Property
taxes in Maine generate
$2.0 billion a year
to fund local government
services. Of the three
major taxes – income,
sales and property – used
to fund Maine state
and local governments,
property taxes comprise
the larger slice of
the revenue pie. Property
taxes currently account
for 41% of the revenues
in Maine generated by
the three major taxes.
The income taxes (corporate
and personal) generate
37%, and the sales tax
generates 22% of the
total.
Property
taxes have been with
us since colonial times
when a person’s
wealth could be measured
in the amount of property
a person owned. Although
it is our oldest form
of taxation in Maine,
the property tax still
remains widely misunderstood.
As the fundamental structure
of our economic system
has evolved from an
agricultural economy
to a manufacturing economy
to a services-based
economy, the patterns
of ownership have changed
and the property tax
has become quite regressive
because it is no longer
necessarily based on
a person’s
wealth or ability to
pay.
What
Property Is Taxed?
Both
real (land and buildings)
and personal property
(tangible goods) are
subject to taxation,
unless they are exempted
by law or subject to
another form of taxation,
such as the excise tax
for motor vehicles and
boats. Since home furnishings
are largely exempt from
personal property taxes,
the property tax bill
for most Maine homeowners
is based on the value
of the land, the house,
and the outbuildings.
Local
assessors are required
by law to "ascertain
as nearly as may be
the nature, amount and
value as of the first
day of April of the
real estate and personal
property subject to
be taxed . . ." This
means that if on the
1st day of April you
own property that is
subject to taxation,
then you are liable
to pay those taxes to
your municipality.
How
Is Property Assessed?
The
Maine Constitution says
that property shall
be assessed at its "just
value." The
courts have interpreted "just
value" to
mean fair market value
or in other words "what
the property is worth." A
property’s
worth is commonly looked
at as "what
a willing buyer would
pay a willing seller" for
a particular piece of
property.
Determining
the market value of
property is no easy
task. Local assessors
use three basic methods
to determine a property’s
worth. One method compares
the selling price of
similar types of property.
A second method determines
how much it would take
at the current price
of materials and labor
to replace a building,
then subtracts out how
much the building has
depreciated. The third
assessment method evaluates
how much income the
property would produce
if it were rented, like
an apartment house,
store or factory. One,
two or all three of
these methods might
be used to help the
assessor determine the
fair market value of
your property. It is
also important to note
that land and buildings
are valued separately.
Therefore, a home with
water frontage may be
assessed at a significantly
higher value, because
of the land’s
value, than an identical
home without water frontage.
To
implement the constitutional
requirement that real
estate be assessed at
its "just
value," and
in recognition of the
tremendous difficulty
and costs to a municipality
to maintain a "just
value" assessment,
the Maine Legislature
enacted assessing standards
that municipalities
must meet. One standard
is that the total local
valuation of taxable
property not fall below
70% of fair market value.
Another standard is
that the quality rating
of assessments not exceed
20 (which basically
means that the difference
in valuation between
similar properties should
never be greater than
20%).
Revaluations
are commonly used when
a community falls below
the assessing standards.
During a revaluation,
all property in the
municipality is inspected
and assessments are
adjusted to their fair
market value.
In 2008, the total value of taxable property in Maine was approximately $145 billion, which generated about $2.0 billion in property tax revenue to fund the operation of Maine’s 491 cities, towns and plantations, as well as a large portion of the cost of Maine’s 220 school administrative units, and the budgets of the 16 counties.
How
Are Property Taxes
Collected?
Property
taxes are levied according
to a mill rate. The
mill rate is the dollars/cents
per $1,000 of value
that you will pay in
property taxes. For
example, if you own
a home valued at $100,000
and the tax rate is
20 mills, then your
tax bill will be $2,000
(or $20 x 100).
In
calculating a property
tax rate, the legislative
body of the municipality
(town meeting or council)
determines the amount
of revenue needed to
be raised by the property
tax to fund municipal
services, and pay its school and county assessments. That amount
is then divided by the
total local assessed
valuation to get the
local tax rate. For
example, a town that
has a local assessed
valuation of $100 million
and needs to raise $2
million in property
taxes will require a
tax rate of 20 mills
to do so ($2,000,000
divided by $100,000,000
equals .020).
Another
way to look at the mill
rate is as a percentage
of value. For example,
if your home is valued
at $100,000 and the
mill rate is 20, then
your property taxes
are equal to 2% of your
home’s
value; if the mill rate
is 15, then it is 1.5%
of the home’s
value; 10 mills is 1%.
The
municipal assessor(s)
calculates how much
must be raised in property
taxes based on what
the legislative body
has approved, as well as the assessment, levied against the town or city by the school district and county. A tax
commitment listing all
the property in town,
its value and the taxes
that are owed is then
signed by the municipal
officers and given to
the tax collector who
sends out the tax bills.
In many Maine communities,
property taxes are paid
in one lump sum. Increasingly,
municipalities have
moved to collecting
property taxes twice
a year. Property taxes
may also be escrowed
and payments made as
part of a homeowner’s
monthly mortgage payment.
What
Services Do Property
Taxes Fund?
Maine
communities provide
a vast array of services,
including police and
fire protection, winter
and summer road maintenance,
code enforcement, planning,
economic and community
development, issuance
of licenses, recreation,
parking, solid waste
collection and disposal,
water and sewer services,
emergency medical services,
health and human services,
and sometimes more depending
on where you live. Property
taxes on average fund
about 58% of the cost
of local governments.
The remainder of the revenue comes
from state assistance as well as other sources of municipal revenue (e.g., motor vehicle excise taxes, fees, fund balances, etc.).
The biggest bite of your property tax dollar is used to fund education. The average Maine community uses 68% of its property taxes to fund education. The total statewide cost of K-12 education, which is approximately $1.9 billion annually, is funded by both the state and local governments. In response to a 2004 citizen initiative, the state has committed to funding 55% of the cost of K-12 education, based on the Essential Programs & Services (EPS) funding model. However, in 2010, the state's share of K-12 education is 44%. Despite that commitment, the 55% level of funding has never been achieved.
The
level of services that
a community provides
is determined by the
legislative body. In
a municipality that
is governed by the town
meeting, the residents
are the legislative
body and through their
votes at town meeting
they determine the amount
of property taxes that
will need to be raised.
Because of their size,
some larger communities
have representative
government. City or
town councils are elected
by the citizens to serve
as the legislative body
of the municipality
and are charged with
approving the municipal
budget and determining
the amount of property
taxes that will be raised.
The electoral process
is used to decide which
people best reflect
the views and attitudes
of the community.
Some
of the services that
a community provides
are mandated by federal
and state law. Special
education, “Learning
Results” and
the “No
Child Left Behind” laws
are examples of expensive
state and federal educational
mandates. Environmental
laws governing the disposal
of solid waste and setting
standards for water
and air quality, requirements
for a minimum level
of education funding,
and a variety of public
safety standards all
affect the size of the
municipal budget and
therefore the property
taxes that are needed.
Because
property taxes can cause
an undue financial hardship
on both homeowners and
renters, the Maine Legislature
has created over the
last 30 years three
major property tax relief
programs.
Property
Tax Relief
Revenue
Sharing: In
the early 1970’s
the Legislature
created the state-municipal
revenue sharing
program which distributes
to all municipalities
a share of the income
and sales tax revenues
that would otherwise
accrue to the state
treasury. 5% of the state’s
tax revenues are
distributed in this
manner, and each
municipality’s
share is based on
its population and
its property tax
burden. The revenue
sharing money received
by a municipality
must be used to
reduce the mill
rate. Unfortunately, in recent years, the Legislature has taken significant amounts of revenue sharing for the purpose of balancing the state budget rather than for property tax relief.
Circuit
Breaker: In
1987 the Legislature
enacted a property
tax relief program
directed to individuals
whose property taxes
exceed a certain
amount of their
income. This tax
refund program is
called the "circuit
breaker" program
because it is intended
to act like an electrical
circuit breaker
by providing relief
when property taxes
become too much
of a burden for
people to pay. Renters
as well as homeowners
can take advantage
of the circuit breaker
program — a
person does not
need to own his
or her home to be
eligible. Applications
for the property
tax and rent relief
program are taken
between August 1
and May 31st.
For applications,
citizens can contact
their town or city
office or the state’s
Bureau of Revenue
Services in Augusta or Click Here.
Homestead
Exemption: In
1998, the Legislature
responded to the
increasing over-reliance
on the property
tax by enacting
a "homestead
exemption." The
homestead exemption
parallels Maine’s
long-standing property
tax exemption for
veterans of war.
When originally
enacted, the homestead
exemption reduced
the property tax
bill of all Maine
resident homeowners
who apply for the
exemption by subtracting
$7,000 in just value
from the assessed
value of their "homestead." The Maine Legislature made changes to the homestead exemption in 2003, 2005 and again in 2010. The current program provides a $10,000 exemption for each qualifying homestead. Municipalities are reimbursed 50% of the lost property tax revenue caused by the exemption from the state’s General Fund.
Summary
Property
taxes are the primary
source of revenue for
Maine’s
cities and towns and
are used to provide
local government services.
Other than excise taxes
on motor vehicles and
boats, municipalities
are barred by Maine
law from using any other
form of taxation to
raise revenues to fund
local services. Property
taxes also help finance Maine's 200-plus school districts as well as county
government, which adds
about $1.2 billion to
municipal budgets statewide.
While
it is true that property
taxes no longer reflect
on a person’s
ability to pay, it is
nonetheless also true
that the amount of property taxes collected is directly controlled by the voters themselves, moreso than any state or federal taxes.
Local
government is the level
of government "closest
to the people." It
is the level of government
which citizens have
the greatest access
to and the most control
over. It is as close
as we come to self-government.
However, with this right
to self-govern comes
the responsibility to
be informed and to make
thoughtful decisions
that are in the best
interest of all the
citizens in your community.
Being active in municipal
affairs is the responsible
way to exercise this
right of self-government.
Updated: 07/22/2004
