Mill Rate
Candlefocus EditorProperty taxes are the primary way in which governments generate revenue. These taxes are levied on properties such as real estate in a district by a government entity in order to fund the services offered in that area, such as roads, garbage collection, schools and emergency services. When calculating the taxes due, the local government applies the mill rate to each individual property.
Prior to levying such taxes, the local government must first assess the properties in the district and come up with an estimated value of the district’s taxable properties. This assessed value is then used to determine the millage rate, or rate of taxation, as it is sometimes referred to. The rate of taxation is based on the estimated amount required to cover the projected expenses in the local government's budget. Generally, the higher the estimated value of the local property, the higher the mill rate and thus the higher the property taxes will be.
For example, a local government may have a mill rate of 1.2, meaning that it charges one dollar and twenty cents of property tax per one thousand dollars worth of taxable property. If a property valued at one-hundred thousand dollars was assessed a 1.2 mill rate, the property taxes due for that property would be one-hundred and twenty dollars ($100,000 x 1.2 = $120,000/1000 = $120).
Although the mill rate is used in different parts of the world, it is most wide prevalent in the United States and Canada, where most governments levy property taxes based on this system. Although the mill rate may seem somewhat arbitrary, it is actually quite a fair system of taxation. Mill rates are usually determined ahead of time and applied to every property within a district or jurisdiction, ensuring that all owners are paying their fair share of taxes. This helps to spread the tax burden more evenly and is especially beneficial in areas with rising or falling property values, as the mill rate can remain constant while the total amount of taxes collected still increase, allowing the jurisdiction to obtain the necessary funds required to cover their expenses without unfairly targeting those with higher value property.
In conclusion, the mill rate system is frequently used by many governments across the world and provides a fair and efficient system of taxation. By basing property taxes on the mill rate rather than the assessed property value, it allows for taxes to be collected fairly and in a way that ensures that all property owners within a district contribute their share.