What is Millage Rate?

A mill rate is like deciding how to split a check…

Let’s say you go out to a nice dinner with your friends, and as the meal winds down, the bill arrives. There are a few options for dealing with it. You could divide the total bill by the number of people, each person paying an equal share. But, that might not be fair to everyone — One person may have ordered the surf and turf, for example, while another only got a soup and salad. Maybe the bottle of wine gets divided by only the people that drank it. Maybe the appetizers should be split across everyone. A mill rate is similar in that some of its components apply to everyone (like county-wide emergency services). Other items might only fall to those people that benefit from it (like the cost of building a new school).

A millage rate is a measure commonly used to determine property taxes. Millage is like a percentage. While cent comes from the Latin centum, which means one hundred, millage comes from the Latin word mille, which translates to one thousand. Percent, meaning one per hundred, has the same underlying idea as a millage rate, which means one per thousand. One mill equals a tenth of a percent (or 0.1%).

Local governments and school districts often express property taxes in millage rates (aka mills). One mill translates to $1 of property taxes per $1,000 of property value. Therefore, 15 mills would equal $15 per $1,000 of assessed value, or 1.5% of what the assessor deems the real estate or personal property to be worth. In this case, the owner of a $100,000 home would pay $1,500 in property tax.

In most cases, there are several zones within a jurisdiction, each of which charges a separate millage rate. As a result, properties in the same geographical area may have different tax burdens. For example, a county might have a road service area (maintained roads that mostly serve people that live in a specific area), which assesses a millage rate on every property that likely receives that service. There might also be a fire service area, snow removal area, sewer service area, and so on. Many of these services areas may overlap, resulting in a combination of millage rates applying to a given property. Governments set their millage rates based on how much revenue it intends to collect through property taxes.

The effective property tax rate is the percentage of a property’s value that an owner will pay in taxes. You can determine the effective property tax rate by dividing the total property taxes charged to the property owner by the market value of the property. For example, if you owned a house worth $220,000, and you get a property tax bill for $2,640, then your effective property tax rate would be 1.2%.

Keep in mind that the effective property tax rate isn’t always determined simply from the millage rate. That’s because some areas charge a flat fee (called a parcel tax) and because the full value of a property might not be subject to the tax. Several state and local governments provide partial tax exemptions for certain homeowners.

Imagine that the county in which you lived provided a $25,000 property tax exemption for military veterans. For a veteran who qualifies for the exemption, their property tax would be calculated on $195,000 of taxable value rather than the full $220,000 their property is worth. In this case, the veteran will owe $2,340 in taxes (rather than $2,640 without the exemption). Although the actual millage rate is 12 mills, the effective mill rate is only 10.6 mills. The lower effective rate comes from the fact that the full value of the property isn’t taxed.

Another way that governments approach property taxes is to exclude part of the property value from the tax. For instance, if the tax applies to 100% of land, but only 70% of improvements to the land. That would imply a 30% exclusion rate on improvements. If the exclusion rate applied to the land and improvements, you could determine the effective property tax rate without considering the property’s value.

Let’s say a government levies a property tax of 20 mills but excludes 30% of the property value from taxation as a homestead exemption. In that situation, the government charges an effective property tax rate of 1.4% for a homestead property. Here’s what the formula looks like:

Effective Property Tax Rate = Millage Rate x (1 - Exclusion Rate) / 10

Effective Property Tax Rate = 20 x .70 / 10 = 1.4

In most cases, you can find a calculation of your tax millage in a statement from the taxing authority. Depending on where you live, it might be the state department of revenue, the county property assessor, or some other agency in charge of collecting property taxes.

The government typically calculates the tax millage for each property owner before sending a tax bill to them. For a homeowner that owes a mortgage, their bank will usually collect money for property taxes as part of the monthly payment. That money usually gets held in an escrow account, and the bank pays the property taxes as they become due.

Alternatively, you may be able to estimate your overall millage rate by adding up all of the millage rates that apply to your property. That might include a state, county, or city-wide property tax, and several other zones that provide a particular service to your property. For example, if your property is protected by a government-provided fire service, you might pay for it with an extra property tax. A property that’s protected only by a volunteer fire station might not owe that extra tax. There might also be a school district or individual school zone, a bond service area, or a specific project that applies to your property.

Understanding property taxes can get complicated pretty quickly because it often involves overlapping tax areas from multiple levels of government. In many areas, one agency manages the consolidated collections for all of the taxing authorities, which may relieve the burden of the property owner writing several checks.

Some places charge a parcel tax, which is a fixed amount per parcel regardless of the home’s value. But most property taxes are an ad valorem tax, meaning they are calculated as a percentage of the property’s value — The millage rate determines that percentage. For example, let’s say you owned a home that was assessed to be worth $250,000, and your local government charged a flat rate of 10 mills for all properties in the county. For simplicity, let’s assume there are no other property taxes, exemptions, or other complicating factors. In this example scenario, you would calculate your property tax by dividing the value of your home by 1,000 and multiplying that number by the millage rate.

Property Tax = (Home Value / 1,000) x Mill Rate Property Tax = ($250,000 / 1,000) x 10 = $2,500

Now consider a more complicated scenario. Imagine your state government levied a property tax of 5 mills on the first $200,000 of property value. Your county government charges 10 mills, but offers a 20% exclusion for owner-occupied residential homes (which we’ll assume you get). There’s also a 2 mill charge that pays for a park beautification project recently approved by voters. In addition, your local school district charges 3 mills for school operations and maintenance, with a $100,000 exemption for senior citizens (let’s assume you, or your parents, qualify in this example).

In this case, you would owe the following:

• State government: 5 mills on the first $200,000
• ($200,000 / 1,000) x 5 = $1,000
• County: 10 mills with a 20% exclusion

($250,000 / 1,000) x 10 = $2,500 20% exclusion = $2,500 x 20% = -$500

• Bond payment: 2 mills

($250,000 / 1,000) x 2 = $500

School district: 3 mills with a $100,000 exemption [($250,000 - $100,000) / 1,000] x 3 = $450

When all added up, your total property tax liability in this scenario would come to $3,950 — Or 1.58% of the total property value. You’d likely receive one bill for the full amount (or perhaps split in two bills), rather than getting billed by each of the four separate entities.

Property taxes are typically based on some estimate of a property’s value. But rather than basing it on an appraisal (a professional determination of value, like the bank requires when you purchase a home), an assessor determines the taxable value of a property. The assessed value might not be what the property would sell for on the open market. It could be based on the same methods and data that an appraiser uses. Or, an assessor might estimate values based on other methods (perhaps dollars per square foot multiplied by the total square footage of the home). That assessor might work for the state, county, or city government, depending on where you live.

The assessor will periodically update the value of a property — They may drive by or walk around it, conduct a virtual inspection, or apply market trends. It’s uncommon for the assessor to enter a home, as a property appraiser might need to do. The assessor will typically mail a postcard or letter explaining any changes in the property’s assessed value. At that point, there’s usually an opportunity to appeal their determination of the property’s value.

Most governments have someone in charge of providing millage rate information to taxpayers. That said, each state, county, and city is different. The local government is usually a good place to start, especially if there is a property tax assessor listed in the directory.