Transcript ASSESMENT: TAXABLE VALUE 101

PROPERTY ASSESSMENTS:
UNDERSTANDING HOW
PROPERTIES ARE
VALUED FOR TAX
PURPOSES
“How did you come up with this value?”
“How could I sell my house for that much in this lousy market?”
“I thought my taxes could only go up
“My taxes are
2 ½ percent!!!”
just too much!! Is there anything I can do about it?”
“ I’ve lived in this town for 40 years.
stay here?”
“I don’t have that car anymore!!
What can I do about my taxes so I can
What is this Excise bill about?”
“I only paid my father $2000 for the car.
$8000?”
“
Why does this bill say it’s worth
Do I have to pay this CPA surcharge thing?”
Table of Contents
What is “Ad Valorem” Tax ? ………………………………Pg 3
What are “Arms Length Sales” ?…………………………..Pg 4-5
The “Mass Appraisal Process”……………………………..Pg 6-8
Taxation Law…………………………………………………Pg 9
Important Assessment Dates………………………………Pg 10
Things to Remember………………………………………..Pg 11-17
Mass Appraisal Case Study………………………………..Pg 18-36
Abatement or Exemption?………………………………….Pg 37-42
Auto Excise Explained………………………………………Pg 43-48
What is the CPA?……………………………………………Pg 49-50
Ad Valorem Taxation
 Translated means: “To value” or “concerning
value”.
 Ad Valorem Tax: Is based on the principle
that the amount of tax paid should depend
on the value of property owned.
 The data used to establish values are from
“arms length sales”.
Arms Length Sale
 Arms Length Sale: Is a sale between an
informed, willing seller and buyer, both of whom
are knowledgeable concerning all aspects and
uses to which the property is adapted and is
capable of being used. Also no side may have an
advantage over the other party. The property
needs to have reasonable exposure on the market
and is based on the most probable price, not the
highest, lowest, or average price.
TYPES OF NON ARMS LENGTH SALES
EXCLUDED FROM MARKET ANALYSIS
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Intra-Family sales
Intra-Corporate sales
Sales which include Personal Property
Grantor or Grantee is a Government agent
Transfer of Convenience (Know as “Dollar” sales)
Sale Resulting from Court Order
Sale from Bankruptcy
Sale of an Undivided Interest
Grantor or Grantee is a Tax Exempt Organization
Repossession of a foreclosed Property
Sale Included Cash and a Trade of Property
Multiple Sale of the Same Property within the year
Sale of a foreclosed Property
Substantial Physical Changes AFTER the Assessment Date, BEFORE
sale
Sale of a Portion of the Assessed Unit
Substantial Physical Change AFTER the Sale
Change in use AFTER the Sale
Mass Appraisal
 Is the systematic appraisal of groups of properties
as of a given date (January 1st) using standardized
procedures and statistical testing. These
procedures and statistics are used to gauge and
create accuracy and consistency.
 Its purpose is the equitable and efficient appraisal
of all property in a jurisdiction for Ad Valorem Tax
purposes.
Mass Appraisal
From the Ground Up
 The Mass Appraisal process begins with land
valuation. Land values in each of Needham’s two
predominant zones (10,000 sq ft and one acre
minimum lot size) are derived from sales (usually
over the prior 18-24 months) of “Teardown” lots,
subdivisions of existing lots that create new lots,
and the increasingly rare sale of unimproved
vacant land. These values must meet strict
statistical criteria and undergo triennial review by
the Massachusetts Department of Revenue.
Mass Appraisal
Mirroring the Market
 Analysis of arms length sales in a given calendar
year.
 Fiscal Year 2007 values are a product of analysis
of calendar 2005 Sales
 Needham uses a Computer Assisted Mass
Appraisal System, (CAMA) administered by the
Department of Revenue, that employs a market
adjusted cost system. This adds a market derived
land value to a computer generated building cost
plus or minus any indicated market fluctuations.
State Laws which Govern
Ad Valorem Taxation
 “Ad Valorem” Taxation is covered in the
Massachusetts General Laws.
 Most information can be found in Chapter 59
of the Massachusetts General Laws.
http://www.mass.gov/legis/laws/mgl/gl-59toc.htm
IMPORTANT DATES ON THE ASSESSMENT
CALENDAR
 Assessed values are as of January 1, 2006
for Fiscal Year 2007.
 FY 2007 runs from July 1, 2006 through
June 30, 2007
 Valid arms length sales from calendar year
2005 are used to set value as of January 1,
2006 for Fiscal Year 2007
Important to remember when reviewing your
FY 2007 tax bill
1) The assessed value on the bill is a result of the analysis of
sales that took place in calendar year 2005.
2) Recent media information, generally, refers to either
statewide or national real estate trends that have begun to
emerge in the 2006 market. Needham, because of its
commuter and education friendly location and environment,
is not a good microcosm of the rest of Massachusetts or the
country. In any event, the affects of the calendar 2006
market will not be reflected in the assessments until the bill
you receive in FY 2008.
THINGS TO REMEMBER …
3) The law allows cities and towns to vote to shift a
portion of the residential tax burden onto the
owners of commercial property. Over the years
Needham has voted to shift the maximum amount
allowed by law to the commercial property.
4) The property tax levy funds more that 77% of the
municipal budget.
5) Only the “Total” Tax Levy is affected by Proposition
2 ½ in that it can increase 2.5% from one year to the
next. Proposition 2 ½ has no bearing on the change in
value of individual properties.
THINGS TO REMEMBER…
6) Many of the components of the final budget for Public
Safety, General Government, Public Works and Education are
approved before assessments are finalized.
7) The cost of Debt Exclusion overrides, approved by the
voters for the Town construction projects, is a known quantity
in the budget before final assessments are approved by the
Department of Revenue in the late fall.
8) Since the year 2000, voters have approved more than 116
million dollars for school and library construction alone.
9) All of the above means that the “Total” for the budget
equation is established BEFORE either the “assessed value”
or the “tax rate” variables that make up that equation are in
place.
THINGS TO REMEMBER …
10) Since most of the budget is comprised of fixed costs, such as
salaries and insurance, municipal budgets rarely decline. It follows
that if the budget “Total” increases, the variables used to arrive at that
total must change. This means the following:
A) The changing nature of the real estate market causes fluctuations
in the “assessed value” variable of the budget equation.
B) The “tax rate” variable will rise or fall in relation to changes in the
real estate variable.
C) If the “assessed values” drop due to a declining real estate market
in coming years, the “tax rate” side of the equation will increase to
raise the amount required to fund the “Total”.
The following is a hypothetical example:
Fiscal Year 2007 Budget equals $70 million dollars
Fiscal Year 2007 total assessed value equals $7 BILLION DOLLARS
These numbers yield a “Tax Rate” of $10 dollars
Fiscal Year 2008 Budget equals $70 million dollars
Fiscal year 2008 total assessed value declines to $6 BILLION DOLLARS
This would yield a “Tax Rate” of $11.67
The following example illustrates the
calculation of a hypothetical single tax rate
followed by the calculation of an actual tax
bill using that rate.
$70,000,000 (Budget)/“X” (Assessed Values) = “Y” (Tax Rate in dollars/
$1000 of value)
The first variable computed is the total assessed value of all the
property in Needham. This number is determined after analysis of the
calendar 2005 sales, and adjustments, dictated by that market
analysis, are made. You now have two parts of the equation,
from which the second variable (Tax Rate) can be derived.
$70,000,000 (Budget)/$7,000,000,000 (Assessed Values) = $10 Tax Rate
per $1000 of assessed value.
For Example, to compute the taxes on a 1 million dollar home
$1,000,000/1000 (Remember you are paying the $10 Tax Rate for every
$1000 worth of value) x $10 = $10,000
Mass Appraisal Process
Smoothing out Ripples in the Marketplace
 The Mass Appraisal Process uses statistical analysis of valid
sales, and their assessments, in relation to their sale prices, to
check the accuracy of assessments. Two of the key components
of this statistical testing are the Median Assessment to Sales
Ratio (ASR) and the Co-efficient of Dispersion (COD). The
Massachusetts Department of Revenue requires that the
Median ASR be between .90 and 1.10. The COD must be less
than 10.0.
 The ASR is calculated by dividing the assessed value by the
sale price.
 If a property assessed at $900,000 sells for $1,000,000 the ASR
would be .90
 The overall Median is calculated by arranging all the ASR’s on
individual sales in numerical order and finding the middle
number.
SMOOTHING OUT THE RIPPLES…
To calculate the COD of a group of properties that have been sold, you must
find out how far each individual ASR is from the overall Median negative and
find the average of those differences.
If the Median for a group of sales is .93 and the ASR of a particular sale is
.90, the Absolute Deviation is .90 minus .93 or .03
The Average Absolute Deviation (AAD) is simply the average of all the
Absolute Deviations for a given set of sales.
The final step in the COD calculation is to divide the AAD by the Median and
multiply the result by 100 to turn it into a whole number.
EXAMPLE:
AAD = .081
Median = .92
COD = (.081/.92) x 100 or 8.81
TESTING THE DATA…
The following 17 slides contain a random sample of sales from 2005 and some
information about each of those properties. The calculation of the Median
and COD for the sample follows them.
The sample as a whole falls well within the parameters set by the Department
of Revenue, despite the fact that one buyer pays far above assessed value on
one end of the spectrum, while another pays far below assessed value on the
other. This process was used on all of the nearly 300 sales in 2005 and passed
statistical muster before values were established for similar unsold
properties.
The same set of 2005 sales was also grouped by Style, Age, Sale price,
Square Feet of Living Area, Neighborhood and Land size and put through
the same statistical analysis. In all cases for the different groupings, the
Median and COD’s were within the required statistical parameters.
Information on these sales are available at the Assessor’s Office.
SALE INFORMATION
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Sale Price: $1,300,000
Sale Date: 9/7/2005
FY 2007 Assessment: $891,800
Bedrooms: 6
Baths: 2
Living Area: 3,574
Square Feet Land: 12,417
Upgrades Since 1990: $35,000
SALE INFORMATION
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Sale Price: $842,500
Sale Date: 9/12/05
FY 2007 Assessment: $624,300
Bedrooms: 4
Baths: 2.5
Living Area: 1,765
Square Feet Land: 10,215
Upgrades Since 1990: $0
SALE INFORMATION
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Sale Price: $1,250,000
Sale Date: 7/8/2005
FY 2007 Assessment: $1,069,400
Bedrooms: 4
Baths: 2.5
Living Area: 3,136
Square Feet Land: 10,260
Upgrades Since 1990: $0
SALE INFORMATION
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Sale Price: $790,000
Sale Date: 8/15/05
FY 2007 Assessment: $679,200
Bedrooms: 5
Baths: 1
Half Baths: 2
Living Area: 2,672
Square Feet Land: 11,101
Upgrades Since 1990: $80,000
SALE INFORMATION
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Sale Price: $660,000
Sale Date: 6/3/05
FY 2007 Assessment: $543,500
Bedrooms: 3
Baths: 1.5
Living Area: 1,461
Square Feet Land: 10,707
Upgrades Since 1990: $0
SALE INFORMATION
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Sale Price: $970,000
Sale Date: 3/31/05
FY 2007 Assessment: $969,800
Bedrooms: 6
Baths: 4
Living Area: 3,728
Square Feet Land: 7,765
Upgrades Since 1990: $0
SALE INFORMATION
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Sale Price: $486,200
Sale Date: 6/17/05
FY 2007 Assessment: $435,400
Bedrooms: 3
Baths: 1.5
Living Area: 995
Square Feet Land: 11,065
Updates Since 1990: $0
SALE INFORMATION
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Sale Price: $833,00
Sale Date: 8/2/05
FY 2007 Assessment: $746,300
Bedrooms: 4
Baths: 2.5
Living Area: 2,184
Square Feet Land: 14,331
Updates Since 1990: $108,073
SALE INFORMATION
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Sale Price: $1,250,000
Sale Date: 1/31/05
FY 2007 Assessment: $1,201,900
Bedrooms: 5
Baths: 3
Half-baths: 2
Living Area: 3,534
Square Feet Land: 25,219
Updates Since 1990: $233,400
SALE INFORMATION
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Sale Price: $682,500
Sale Date: 10/28/05
FY 2007 Assessment: $631,800
Bedrooms : 3
Baths: 2.5
Living Area: 1,692
Square Feet Land: 12,587
Updates Since 1990: $1,500
SALE INFORMATION
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Sale Price: $569,000
Sale Date: 3/14/05
FY 2007 Assessment: $504,000
Bedrooms : 2
Baths: 1.5
Living Area: 1,524
Square Feet Land: 11,033
Upgrades Since 1990: $0
SALE INFORMATION
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Sale Price: $739,000
Sale Date: 7/1/05
FY 2007 Assessment: $689,300
Bedrooms: 4
Baths: 2
Half-Baths: 2
Living Area: 2,454
Square Feet Land: 8,980
Upgrades Since 1990: $167,000
SALE INFORMATION
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Sale Price: $518,000
Sale Date: 5/27/05
FY 2007 Assessment: $512,200
Bedrooms: 3
Baths: 2
Living Area: 1,288
Square Feet Land: 13,042
Upgrades Since 1990: $0
SALE INFORMATION
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Sale Price: $553,900
Sale Date: 3/15/05
FY 2007 Assessment: $541,300
Bedrooms: 3
Baths: 1
Living Area: 1,253
Square Feet Land: 7,808
Upgrades Since 1990: $5,700
SALE INFORMATION
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Sale Price: $475,000
Sale Date: 11/3/05
FY 2007 Assessment: $541,800
Bedrooms: 2
Baths: 1.5
Living Area: 1,494
Square Feet Land: 8,400
Upgrades Since 1990: $6,135
SALE INFORMATION
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Sale Price: $979,000
Sale Date: 3/25/05
FY 2007 Assessment: $1,058,000
Bedrooms: 4
Baths: 2.5
Living Area: 3,923
Square Feet Land: 9,000
Upgrades Since 1990: $0
SALE INFORMATION
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Sale Price: $849,000
Sale Date: 8/9/05
FY 2007 Assessment: $782,700
Bedrooms: 4
Baths: 2.5
Living Area: 2,145
Square Feet Land: 18,260
Upgrades Since 1990: $110,000
Sale $
07 Value
ASR*
Median
AAD**
$ 1,300,000.00
$ 842,500.00
$ 1,250,000.00
$ 790,000.00
$ 660,000.00
$ 486,200.00
$ 833,000.00
$ 849,000.00
$ 682,500.00
$ 739,000.00
$ 569,000.00
$ 1,250,000.00
$ 553,900.00
$ 518,000.00
$ 970,000.00
$ 979,000.00
$ 475,000.00
$
891,800.00
$
624,300.00
$ 1,069,400.00
$
679,200.00
$
543,300.00
$
435,400.00
$
746,300.00
$
782,700.00
$
631,800.00
$
689,300.00
$
504,000.00
$ 1,201,900.00
$
541,300.00
$
512,200.00
$
969,800.00
$ 1,058,000.00
$
541,800.00
0.69
0.74
0.86
0.86
0.82
0.90
0.90
0.92
0.93
0.93
0.89
0.96
0.98
0.99
1.00
1.08
1.14
0.92
8.81
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
0.93
AAD
0.244
0.189
0.074
0.070
0.107
0.034
0.034
0.008
0.004
0.003
0.044
0.032
0.047
0.059
0.070
0.151
0.211
0.081
Median
COD
*Assessment to Sales Ratio
** Average Absolute Dispersion
ABATEMENT OR EXEMPTION
????????
ABATEMENT OR EXEMPTION
1) If you find a discrepancy in the physical
characteristics of your home in relation to the
information on file at the Assessor’s Office ( i.e. four
baths listed, when you only have three, or finished
basement area that you do not have) please bring it to
our attention so the problem can be corrected after an
inspection of the property.
2)
If several houses in your neighborhood, similar in
total building Square Footage and in total Land Area to
yours, SOLD IN CALENDAR YEAR 2005 for less than
the assessed value of your property please bring them
to the Assessor’s attention. Neighborhood code
information can be obtained from the Assessor’s
Office.
ABATEMENT OR EXEMPTION
3)
If there are several houses in the neighborhood very
similar in total building Square Footage, and in total
Land Area to yours, that have not sold recently, but have
a significantly lower assessment, please bring these
properties to the attention of the Assessors. Please be
sure that the Effective Year Built, Style, Finished
Basement Area and Overall Grade match up closely with
your property in addition to the building and land areas.
All this information is available at the Assessor’s Office.
4)
Unfortunately, if your taxes are just “Too High” or the
“House down the street, just like mine, sold last month
for less than my assessment”, the abatement process
may not be the appropriate route to lower your tax bill.
ABATEMENT OR EXEMPTION
5) Exemptions from property taxes are available to
qualifying members of the following groups: Veterans (or
surviving spouses) Surviving Spouses, Legally Blind
(certified as legally blind by the Mass Commission for the
Blind) Older Citizens (qualification begins at age 65)
Poverty and/or Infirmity. Please contact the Assessor’s
Office for information on these Exemptions.
6) There are also specific Exemptions from the
Community Preservation Act surcharge available.
Qualifying factors for this Exemption are Age or Income.
Please contact the Assessor’s Office for information.
ABATEMENT OR EXEMPTION
7) A reduction of the taxation “fund” is also available
locally through The Elder and Disabled Taxation Relief
Program, which is administered by the
Collector/Treasurer’s office. Please contact that office
for information.
8) A Tax Work Off programs is available to a limited number
of individuals, who may wish to reduce their tax burden
by working for the Town of Needham on a part-time basis.
Please contact the Council on Aging for information on
these programs.
ABATEMENT OR EXEMPTION
9) Please check with your tax accountant or the Needham
Council on Aging to establish eligibility to receive a state
income tax credit under provisions of the Circuit Breaker
Tax Credit
Additional Assistance Programs…
In conjunction with the Abatement and Excise
possibilities, there are other assistance programs in the
following areas, for those financially eligible, through
the Needham Board of Health
Federal Fuel Assistance Program
Salvation Army
Good Neighbor Program
Town Water Abatement Program
Food Stamps for Senior and Disabled residents
The Community Council Food Pantry
Massachusetts Excise Tax
Chapter 60 A of the Mass General Laws
states that “Every motor vehicle and trailer
registered in the Commonwealth is subject to
motor vehicle excise unless expressly
exempted.” Some of the more common
exemptions are for:
1) Former POW’s or their surviving spouses
2) Certain documented permanently disabled owners.
3) Certain documented permanently disabled veterans.
4) Certain Businesses and Charitable organizations.
5) Certain active duty military personnel.
Calculation of the Excise Tax
The tax is based on the Manufacturer’s Suggested Retail Price (MSRP). The
actual sale price of the vehicle is NOT the basis for computing the tax.
Every vehicle is taxed at the rate of $25 dollars per thousand dollars of
value.
A 2008 model purchased in 2007 is taxed @ 50 % of the MSRP.
Example: $ 20000 x .5 = $ 10000
$10000 / 1000 = 10
$25 x 10 = $250 of Excise Tax for the portion of 2007 that
the
vehicle is owned. Remember that 2008 models would
not
generally be available until mid to late 2007.
For the full calendar year 2008 the excise tax is 90% of the MSRP.
Example: $20000 x .9 = $18000
$18000 / 1000 = 18
$25 x 18 = $450 of Excise Tax for all of 2008
In the ensuing years the percentage of the MSRP drops from 90% - >
60% -> 40% -> 25% -> 10%. It then remains at 10% for as long as the
vehicle remains in your possession using the same license plates.
Grounds for Excise Abatement
In most cases abatements are partial refunds dating from the first
day of the month after the plates are transferred or turned in. If a car
is totaled on June 2, the abatement will cover July to December of
the year.
Vehicle Overvaluation – Since MSRP determines value this is rare.
Vehicle is Sold / Totaled / Donated – Plates are transferred to another
vehicle or turned in. Owner must produce registration showing
plates on another vehicle or “Plate Return Receipt” issued by the
Registry if plates are turned in.
Name change on registration:
Example Mr. Jones & Mrs. Jones to just Mr. Jones or just Mrs.
Jones., registration change parent to child, etc.
IMPORTANT FACTS TO REMEMBER
Excise tax bills are issued by the Massachusetts
Registry of Motor Vehicles. NOT by individual towns.
A yearly bill is generated based on the place of garaging
in the Registry’s records. In the case of a move from one
Massachusetts location to another it is up to the owner
to report this information to the Registry. If a car moves
from Needham to Somerville in February, a bill will be
generated showing Needham for that whole year. The
easiest solution is to pay the bill and inform the Registry
of the new address so the bill will be generated in
Somerville the following year.
The Community Preservation Act (CPA)
The CPA establishes a fund to allow
Needham to finance projects involving Open
Space, Historic Preservation, Recreation
Facilities and Community Housing assets.
The CPA was approved by Needham voters in
November of 2004. the primary source of
funding is a 2% surcharge on the tax bills of
Residential and Commercial property owners.
What type of Exemptions to the CPA are available?
The first $100,000 of value on all Residential Property is
exempt from the surcharge.
Example: If a property is valued at $500,000, with a $10 /
Thousand tax rate, the CPA surcharge would be
computed as if the value of the property were $400,000.
($400,000 / 1000) x $10 = $4000 Tax
$4000 x 2% = $80 CPA Surcharge
The second exemption is geared towards both
homeowners over 60 years of age and those under 60
who meet certain income requirements. Please contact
the Assessor’s office for further information and filing
deadlines.