What Is a Mill Rate for Property Taxes?

A mill rate is a component used by local governments to determine property tax obligations. The term “mill” originates from the Latin word for “thousandth,” and in the context of taxes, one mill represents $1 in tax for every $1,000 of a property’s value. For example, a mill rate of 15 signifies that a property owner is required to pay $15 for every $1,000 of their property’s official valuation. This system provides a standardized way for municipalities to express the tax rate.

These rates are established by various local taxing authorities, which can include cities, counties, school boards, and special service districts. Each entity determines its own rate based on its financial needs. The rates from all applicable jurisdictions are combined to form the total mill rate that appears on a property owner’s tax bill. The collected property taxes are then distributed to fund a range of public services.

Calculating Your Property Tax Using the Mill Rate

To determine your annual property tax, you must know your property’s assessed value. This is the value assigned by a municipal assessor for tax purposes and is not the same as its market value. The assessed value is often a percentage of the fair market value; for instance, some jurisdictions tax property at 40% of its appraised market value. This figure is the base upon which your taxes are calculated.

The formula to calculate your property tax is to multiply your property’s assessed value by the mill rate and then divide the result by 1,000. For example, a home with an assessed value of $300,000 in a municipality with a total mill rate of 20 mills would have a tax bill of $6,000. The calculation is ($300,000 x 20) / 1,000, which equals $6,000 for the year.

Some jurisdictions offer exemptions, such as homestead exemptions, that reduce a property’s taxable value. These are subtracted from the assessed value before the mill rate is applied. If the owner of the $300,000 home qualified for a $25,000 exemption, their taxable value would drop to $275,000. Applying the same 20 mill rate to this new value would lower their annual tax bill to $5,500.

How Your Local Government Sets the Mill Rate

The mill rate is the outcome of a municipal budgeting process. Each year, local governments determine the total revenue required to fund their operations. This budget covers public services such as police and fire departments, public schools, and road maintenance.

After establishing the revenue needed from property taxes, the government performs another calculation. The municipality’s assessor determines the total assessed value of all taxable property within its jurisdiction. This figure is the community’s total tax base.

The formula is the total revenue needed from property taxes divided by the total assessed value of all property, with the result multiplied by 1,000. For instance, if a town needs to raise $2 million from property taxes and the total assessed value is $100 million, the calculation is ($2,000,000 / $100,000,000) x 1,000. This results in a mill rate of 20.

Factors That Can Change a Mill Rate

Mill rates can change annually based on shifts in the municipal budget and the community’s total tax base. If a local government increases its budget, it will need to generate more revenue. If the total assessed value of property remains unchanged, the mill rate must increase to meet the higher revenue target.

Changes in the community’s property value also influence the mill rate. New development increases the total assessed value of the municipality. When this tax base expands, the tax burden is spread across a larger pool of value. If the municipal budget remains constant, this growth can lead to a decrease in the mill rate.

A rising total property value across a city can lead to a lower mill rate, but this does not automatically guarantee a lower tax bill for every individual property owner. If a specific property’s assessed value increased at a rate greater than the decrease in the mill rate, that owner’s tax bill could still go up. The final tax liability always depends on the interplay between the individual assessed value and the current mill rate.