Taxable Value and Market Value Are Not The Same

I attended the City of Lakeland budget hearing last night. Fairly uneventful, though long. Like most budget hearings, it drew sparse attendance from citizens without a vested funding interest. (Full disclosure: The Downtown Lakeland Partnership, which employs my wife, is hoping to receive a few thousand dollars to support First Friday. But that is not why she and I attended. We were just curious. Really.)

GTMO HouseThe citizens who did attend were generally angry, which is typical. They complained about spending, spending, spending while chastising city government for trying to cut costs by going to automated, once-per-week garbage collection. Big government is the government that doesn’t pick up your garbage.

One particularly outraged fellow showed up with his property tax bill, which he claimed showed a significant increase in his Lakeland city property tax bill — about $50 if I remember correctly.

How could this be, he spluttered, noting that his property value had plunged. And he suggested the city put out longer lasting flowers and fine people whose dogs crap on sidewalks so that he could avoid any tax increase.

Anyway, putting aside the poop maids we might hire to enforce the doggy do collection ordinance, I want to briefly address why his taxes may have gone up while his home value went down. (I never saw his bill, so I can’t comment on specifics.)

It starts with understanding that your home has two values: the market value, an estimate of what you could sell it for at any given time; and taxable value, the amount that Property Appraiser Marsha Faux’s office establishes as its value for tax purposes. Property tax rates, known as millage rates, are applied against taxable values.

In virtually every case, taxable value is much less than market value. Because of the truly stupid “Save our Homes” property tax rule, a house you declare as your homestead can only increase in taxable value 3 percent each year until you sell it. At that point, the Property Appraiser will forcefully stick it to the new owner.

What does this mean in the real world?

Say I bought a house for $150,000 in 2000. My taxable value would probably be around $100,000. (I think it’s supposed to be 85 percent of market value, but for a long time, before Faux took over, Polk was notorious for its lowball taxable values.)

As we all know, the mid 2000s saw Florida’s second great Land Boom/bubble (the first was in the 1920s and crashed in 1926). So while the $150,000 market value probably zoomed to $350,000 or more by 2007, the taxable value was limited to 3 percent per year. I don’t have a calculator handy, but I think that $100,000 tax value would have reached about $130,000 when the market value reached $350,000. That’s a rather enormous undertaxing of a valuable asset.

Now that the market value has collapsed to say, $250,000, the taxable value still has a long way to go at 3 percent a year to reach parity with the market value. That’s why many of us can expect to pay more in property taxes despite the fact that our market value has greatly diminished.

The fact is, the Save Our Homes law, which the public loves, allowed property owners a free ride on the ever increasing value of their homes — typically the most valuable asset for any family. If you sold at the right time, you made out like a freaking bandit. If you didn’t, like most of us, you get the pleasure of making up the still huge gap between tax value and market value, and we have no one to blame but ourselves.

Creative Commons License photo credit: Andrew Hillegass

24 thoughts on “Taxable Value and Market Value Are Not The Same

  1. I guess it all depends who you are talking to about taxable value and market value you may get a different answer. Did you know you can contest the taxable value you received on your TRIM notice? Recently, I wrote a blog about it on how you go about if you don’t agree what the taxable value is on your home.

  2. I guess it all depends who you are talking to about taxable value and market value you may get a different answer. Did you know you can contest the taxable value you received on your TRIM notice? Recently, I wrote a blog about it on how you go about if you don’t agree what the taxable value is on your home.

  3. Billy,

    We’ll have to agree to disagree on the Save Our Homes issue. Without it, Florida would be the hands down world leader in foreclosed homes by a long shot.

    The biggest problem with property taxes is that they exist at all. Everything beyond that simply compounds the original sin.

    If you think about it, property taxes are about the only tax that has absolutely no connection to your ability pay. They’re tied to all kinds of arbitrary and capricious market forces (not to mention political shenanigans)that none of us can plan for or include in the decision process when we invest in a homestead. Yet, once we reach backside of the career curve, the jeopardize our ability to even keep the homes we worked for all of those years (in too many cases).

    Rather than worrying about whether Save Our Homes helps or hurts more folks and other details, what we ought to be doing is completely rewriting Florida’s economic model and tax structure. Step one, in my book, would be to abolish the property tax out-right; even though that would undoubtedly mean implementing a (gasp) income tax. Property taxes are an outworn, horribly unfair remnant of an 18th Century economy and business model which have no place in the 21st century.

    Unfortunately, all of the signs point toward Florida fighting tenaciously to return to the very same economic and business practices that just slapped us silly — thus dooming us to another round of economic despair and (most likely) 50th place in the race to US economic recovery. Oh well…

  4. Billy,

    We’ll have to agree to disagree on the Save Our Homes issue. Without it, Florida would be the hands down world leader in foreclosed homes by a long shot.

    The biggest problem with property taxes is that they exist at all. Everything beyond that simply compounds the original sin.

    If you think about it, property taxes are about the only tax that has absolutely no connection to your ability pay. They’re tied to all kinds of arbitrary and capricious market forces (not to mention political shenanigans)that none of us can plan for or include in the decision process when we invest in a homestead. Yet, once we reach backside of the career curve, the jeopardize our ability to even keep the homes we worked for all of those years (in too many cases).

    Rather than worrying about whether Save Our Homes helps or hurts more folks and other details, what we ought to be doing is completely rewriting Florida’s economic model and tax structure. Step one, in my book, would be to abolish the property tax out-right; even though that would undoubtedly mean implementing a (gasp) income tax. Property taxes are an outworn, horribly unfair remnant of an 18th Century economy and business model which have no place in the 21st century.

    Unfortunately, all of the signs point toward Florida fighting tenaciously to return to the very same economic and business practices that just slapped us silly — thus dooming us to another round of economic despair and (most likely) 50th place in the race to US economic recovery. Oh well…

  5. If I remember correctly, SOH began in Key West as investors and flippers, weighted down with money were driving property values for even the most modest shack to outrageous heights. They were driving the locals who’d lived there for generations out of their homes, thus losing the flavor that of the culture that had attracted the tourists in the first place.

    Without a mix of income levels and adequate levels of housing for everyone, a community can quickly find itself without cashiers, clerks, maids, burger flippers, taxi drivers, barbers, waitresses, etc. and life can become unpleasant in a hurry. It also offers a stabalizing factor in communities by encouraging people to stay put for many years…a benefit in most cases.

    So I don’t think I’d recommend throwing out SOH but some amendments to it might ought be considered. Like some recompense when the property is sold.

  6. If I remember correctly, SOH began in Key West as investors and flippers, weighted down with money were driving property values for even the most modest shack to outrageous heights. They were driving the locals who’d lived there for generations out of their homes, thus losing the flavor that of the culture that had attracted the tourists in the first place.

    Without a mix of income levels and adequate levels of housing for everyone, a community can quickly find itself without cashiers, clerks, maids, burger flippers, taxi drivers, barbers, waitresses, etc. and life can become unpleasant in a hurry. It also offers a stabalizing factor in communities by encouraging people to stay put for many years…a benefit in most cases.

    So I don’t think I’d recommend throwing out SOH but some amendments to it might ought be considered. Like some recompense when the property is sold.

  7. Al, I would argue that that lack of tax consequence accompanying property value increases contributed significantly to the bubble, but I don’t have any figures to back that up. It’s more a question of intuition. But, I generally agree with you about property tax as a concept. The only thing worse is anarchy.

    Howvever, thank goodness we Lakelanders have suckers like you to subsidize us through the power plant. I sincererly appreciate how you keep my city property taxes ridiculously low. :) I kid because I love.

    I’m not against the concept of a cap on taxable value. But it should be larger and portable. Set it at six or seven percent and make it totally portable with homestead so we don’t get this binge and purge property tax model.

  8. Al, I would argue that that lack of tax consequence accompanying property value increases contributed significantly to the bubble, but I don’t have any figures to back that up. It’s more a question of intuition. But, I generally agree with you about property tax as a concept. The only thing worse is anarchy.

    Howvever, thank goodness we Lakelanders have suckers like you to subsidize us through the power plant. I sincererly appreciate how you keep my city property taxes ridiculously low. :) I kid because I love.

    I’m not against the concept of a cap on taxable value. But it should be larger and portable. Set it at six or seven percent and make it totally portable with homestead so we don’t get this binge and purge property tax model.

  9. Susan,

    You absolutely right — but the proposed solution (tinkering with SOH) is like putting a band aid on cancer. I still maintain that the real answer is a complete revamp of how the state supports itself with revenue — starting with elimination of this completely deiscriminatroy and unfair property tax. JMO.

  10. Susan,

    You absolutely right — but the proposed solution (tinkering with SOH) is like putting a band aid on cancer. I still maintain that the real answer is a complete revamp of how the state supports itself with revenue — starting with elimination of this completely deiscriminatroy and unfair property tax. JMO.

  11. ” I still maintain that the real answer is a complete revamp of how the state supports itself with revenue ”

    True. I think a more diverse taxation methods would make us less vulnerable to the vagaries of the marketplace, too. A little dab of this and a little dab of that sounds more sustainable than collecting all the eggs from one nest.

  12. Billy,

    I’m glad that someone appreciates the forced contribution to artificially low Lakeland property tax rates exacted from all of us outside the city limits unfortunate enough to be at the mercy of the City Commission’s feckless continuing decisions to treat customers unfairly. They don’t even say thanks after saying “BOHICA.” We just just “donate” the equivalent of the cost of LPD to you guys every year out of the goodness of our hearts (and the gun that Gow how holds to our heads).

    It is a bit ironic that someone who benefits from others paying a share of his taxes (a Lakeland resident who benefits from out-of-city Lakeland Utility customers paying unwarranted surcharges and dividends) would complain about someone else getting a break under SOH — don’t you think? (Note: I’d add an emoticon here if I weren’t technologically challenged.)

    Again, tinkering with percentages and portability may solve some perceived problems — but it will carry with it all sorts of unintended consequences. The right answer is to eliminate the unfair tax and substitute some other revenue stream.

    If we want services and infrastructure, we have to pay for them. So, I’m not arguing for elimination or even reduction of taxes. What I am arguing is that taxes be fair and that they be indexed against a person’s ability to pay — not against some arbitrary number like “property value” which is totally irrelevant and has nothing to do with anyone’s ability to pay. Remember, you too will join the ranks of the “fixed income set” at some point and those percentages you talk about will assume a really significant new importance in your life.

    I thought I’d never say this after living all over the place and paying all sorts of taxes — but I would EVEN vote for an income tax in a heartbeat IF it allowed us to get rid of all property taxes. Why? Because the income tax is at least indexed to the amount of money that individuals have coming in (therefore tied to the ability to pay. There are other options. But the only property tax argument we ought to be having is how best to eliminate them entirely and how fast we can do it.

  13. ” I still maintain that the real answer is a complete revamp of how the state supports itself with revenue ”

    True. I think a more diverse taxation methods would make us less vulnerable to the vagaries of the marketplace, too. A little dab of this and a little dab of that sounds more sustainable than collecting all the eggs from one nest.

  14. Billy,

    I’m glad that someone appreciates the forced contribution to artificially low Lakeland property tax rates exacted from all of us outside the city limits unfortunate enough to be at the mercy of the City Commission’s feckless continuing decisions to treat customers unfairly. They don’t even say thanks after saying “BOHICA.” We just just “donate” the equivalent of the cost of LPD to you guys every year out of the goodness of our hearts (and the gun that Gow how holds to our heads).

    It is a bit ironic that someone who benefits from others paying a share of his taxes (a Lakeland resident who benefits from out-of-city Lakeland Utility customers paying unwarranted surcharges and dividends) would complain about someone else getting a break under SOH — don’t you think? (Note: I’d add an emoticon here if I weren’t technologically challenged.)

    Again, tinkering with percentages and portability may solve some perceived problems — but it will carry with it all sorts of unintended consequences. The right answer is to eliminate the unfair tax and substitute some other revenue stream.

    If we want services and infrastructure, we have to pay for them. So, I’m not arguing for elimination or even reduction of taxes. What I am arguing is that taxes be fair and that they be indexed against a person’s ability to pay — not against some arbitrary number like “property value” which is totally irrelevant and has nothing to do with anyone’s ability to pay. Remember, you too will join the ranks of the “fixed income set” at some point and those percentages you talk about will assume a really significant new importance in your life.

    I thought I’d never say this after living all over the place and paying all sorts of taxes — but I would EVEN vote for an income tax in a heartbeat IF it allowed us to get rid of all property taxes. Why? Because the income tax is at least indexed to the amount of money that individuals have coming in (therefore tied to the ability to pay. There are other options. But the only property tax argument we ought to be having is how best to eliminate them entirely and how fast we can do it.

  15. ” Remember, you too will join the ranks of the “fixed income set” at some point and those percentages you talk about will assume a really significant new importance in your life”

    I’ve never been able to figure out what the heck “fixed income” even means. Like most everyone’s income isn’t “fixed” by someone or something?

  16. ” Remember, you too will join the ranks of the “fixed income set” at some point and those percentages you talk about will assume a really significant new importance in your life”

    I’ve never been able to figure out what the heck “fixed income” even means. Like most everyone’s income isn’t “fixed” by someone or something?

  17. In this context, I mean the point most of us reach when our income has no further potential for real growth. There are no more “new” job opportunities; no more raises in the future; etc. We’ve gotten as far as we’re going to get. And, that point is generally substantially less than we lived on at peak earnings.

    So, except for whatever small factor may be built into social security or your retirement plan (if you’re among those lucky to still have one) there’s nothing to help cope with that nasty cost of living increase that we all see at the grocery store, the gas station, and, yes, in property taxes.

    The numbers are different for all of us. But, except for the very wealthy, reaching that “fixed income” point is a very real milestone with very real consequences. So a property tax (that’s arbitrary to start with) becomes more cruel each year that it increases – whether by 3% or some other number.

    We have some control over the sales tax bite by how we choose to spend — and on what. The total hit is at least loosely related to income (except again — for the very wealthy — and, perhaps, the very poor). The same case applies to the income tax. Alone, the property tax bite has no relationship to your use of resources, fair share of maintaining the community, or ability to pay. And, once you hit the “fixed income point,” you simply have to reduce your standard of living to pay every increase — or forfeit your homestead. That’s become the real American Dream for way too many of our people.

    I’d be remiss if I didn’t point out that SOH is the least unfair part of the property tax code in Florida. The ABUSES of the Agriculture/Greenbelt designations likely rob the treasury of far more dollars every year. But of course we can’t ask the developers to pay their real fair share of property taxes — we don’t ask them to pay their fair share of any other costs.

    So again, our focus ought to be revamping the way we fund state and local government — starting with complete elimination of the 18th century property tax system.

  18. In this context, I mean the point most of us reach when our income has no further potential for real growth. There are no more “new” job opportunities; no more raises in the future; etc. We’ve gotten as far as we’re going to get. And, that point is generally substantially less than we lived on at peak earnings.

    So, except for whatever small factor may be built into social security or your retirement plan (if you’re among those lucky to still have one) there’s nothing to help cope with that nasty cost of living increase that we all see at the grocery store, the gas station, and, yes, in property taxes.

    The numbers are different for all of us. But, except for the very wealthy, reaching that “fixed income” point is a very real milestone with very real consequences. So a property tax (that’s arbitrary to start with) becomes more cruel each year that it increases – whether by 3% or some other number.

    We have some control over the sales tax bite by how we choose to spend — and on what. The total hit is at least loosely related to income (except again — for the very wealthy — and, perhaps, the very poor). The same case applies to the income tax. Alone, the property tax bite has no relationship to your use of resources, fair share of maintaining the community, or ability to pay. And, once you hit the “fixed income point,” you simply have to reduce your standard of living to pay every increase — or forfeit your homestead. That’s become the real American Dream for way too many of our people.

    I’d be remiss if I didn’t point out that SOH is the least unfair part of the property tax code in Florida. The ABUSES of the Agriculture/Greenbelt designations likely rob the treasury of far more dollars every year. But of course we can’t ask the developers to pay their real fair share of property taxes — we don’t ask them to pay their fair share of any other costs.

    So again, our focus ought to be revamping the way we fund state and local government — starting with complete elimination of the 18th century property tax system.

  19. “In this context, I mean the point most of us reach when our income has no further potential for real growth. There are no more “new” job opportunities; no more raises in the future; etc. We’ve gotten as far as we’re going to get. And, that point is generally substantially less than we lived on at peak earnings”

    Yes, but those of us that are older generally have fewer mouths to feed and clothe, paid off mortgages, less expensive healthcare insurance, cheaper auto insurance and other privileges of just being around a long time. Not to mention the most likely to benefit the most from SOH. I just got my TRIM notice the other day and it was less than last year which was less than the year before. Property taxes pale in comparison to the cost of my homeowner’s insurance. I think Floridians have much bigger fish to fry than worrying about the cost of local government.

  20. “In this context, I mean the point most of us reach when our income has no further potential for real growth. There are no more “new” job opportunities; no more raises in the future; etc. We’ve gotten as far as we’re going to get. And, that point is generally substantially less than we lived on at peak earnings”

    Yes, but those of us that are older generally have fewer mouths to feed and clothe, paid off mortgages, less expensive healthcare insurance, cheaper auto insurance and other privileges of just being around a long time. Not to mention the most likely to benefit the most from SOH. I just got my TRIM notice the other day and it was less than last year which was less than the year before. Property taxes pale in comparison to the cost of my homeowner’s insurance. I think Floridians have much bigger fish to fry than worrying about the cost of local government.

  21. “I think Floridians have much bigger fish to fry than worrying about the cost of local government.”

    I won’t disagree that we’re paying way too much for insurance (of all kinds) as well as lots of other things. Nor will I argue that the “cost of local of gov’t” is necessarily out of line (though there is lots of waste in some local gov’ts).

    My only point was that Billy’s focus on SOH is not the best or fairest way to solve the perceived problem of unequal taxation. Property tax is an 18th century convention that has no place in the 21st century world. There are better and more equitable ways to fund government. That’s my point.

  22. “I think Floridians have much bigger fish to fry than worrying about the cost of local government.”

    I won’t disagree that we’re paying way too much for insurance (of all kinds) as well as lots of other things. Nor will I argue that the “cost of local of gov’t” is necessarily out of line (though there is lots of waste in some local gov’ts).

    My only point was that Billy’s focus on SOH is not the best or fairest way to solve the perceived problem of unequal taxation. Property tax is an 18th century convention that has no place in the 21st century world. There are better and more equitable ways to fund government. That’s my point.

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