On June 18, we selected reappraisal for our wonky word because the state begins its next reappraisal cycle Jan 2015. And since we are wonks who like to talk about how taxes work and what they are used for, we decided to start a new series focused on property taxes. This week we bring you market value. This value is the critical starting point to determining how much property owners will pay in property taxes.
But how is market value determined?
Market value is the value at which property would change hands between a willing buyer and a willing seller. Seems simple right? It is the “value” the “market” places on a piece of property – or how much someone is willing to pay for a piece of property. The Department uses the sales price of similar properties in the area to determine a value for properties that have not been sold.
As we’ve stated before, the Montana Constitution requires the Department of Revenue to revalue property on a regular basis. Currently, the legislature has required this reappraisal to occur every six years. The role of the Montana Department of Revenue is to revalue property to determine the new market value.
Over the next few weeks will dig into what happens after the market value is determined. We will discuss the homestead exemption, taxable market value, taxable value, and more. You may want to brush up on mill levy that we explained this summer too.
In 2009 (the last reappraisal cycle), the housing market was booming - the average market value of residential property rose by 55 percent (from 2002 to 2008). Since we are still recovering from the recession, the Department estimates that increases in residential property values statewide will be minimal. Keep in mind that values can vary dramatically from county to county. Counties impacted by the Bakken oil fields will see the most significant changes to certain property values.
If you want to hear directly from the Department of Revenue about how the process will work and how it assesses market value, you can take part in the Reappraisal Roadshow. Officials are traveling to 18 different towns in Montana to present informational sessions about how the state determines property values. The sessions will include information about there appraisal cycle timeline and highlight methods that the department uses to determine market values of residential property, commercial and industrial property, agricultural land, and forest land. The sessions will also highlight key components and trends in housing values and illustrate how property tax dollars are used.
State and local property taxes make up approximately 40% of our total state and local revenue. The vast majority of these funds are directed toward local governments to support local schools, public safety, infrastructure such as roads and bridges, and much more. Please continue to check back over the next few weeks and we dig into property taxes. It is a complicated process that we can all understand better. If you have questions, post them to our Facebook page.
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.