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Comparing 2014 Property Taxes in the Capital Region

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by Phil Dodd

tabletaxstoryEvery winter, the state releases information about the prior year’s property taxes that permits a comparison of tax rates, tax burdens, and property tax adjustments among Vermont towns. In this article, we’ll examine the state tax information for a dozen cities and towns in the central Vermont area.

Tax rates vary among towns not only as a result of different property values and differing levels of spending for municipal services and schools, but also because of variations in how accurate local grand lists are. Some towns may have reappraised recently, while other town grand lists may be several years out of date (once a town’s average appraisal drops below 80 percent of fair market value, the town is required by the state to reappraise).

Each year, a division of the state tax department conducts an “equalization” study to determine the level of appraisals in each city and town. Those figures are used, among other things, to calculate an “effective” property tax rate for each municipality. The effective rates show what the theoretical tax rate would be if all properties in every town were assessed at 100-percent of fair market value. These effective rates are different than the actual rates, but are the only fair way to compare rates among towns.

Table 1 shows effective tax rates, including both school and municipal taxes, for Montpelier and nearby cities and towns. Barre City, as is typically the case, had the highest effective total tax rate in the area in 2014 (it had the third highest total rate in the state, and the highest effective municipal rate). Montpelier had the second highest effective total tax rate in the local area, while Waterbury had the lowest.

As most people who pay property taxes know, however, the tax rate is only half the data needed to calculate a property tax bill, at least for those who are paying school taxes on the “penny” tax rate rather than based on income. The other part of the formula is assessed value. To arrive at a tax bill, a property’s assessed value is divided by 100 and multiplied by the actual tax rate. For example, a $200,000 property value divided by 100 equals 2,000. If that number were multiplied against a tax rate of $2.00, the tax bill would be $4,000.

Table 2 shows median tax bills for each of the twelve communities. These were calculated by taking the median value of houses on under six acres in each town (known as R1 properties) that are primary residences, excluding houses with apartments, and then dividing that median value by 100 and multiplying it by the actual 2014 tax rate in each town, as reported by the state Tax Department. This leaves out residences on six or more acres, which probably tend to have higher values, but it seems the fairest way to compare tax bills among towns.

Montpelier had the highest median 2014 tax bill in the area, reflecting both its relatively high tax rate and relatively high property values. By comparison, Barre City, with considerably lower house values, had a median 2014 tax bill that was $1,824 less than in Montpelier. Put another way, the average Barre homeowner pays 30% less for schools and municipal services than the average Montpelier homeowner.

Other towns with relatively high property values, such as East Montpelier, also had a relatively high median tax bill. Waterbury is notable because it had a low effective tax rate but the highest median home values in the area, leading to the third highest median property tax bill. Barre Town had the lowest median tax bill among the 12 towns.

The majority of homeowners don’t pay the school portion of their property taxes based on the “penny” school tax rate, however. Statewide, about two-thirds of property owners pay for schools based on their income.

Specifically, households with incomes under $90,000 may pay their school tax based on a percentage of household income, which varies based on local school spending. This option only applies to a primary residence and up to two acres of land, known as a “housesite.” The school tax with the income adjustment is usually lower, sometimes much lower, than the bill would be if paying taxes based on the regular school tax rate.

In addition, the state also has a “circuit breaker” system that covers all property taxes, municipal as well as school. This tax break applies to primary homeowners with household income of $47,000 or less and provides a variable limit on taxes as a percentage of income. For example, under the circuit breaker, no taxpayer with a household income of $25,000 to $47,000 has to pay more than 5 percent of income in combined property taxes on a home and two acres.

The school property tax adjustment and circuit breaker reductions are paid out of the Education Fund, which means they are funded for the most part by homeowners with higher household incomes and by nonresidential property owners, all of whom are paying the regular school property tax rates, as well as by some other state revenue sources. In 2014, the Education Fund covered $167 million in property tax and circuit breaker adjustments to reduce tax bills statewide for qualifying primary homeowners.

Table 3 shows the average combined property tax and circuit breaker adjustments provided to those homeowners who qualified for reductions in the 12 local cities and towns. The largest average reductions went to homeowners in East Montpelier, followed by Calais and Montpelier.  In general, the largest adjustments went to towns with higher property values and higher median tax bills.

School property taxes — which have been rising faster than municipal taxes — remain a hot topic in the Legislature, where the House has been working on a controversial education bill that would force school consolidation and cap school spending increases. We’ll have coverage of the legislature’s school property tax reform efforts in the next issue.

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