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Houghton County ranks second highest for effective use of tax dollars

HOUGHTON — When it comes to residential property taxes, Michigan ranks the 22nd highest among the 50 states. Michigan’s average effective property tax rate is 1.64%, which comes in much pricier than the nationwide average, according to a recent study.

Within Michigan, Houghton County ranked among the places in Michigan where property taxes are spent most effectively, according to a study by New York financial technology company, SmartAsset. The study ranks where people receive the most value for their property tax dollars. The study analyzed metrics including quality of local schools, home values and effective property tax rates to find where people were getting the most value.

First in the top-10 ranking was Schoolcraft County, followed by Houghton, Otesego, Marquette, and Lapeer counties. Benzie, Missaukee, Oscada, Salinac and Livingston counties, though ranked at the bottom of the top 10, still ranked highest of Michigan 83 counties.

There are two different numbers that reflect a home’s value on Michigan property tax bills. The first is assessed value, SmartAsset reports.

In Michigan, the assessed value is equal to 50% of the market value. Local assessors determine how much a given property could sell for on the market, usually by looking at factors such as size, features and the prices of recently sold comparable properties. That number is then multiplied by 0.5 to reach assessed value.

If an individual purchases a new home, taxable value (the amount your taxes are based on) is equal to assessed value. From then on, however, taxable value does not necessarily have to equal assessed value. In fact, taxable value is often lower than assessed value.

That is because the Michigan State Constitution limits the growth of taxable value to 5% or the level of inflation, whichever is lower. Thus, if a home’s value increases by 10%, but inflation is only 2%, the taxable value will be lower than assessed value.

However, if the homeowner sells a home, or makes improvements such as adding a porch or a swimming pool, assessed value can increase by more than the cap. Regardless, taxable value will never be higher than assessed value.

Michigan tax rates apply to a property’s taxable value, the report explains. The state government levies a statewide tax of six mills, and additional rates are set by local government tax authorities, such as city governments and school district.

Tax rates in Michigan are expressed as mill rates. A mill is equal to $1 of tax for every $1,000 of taxable value. For example, if the total tax rate is 20 mills and the taxable value is $50,000, the owner’s taxes owed would be $1,000 annually.

Michigan homeowners living in their primary residence are eligible for the Principal Residence Exemption. This exempts the home from the first 18 mills in school taxes. Thus, different rates can apply to nearby properties depending on whether they serve as a principal residence.

In 1994, Michigan voters approved Proposal A, which reduced local property taxes for schools, especially on primary residences, and substituted a higher state sales tax and a state government property tax, known as the State Education Tax. The incremental revenue from the higher sales tax and all of the state government property tax was earmarked for K-12 education.

A study of all 50 states, conducted by the Lincoln Institute of Land Policy, reported that state government property tax is levied on all property at 6 mills, and amounted to approximately 14 percent of total state and local property tax collection in 2018.

Although total property tax amounts and reliance in Michigan are relatively high, the Institute stated. because of the importance of the State Education Tax, property taxes accounted for only 27 percent of the general revenues in 2017, less than the U.S. average.

The report pointed out that because the State Education Tax is a property tax paid to the state government, interstate comparison of local property tax reliance “is not meaningful for Michigan.”

Within Michigan, the SmartAsset study found that Wayne County, which contains the city of Detroit, not only has the highest property tax rates in the state, but also some of the highest taxes of any county in the U.S. The county’s average effective tax rate of 2.55% is more than double the national average and is the 50th highest rate in the nation.

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