Millage Rate

Millage Rate refers to the rate that facilitates the computation of the property tax payable by property owners in the United States. This rate determines property taxes applicable to different estates. It is also referred to as the Mill Rate.

It is used extensively to calculate property taxes and is based on mills. It represents a percentage of the assessed property value. Each mill is equal to $1 per $1,000 of assessed property value. The mill rate typically varies from state to state. Hence, the calculation for each property differs. 

• Millage Rate, also called mill rate, is a taxing system used to determine the property tax liability of every estate owner. One mill is equal to $1 for every 1000th value.
• Every state has a different mill rate depending on the land value. Local authorities, such as local governments, counties, municipalities, school districts, etc., set the rate working alongside a state’s taxing authorities. Taxpayers can vote for their input.
• The money collected from such taxes is used to fund public infrastructure, educational institutions, etc.
• The formula for the millage rate is the mills assigned divided by 1000. Taxpayers can use it to calculate property tax.

Millage rate and property tax are closely interrelated. It is the rate set by the government to determine the taxes levied on the properties individuals hold. Mills, a computing metric, act as a major component of property tax assessment. It is derived from the Latin word millesimum, which means thousandth. So, each mill represents a 1 (1/1000th) dollar. For example, 14 mills can be 0.014 decimal points or 14/1000.

Usually, property taxes have two calculation elements. Firstly, local taxing authorities calculate the value of the property. Later, applying the millage rate formula, the taxable value will be calculated. However, the millage rate calculation differs across localities as the property value and activity vary.

Local authorities decide the average millage rate based on the funding requirements (expenses or outflows) outlined in their budgets. They prepare budgets, keeping the potential revenue expected to be generated from millage in view. These mills help generate revenue receipts for the local area. The process starts when the budget preparation for the next financial year commences.

Appraisers submit the total taxable value for every property. Thus, the tentative and final millage rates are set accordingly, taking taxpayer opinions under advisement. Most governments allow taxpayers to participate in the tax millage rate determination. Here, taxpayers refer to tax authorities like school boards, emergency services, water management services, etc.

Several reasons can cause an increase or decrease in the mill rate. If the local authorities increase the mills, the taxable value will also increase. If a local entity anticipates higher expenses than usual, it will attempt to collect more property tax, causing the mill rate to rise. If appraisers note an increase in the assessed property value, the local entity can still earn higher than usual property tax, even when they continue applying the same rate. Budgeted expenses, funding requirements, and economic conditions are some key determinants of this rate.

Usually, this rate changes as the type of property changes. For instance, residential property will be charged at a different rate than commercial property. If a taxpayer believes their assessed property value is incorrect or the computed figure is higher than the expected value, a provision to request a reassessment may exist. The rules typically vary from state to state as local jurisdiction is given consideration. 

The origin of property taxes in the US can be traced back to the 1790s. In 1798, the houses were taxed at 2 to 10 mills. However, an uneven taxing system was followed as different people were taxed at varying rates. Today, modern tax systems have been established, and these systems across localities in the US are more complex than before. Also, certain deductions and exemptions may be available to taxpayers in certain jurisdictions.

Let us study how to arrive at the millage rate calculation.

Once the mill rate is determined, the local authority sends bills to the taxpayers. To pay off such property taxes on their property, taxpayers must maintain an escrow account. Banks deduct the taxable amount from the account annually or semi-annually.

Property Tax = (Millage Rate * Taxable Property Value) / 1000

Millage Rate = Mills / 1000

where,

• 1 Mill Rate = $1 of every $1000 assessed value. So, if there are 35 mills, the average millage rate will be $35 for every $1000 of the property value.
• Taxable property value refers to the total value of the property.

In this section, we will study examples and see how the rate works in different situations.

Example #1

Suppose Harriet works at a school valued at $250,000 in Florida. The government imposes 20 mills on school boards over the state. To arrive at the tax figure, Harriet uses the millage rate formula and calculates the property tax.

Millage rate = Mills / 1000

                        = 20 / 1000 

                        = 0.02

Here, 20 mills are equal to 0.02 points. 

Property Tax = Millage Rate * (Property Value)

                        = 0.02 * ($250,000)

                        = $5000.

The taxable value of the property the school owns is $5000. The millage rate, in this case, is 0.02 points.

Example #2

A September 2023 article discusses how property tax rates and property taxes, as a consequence, change across various states. This change can be attributed to varying property tax rates and property values. For example, the article states that New Jersey has the highest tax rates and the highest property values. This results in the payment of higher taxes compared to other states.

The article further highlights that these taxes are used to fund several public works projects, which only reiterates what we have learned so far—the rate differs based on a state’s funding needs and budget. Also, people in urban areas are known to pay more in property taxes than those living in rural areas.

This illustrates the role of mills in determining property taxes across various states and counties in the US.

This article has been a guide to what is a Millage Rate. Here, we explain the concept along with how to calculate it, its examples, and considerations. You may also find some useful articles here –

• Ad Valorem Tax
• Statutory Tax Rate
• Tax Benefit