Legal Definitions - millage rate

A millage rate, also known as a mill rate, is the tax rate applied to the assessed value of real estate to calculate property taxes. It is expressed in "mills," where one mill represents one dollar of tax for every $1,000 of a property's assessed value. Essentially, a mill is one-tenth of a cent ($0.001). Local governments, such as counties, cities, and school districts, use millage rates to fund public services like schools, roads, and emergency services.

• Example 1: Residential Property Tax Calculation

  Imagine a homeowner in a suburban area whose property has an assessed value of $250,000. The local county government has set its millage rate at 28 mills for the current year.

  To calculate their annual property tax bill, the homeowner would multiply their property's assessed value by the millage rate. Since 28 mills means $28 for every $1,000 of assessed value (or 0.028 per dollar), the calculation would be $250,000 * 0.028 = $7,000. This example clearly shows how the millage rate directly determines the amount of tax a property owner must pay based on their property's value.

• Example 2: Commercial Real Estate Investment

  A real estate investment firm is evaluating whether to purchase an existing retail shopping center in a new city. The firm projects the shopping center's assessed value to be $15 million. The combined millage rate for the city, county, and school district in that location is 35 mills.

  Before finalizing the purchase, the firm needs to estimate the annual property tax expense as a significant operational cost. Using the 35-mill rate, the annual tax would be $15,000,000 * 0.035 = $525,000. This illustrates how the millage rate is a critical factor in financial modeling and due diligence for commercial real estate transactions, directly impacting the profitability and viability of an investment.

• Example 3: Local Government Budgeting

  A city council is preparing its annual budget and determines it needs to raise $12 million through property taxes to fund essential services like sanitation, public libraries, and street maintenance for the upcoming fiscal year. The total assessed value of all taxable property within the city limits is $600 million.

  To meet its revenue goal, the city council must set an appropriate millage rate. They would divide the required tax revenue ($12,000,000) by the total assessed value ($600,000,000), which equals 0.02. This means the city needs to set a millage rate of 20 mills ($20 per $1,000 of assessed value). This example demonstrates how a local government uses the millage rate as a direct mechanism to generate the specific amount of revenue required to cover its budgeted expenses for public services.