How Property Taxes Are Calculated
1. Your Property Is Assessed And Its Market Value Determined
First, the assessor sets the market value of your property. Market value is the value, for tax purposes, of a particular parcel of property (land and buildings). County assessors value all property in the City annually.
Notices indicating these market values for the coming year are sent out in March. In April, the City’s Board of Review hears appeals, if any, from property owners. By July, market values are set. There is a lag time between when the property value is set and when the taxes are paid. For example, market values set in 2010 are the basis for taxes payable in 2011.
2. The Market Value Determines Your Property's Tax Capacity
| Tax Capacity Percentage Table for 2011 | |
|---|---|
| Property Type | % of Market Value |
| Residential (homestead) | 1% of first $500,000; 1.25% over $500,001 |
| Residential (non-homestead) |
1% of first $500,000 1.25% of remainder |
| Commercial/ Industrial |
1.50% of first $150,000 2% of remainder |
Second, the tax capacity for each piece of property in the City is calculated by a formula that varies by property type. The formulas are set by the legislature and are subject to change. Total tax capacity, which becomes the City’s tax base, is determined by adding the tax capacities of all individual parcels of property in the entire City.
For example, the tax capacity on the average $250,000 residential homestead in Golden Valley (for taxes payable in 2011) is calculated this way:
$250,000 (market value) x 1% (tax capacity percentage) = $2,500 (tax capacity)
3. City Determines Budget & Levy
Third, the City must determine its total gross tax levy, or the amount of property tax money the City needs to operate and pay its loans (which is the debt service on bonded debt) each year. This amount is determined as part of the annual budgeting process. The proposed tax levy for 2011 is $16,409,450.
4. City Calculates Tax Capacity Rate
Fourth, the City must calculate its tax capacity rate, which is used to calculate the amount of tax to be paid by all City taxpayers. It is determined by dividing the tax levy by the City’s total tax capacity.
$16,409,450 (proposed tax levy) / $31,113,338 (City's net tax capacity) = 52.74% (tax capacity rate)
This figure (52.74%) is the percentage of the individual tax capacities the City will receive as property tax revenue. The other taxing jurisdictions (county, schools, etc) also take a percentage of the individual tax capacities. Often this will add up to more than 100% of tax capacity.
5. Your Property Tax Amount Is Calculated
Finally, the City tax on a given property is calculated by taking the tax capacity rate times the tax capacity of the property.
$2,500 (your tax capacity) x 52.74% (City's tax capacity rate) = $1,319 (your City property tax)
This amount is reduced by the amount of the City's share ($50) of the homestead credit provided by the State. After deducting this credit, the 2011 proposed net City tax on the average home is $1,262.
