White House Subs Shop (New Jersey)

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Local Property Taxes are apportioned among property owners according to the value of each individual taxpayer's property in proportion to the value of the property of all taxpayers.

We learned that this method of taxation is called AD VALOREM taxation.

In Lesson Four we learned that:

Tax Rate is the dollar amount per $100 of assessed valuation which must be raised to support local budgets.

In Lesson Five we learned that:

Assessed Valuation is the true value or percentage of true value placed on each parcel of property by the assessor. This is the basic factor which implements the AD VALOREM principle of taxation.

LESSON SIX

What are the relationships among:

Total Amount to be Raised by Taxation

Tax Rate

Amount of the Individual Taxpayer's Bill

The relationship among these factors can best be illustrated by the following example. This example incorporates some of the lessons we have already learned.

In Jerry's Hometown:

The Total Amount to be Raised by Taxation is $300,000

The True Value of All Real Property is $60,000,000

The Assessor Uses an Assessment Ratio of X 100%

Thus the Total Assessed Valuation Taxable is $60,000,000

The Tax Rate then is ($300,000)/ - $5 per $100 of Assessed Valuation $60,000,000)

Accordingly, if Jerry's House and Lot have a market value of $300,000

And the assessor uniformly applies an Assessment Ratio of 100% 100% (Note: All New Jersey County Boards Of Taxation Require 100% Ratio)

Jerry's house will be Assessed at: $300,000

By applying the Tax Rate in Jerry's Town X $5.00

JERRY'S TAX BILL WILL BE $ 1,500

LESSON SIX (Continued)

NOW, assuming 10 years have passed and property values have doubled in value due to property inflation, And, assuming that the Budgets remained the same:

And, the Total Amount to be Raised by Taxation is still. $300,000

And, with the Assessor assessing at 100% of true value. (NOTE: Reducing the ratio to 50% as happens in states, other than New Jersey, would mathematically just result in a doubling of the tax rate.)

And, property inflation has increased the town's total Assessed Valuation Taxable, so after a revaluation with a 100% ratio the town's total assessed valuation taxable is now. $120,000,000

The Tax Rate is then ($300,000) / - $2.50 per $100 of Assessed Valuation (120,000,000)

After the Revaluation the total tax base in the town doubled in value.

Since all assessments are at True Value,

Jerry's House after the revaluation will now be assessed at $ 600,000

By applying the Tax RATE of $2.50 per $100 of value X $2.50

JERRY'S TAX BILL WILL STILL BE $ 1,500

Thus, we learn that if the Amount to be Raised by Taxation remains the same:

Tax Rates are high when Assessment Ratios are low in some states other than New Jersey. Conversely, Tax Rates are low when Assessment Ratios are high in some states other than New Jersey.

The amount of a property owner's Tax Bill is not affected by Assessment Ratios or by Tax Rates.

The amount of an individual's tax bill is determined by The Amount to be Raised by Taxation, and by the proportionate value of his property as it bears to the total value of all property in his municipality.

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