Appraisal, Assessment, and Property Tax

Each year towns decide how much they intend to spend, and they report it in an annual budget. How do we raise the funds to cover the budget?  In most communities in the United States, the magic elixir that produces the required funds is called “the property tax,” and the biggest taxable category of property is real property – i.e. real estate, for most people their home.

How your share of real estate tax is determined is hinged on two things, the mil rate and your property assessment. In practice, once the town knows how much it intends to spend, individual property owners contribute their share based on the relative value of their real estate. The dollars to be spent are divided by the total assessed value of all the real estate in the community (the grand list).  The result is called a mil rate, or dollars of tax per thousand dollars of real estate value.  Of course, “the devil is in the details.”

Some years ago, the State Legislature in Connecticut adopted something called equalization - a uniform level of assessed value for every dollar of appraised value. Why we bother at all with a distinction between appraised value (supposed market value on the date of appraisal) and assessed value (the value on which the tax is figured) is a mystery.  In the “old days” different towns used different assessment rates, making it difficult for people to understand how much more expensive it might be to live in one town as opposed to another.  Equalization ended that game by placing all Connecticut towns on a 70% assessment rate – in other words, the multiplier for determining your tax is based on 70% of the appraised value of your home. The assessed value times the mil rate equals your tax.  In truth, this could be done as easily by using the appraised value as the multiplier. The result would simply be smaller mil rates (because appraised values are bigger than assessment values).  

Appraisal and assessments often confuse people in the property purchasing process. It is important to recognize that State law only requires towns to do re-valuation (appraisal) every 5 years. Therefore, assessments are constantly "out of date" as the market changes.  Appraisal derives a more market specific or current value, whereas assessment is the appraised value at the time of re-valuation.

So, hopefully now you understand the process.  The proposed annual budget divided by the assessed value of all the property in the town is called a mil rate. Your property tax is determined by multiplying your assessed value (70% of appraised value) times the mil rate.  In theory, if the town government spends only what was appropriated in the annual budget, all those property taxes add up to the annual budget. If you are interested in more info or your town’s mil rate CT OPM publishes them.

The most important concern is that all properties be valued at market in a uniform manner.  Indeed, owners of truly similar homes should see similar appraised values, similar assessed values, and thus similar tax burdens. But that is a story for yet another day……