Idaho Property Value Assessment and Tax Rates
In honor of Kootenai County tax assessment appeals starting today, we are going to look at Idaho’s levy-based tax system vs. other states’ rate-based tax system.
The following information can be found on the Kootenai County government website here. This article is not a commentary about whether property taxes are constitutional or if each taxing district NEEDS the budget that they set, this is purely factual to arm you with knowledge to be better informed and spread awareness to others.
Do you know the role of the Assessor and how he plays into the tax system? Check out the Assessor overview below.
As most of Kootenai County residents were anticipating, this year’s property value assessment was exponentially higher than last year’s (or any year previous). At first glance it looks like one’s property taxes will be raised to the same extent as the assessment. Luckily in Idaho this isn’t necessarily the case.
In California, for example, property taxes are based on a rate-based system: the property tax is tired directly to the property value. In this system, when a property’s value increases, then so does the property tax charged on that property. When a property’s value decreases, then the property tax charged on that property also decreases.
The advantage to the rate-based system is that it's simple and easy to understand:
Property Value x Rate = Property Tax
Note: the rate in this calculation is prescribed in the state statute.
Downside to the rate-based system is giant increases/decreases in property tax if the property value assessment is dramatically different.
Idaho, however, uses the levy-based tax system that is based on the government entity budget they need to operate.
Instead of the state dictating what rate to charge, Idaho leaves the rates to the local governments to determine the levy amount based on their yearly budget.
The calculation of the levy rate different too:
Total All Budgets ÷ Total All Property Values = Levy Rate
The budgets of all taxing districts are totaled and then divided by the total sum of all property values in the boundaries of the taxing districts.
Once the taxing district has the levy rate then it is used to determine your property tax:
Levy Rate x Property Value = Property Tax
With the levy system, tax charges are more immune to erratic swings in property value.
(Taxing districts include but are not limited to: cities, counties, school districts, hospital districts, highway districts, water districts, sewer districts, library districts, etc.)
Two features are especially important, both of which are established in state law.
The 3% annual budget cap imposed on taxing districts. The 3% cap allows taxing districts to increase their budgets by no more than 3% per year, plus an additional consideration for growth.
The 100% market value standard Assessors are required to meet. This feature promotes fair and equitable taxation between properties and is how the Assessor controls the distribution of tax burden. Every property in the county is assessed at the same 100% market value level; no property owner pays more (or less) into the system than they should.
Assume Tax District “X” has six identical homes within its boundaries, all of which have the same assessed value.
All six properties also have the Homeowner’s Exemption (HOE), which is half the property’s value, up to $100,000, whichever is less.
Assume that Tax District “X” has a $9,000 budget.
The property tax calculation is below:
Since the properties are physically identical, assessed uniformly at 100% market value, and all have the Homeowner’s Exemption, property tax charges are also identical.
What happens when the budget increases by 3% but values don’t change?
This example shows the indirect role assessed value plays in Idaho’s property tax equation:
Property tax charges increase even though values do not
The tax levy adjusts to meet the higher budget requirement
Tax-charge increases correspond directly to the 3% budget increase
Because the values are uniform, the budget requirement is distributed equally between the six properties
This scenario demonstrates the role exemptions play in the distribution of property tax burden.
In this example, assume Property 1 becomes a rental and loses the Homeowner's Exemption (HOE).
In response to the tax base increase, the tax levy decreases, and all six properties' tax charges adjust.
Property 1’s tax charge increases by over 70% with the loss of the HOE and the rest decrease by 14%.
The total tax collected didn’t increase simply because value was added to the tax base.
What happens when properties within the same neighborhood differ, and what impact do those differences have on the tax base and individual tax burdens?
In this example, assume Property 2 also becomes a rental and loses the Homeowner's Exemption (HOE).
The owners of Property 5 build a $50,000 second-level addition, and the home on Property 6 is lost in a fire, leaving only the lot to be assessed.
In this scenario, the value added to the tax base drives the tax levy down even further.
With the loss of Property 2’s HOE, the tax charges for Properties 1, 3, and 4 all decrease by 12.5%. Property 5’s tax charge increases as a result of its $50,000 addition, while Property 6’s tax charge falls below $600 due to the loss of the home.
I hope this helps clarify how each taxing district finds its levy rate and how your taxes are determined. If you have further questions about property values and the tax process, please call the Kootenai County Assessor's Office at 208-446-1500 or stop in for a visit!