What is a "Revenue-Neutral" Tax Rate?

Whenever a county conducts a property revaluation, discussion generally turns to the “revenue-neutral” tax rate. Each local government is required to calculate a revenue-neutral tax rate based on the total value of properties within the jurisdiction. But calculating the rate is not the same as adopting the rate. That decision is up to elected officials.

The state defines revenue-neutral as the tax rate estimated to produce revenue for the next fiscal year equal to the revenue that would have been produced by the current tax rate if no revaluation had occurred. In addition, the rate can account for a few growth factors.

Let’s take a basic example.

The (fictional) town of Magnolia Crossroads has previously assessed all property in the town at a total of $4 billion. With a property tax rate of of 80 cents per $100 in valuation, the city of Magnolia Crossroads’ total property tax revenues are $32 million.

Following the most recent property revaluation, the total value of property in the town has risen by 25 percent to $5 billion.

If the town council wanted to keep total tax revenue steady at $32 million, they must lower the tax rate to 64 cents per $100 in valuation.

One of the big takeaways for homeowners? An increased tax value on the property does not necessarily mean an increased tax bill. It is important to also monitor the activity at your local municipality and county commission concerning the proposed change in tax rate.

A list of counties conducting revaluations in 2022 can be found here.

Have you gotten an updated property value from your county? You can find out more about what to do next here.

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