You might have heard us mention the term "mills” a few times lately. Between local school mill levies, and the Charter Communications ballot initiative that could dramatically impact local mills and taxes, property taxes are an important topic right now. This week we are undertaking our first by request Wonky Word: mill.
If you are a homeowner, you are probably familiar with mills because they are a type of property tax. From there, most of us know they have something to do with schools and other local needs like fire departments. We know we are asked to vote on mill levies occasionally, and usually there is a number associated with it, say a 5 mill levy. When we vote, the ballot typically informs us about much it would cost us if our house was worth $100,000. After that, I would assume that is where the knowledge ends. At least that is where mine ends.
So what is a mill? A mill, from the Latin mille meaning thousand, is 1/1000 of a dollar or 1/10 of a penny. One mill generates $1 in revenue for every $1,000 in taxable value. Seems simple right?
Well, the big trick is the “taxable value” part. In order to get “taxable value”, the Department of Revenue determines the market value of the property (how much the home is worth). For residential property, a portion of this value is then exempt (called the homestead exemption), and remaining amount is called the taxable market value. Then, the state legislature determines what portion of the taxable market value will be subject to tax. This tax rate is applied to that taxable market value. That gets us the taxable value of the property. For example, let’s say my home has a taxable market value of $100,000, and the state legislature has set my property tax rate at 3%. The taxable value of my home is $3,000.
When my local school board asks me to vote for a mill levy, one mill would be 1/1000 of the $3,000 of taxable value. Let's say the school board is asking for a 6 mill levy to help build a new elementary school. The levy is applied to the taxable value of property at a rate of 6/1000, or .6%. The calculation for this would in our example be:
$100,000 x 3% = $3000 (taxable value)
$3,000 x .6%= $18 (cost of the 6 mill levy)
In total, the state imposes five different mill levies totaling 101 mills. In addition to the state mills, local cities and counties apply mill levies to the property within their jurisdiction to help fund local government operations. The legislature sets the maximum millage authority for these local taxing jurisdictions. In 2012, an average of 548 mills was applied to all classes of property in the state. In sum, property taxes comprise about 12% of our state and local revenue.
Phew! That might have had a few wonky words in it. But this is what I hope you will take away: local levies are an important part of our tax code, and critical to providing essential public services like education inour communities.
I hope you will check back each Wednesday for more wonky words. If you have suggestions, email me at email@example.com or post something 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.