpose of valuation is to establish a fair and equitable tax base for properties within an authority, ensuring that each property owner pays their fair share of taxes.
• Factors considered: Factors that may influence property valuation include location, property size, condition, improvements, market trends, and any unique characteristics of the property.
• Periodic reassessment: Properties are periodically reassessed to reflect changes in market conditions, property improvements, or other factors that may affect their value.  
• Appeals process: Property owners have the right to appeal their property's assessed value if they believe it’s incorrect. This process typically involves providing evidence to support a different valuation.

Valuation is a critical component of the property tax system, as it directly impacts the amount of tax revenue generated for local governments and ensures the fair distribution of the tax burden among property owners.

One last term to know ... automate

Now that you know the most common terms, you might be ready for the next step: automating your compliance process with technology designed for every property tax manager. Avalara Property Tax can save time and improve accuracy through automation and machine learning. 

Much of the process you manage manually is offloaded with Avalara technology. You can scan your tax bills, and our software extracts the relevant data. Avalara also helps you maintain asset records, calculate appreciation or depreciation, and manage form preparation and deadlines for the districts you must file in. Avalara Property Tax also centralizes all tax information between departments and locations.

Avalara experts constantly monitor rule changes and update our software to reflect new regulations. You can also create on-demand reports to help with personal property tax appeals or audits. 

If you think Avalara can help you manage your property tax obligations, schedule a call with us today.