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Tuesday, March 22, 2011

Taxing Tax Talk

We have written several articles about the new property revaluation and its impact here and here. We also have a suggestion for reducing taxes here, in case you missed it.

You now know that property valuations have gone down – it shouldn't be a surprise unless you haven't read a newspaper or watched the television news for 3 years. But we explained that it doesn’t mean your taxes are going down.

The town sets a tax rate each year to collect the tax revenue needed to cover town spending. When valuations go down the tax rate must go up to provide the needed revenue. I calculated an estimate for the new tax rate (disclaimer: it could be as much as 10 cents off) of $8.75 per $1000 compared with the current $7.48.

Now don’t react with the opposite conclusion that “the tax rate is going up so my taxes are going up!”. Remember, your valuation went down so the tax rate can go up and you can still pay the same dollars of taxes.

Or maybe not. Homes did not all decline the same amount in value. Some homes even increased! And my quick survey tells me that land values declined much more than the houses on that land – so expensive beach area properties declined more than the average.  If you’re good with numbers you can see that in this document, in the “median % change” column.

That means, in many cases, that expensive beach area homes will see their tax bills decline while less expensive homes well north of Route 1 will see their tax bills increase. Yes, the non-resident vacation home owners will, in general, be getting a tax reduction while year-round residents will, in general, be getting a tax increase.

To help you with the math I have created a spreadsheet that you can use here (courtesy of Google Docs). To use the spreadsheet look up your old and new valuations on Vision Appraisal and enter them for the two “Assessed Value” numbers in the spreadsheet. Then you can compare your 2010 and estimated 2011 tax bill. (Many disclaimers apply: the 2011 tax rate is my estimate and the town will probably not release one for a while, the spreadsheet does not allow for exemptions such as for veterans, etc.)

Here are a couple examples:
An actual home in Columbia Heights:
FY 2009 Assessed Value = $210,100, 
Current Assessed Value = $184,400 (12% reduction in value)
2010 Taxes = $1,572  
Estimated 2011 Taxes = $1,614 ($42 increase in taxes)

An actual non-resident property:
FY 2009 Assessed Value = $796,600, 
Current Assessed Value = $602,300 (24% reduction in value)
2010 Taxes = $5,959,  
Estimated 2011 Taxes = $5,270 ($688 reduction in taxes)

The tax reduction is not a bad deal for the people “struggling” to afford both their beach-area home here and another home in Florida and, of course, not paying income tax in Rhode Island.

Author: Tom Ferrio