Columbus Investment Property Owners – Why the Tax Authorities Are Not Lowering Your Property Taxes

In this article, I will address a common question asked by property managers, landlords and real estate investors and that is, “If the housing market continues lose value, then why don’t our local tax authorities adjust our property taxes downward?”

The reason is actually pretty simple. In the state of Ohio, your property taxes are based on voted levies, governed by state laws and out of the hands of the local county auditors office.

Here’s how the county explained it me:

Our tax laws are designed to protect schools and other governmental organizations during down markets the same way they are designed to “theoretically” protect homeowners during boom markets.

This is accomplished through House Bill 920 in the state of Ohio.

When real property undergoes a reappraisal or triennial reappraisal update, “tax reduction factors” are applied to create separate effective millage rates for Class 1 (residential) and Class 2 (non-residential) property in each school district.

These effective millage rates limit school districts’ revenue growth from real property inflation to receive no more money that what the voters approved through their levies (note: new building construction is an exception to this rule and creates new revenues for the districts)

The rationale for this bill was twofold:

First, it protects taxpayers from undue increases in their property taxes as a result of inflationary increases in the value of their property.

It’s also worth noting that this bill was enacted at a time 30 years ago when property values were increasing at a much faster rate than were income levels.

Second, it keeps our local authorities in check by only mandating changes allowed by voters.

Thus, it is this same law that works in reverse when Columbus investment property values go down. This law ensures the school districts don’t see a huge drop in their revenues.

Here’s another example, provided by Joe Testa, county auditor.

In the City of Columbus, the average residential home value is currently $117,700. If a reappraisal increased the districts residential value 10%, that homes value would go up to $122,870 and the tax bill would increase by 1.8% or $31.20 per year.

Likewise, if reappraisal decreased that value 10% to $100, 530, the tax bill would only be reduced by the same amount, 1.8% or $31.20 per year.

Using this example, you would have lost $11, 170 worth of equity and “saved” only $31.20 per year in reduced tax bill. If nothing had changed (adjusting the millage rates), it would take you 358 years to recover that loss through slightly reduced tax bills.

Therefore, in both boom and bust real estate markets, tax authorities can adjust the effective millage rates either up or down, in order to ensure that the schools and social service agencies get the revenue they need to operate.

So if you think you are getting the short end of the tax stick, don’t wait for your property taxes Your best bet will be to petition the county for a readjustment of your properties market file.