Rep. Mark Thane: Mill math shows lighter tax hit in Montana

The property tax division of the Montana Department of Revenue is statutorily charged with appraising all properties on a two-year cycle. The department uses a comparable sales model to determine the fair market value of properties and an analysis of the data shows that the Department of Revenue’s appraised value averaged ninety-seven percent of the sale price listed on realty transfer certificates for the subject properties. Generally speaking, that means the department’s appraisal was slightly lower than the actual market value of properties that sold within a six-month window of the appraisal date. The department’s data has proven to be accurate. We have all heard about the rapid rise in the sales price of Missoula homes, and our appraisal notices accurately reflect the increased value of our homes.

The average appraised value of Missoula properties increased 37% in this appraisal cycle. That does not mean the average property tax bill will increase by 37%. In fact, local governments and schools have limited authority to increase their budgets without a vote of the people.  Bear with me while I do some math.

Suppose the total of all local budgets supported by property tax in 2022 was $1,000,000. Further, assume the total appraised value of all local property is $10,000,000. Given that a mill is 1/1000^th of a dollar, each mill levied raises $10,000 ($10,000,000 X .001). Therefore, to fund the 2022 budget, 100 mills are levied ($10,000 per mill X 100 mills = $1,000,000 budget).

In 2023 assume the local budgets increase by 3% to $1,030,000. Further, assume the total appraised value of all local property increased by 37%, to $13,700,000. The value of each mill is now $13,700 ($13,700,000 X .001). Therefore, to fund the 2023 budget requires approximately 75.2 mills ($13,700 per mill X 75.2 mills = $1,030,240), a net reduction of 25 mills from 2022, despite a 3% increase in the budget. The simple fact is that higher appraised values in a community means that fewer mills need to be levied to generate the same revenue. Unfortunately, the final column on your appraisal notice is titled “Estimated 2023 General Taxes” and it estimates the 2023 tax amount based on the number of mills that were levied in 2022.  The key to remember is that the actual practice is budgets are developed first, then the number of mills necessary to fund the budget is calculated. The estimate on the 2023 appraisal notice overstates the estimated taxes.

Missoula continues to grow, and with it the demand for public services like law enforcement, fire safety and schools will grow. Additionally, inflation impacts all the entities supported by property tax. Missoulians will almost certainly experience a tax increase, but not one of the magnitude estimated on the appraisal notices.