Tax Law 101

Note:   Some of the information on this website was current as of calendar year 2012, but some dates back to 2008 or earlier.  I no longer keep it up to date, but to my knowledge everything written here was accurate and current when I posted it.
 
This page documents what I learned about the basic laws that govern Ohio local tax issues.  It's factually correct to the best of my knowledge, but I'm not a lawyer.  My intent is to promote understanding and discussion of the basic concepts.
 
 
Tax Levy "Mills"

One mill = an annual tax of $1.00 per $1,000 of assessed property value.
Assessed property value = 35% of appraised property value, as determined by the county auditor.  (The auditor appraises all property at 100% of its market value every six years, and makes an interim update on the third year after each reappraisal.  The auditor sets your "assessed value" at 35% of that appraised market value).
 
So, for property with an appraised market value of $100,000, one mill equals $35 in annual taxes:
Appraised value: $100,000
x 0.35 = assessed value: $35,000
x $1 per $1000 assessed value = annual tax: $35

But, that annual tax liability is reduced by 10% for residential or agricultural property, and by an additional 2.5% for owner-occupied residential property:
Residential/agricultural property (Ohio Revised Code section 319.302): $35 x 0.90 = $31.50
Owner-occupied residential property (ORC 323.152): $35 x 0.875 = $30.63

ORC 323.152 also provides an additional homestead reduction for persons who are disabled or age 65 and older, but it's complicated. For purposes of this website, I use the owner-occupied residential property rate for tax calculations, so each mill of property tax = $30.63 in annual taxes per $100,000 appraised property value.


"Inside" vs. "Outside" Mills:  Article XII, Section 2 of the Ohio Constitution limits property taxes to one percent of value (ten mills) for all state and local purposes, but also allows additional taxes to be levied "outside of such limitation" when approved by voters.  Beavercreek's ten "inside mills" are allocated as follows:

Greene County: 2.5
Beavercreek School District: 5.6
Beavercreek Township: 0.5
Beavercreek City: 1.4
Total: 10.0 mills

All other property tax levies beyond those ten mills are "outside mills," and must be approved by voters.

Reduction of Outside Mills
In 1976, the Ohio legislature enacted House Bill 920, which requires the effective millage of voted property tax levies to be reduced in proportion to rising property values, to protect property owners from paying more taxes on a given levy than they originally approved.  The law was subsequently incorporated into the Ohio Constitution as Article XII, Section 2a(C)(2):

"With respect to each voted tax authorized to be levied by each taxing district, the amount of taxes imposed by such tax against all land and improvements thereon in each class shall be reduced in order that the amount charged for collection against all land and improvements in that class in the current year, exclusive of land and improvements not taxed by the district in both the preceding year and in the current year and those not taxed in that class in the preceding year, equals the amount charged for collection against such land and improvements in the preceding year."
 
The Ohio Revised Code, Section 319.301 contains the procedures for determining the tax reduction percentage, but also provides a partial exemption for school district levies.  Paragraph (E)(2) of that section prevents school levies from being reduced below "two percent of taxable value," or 20 mills.  Known as the "20 mill floor," that provision partially protects school districts from facing a fixed income while costs rise over time.  Voters could approve additional levies beyond those 20 mills, but the reductions would then apply again until the effective millage was gradually reduced back to a total of 20 mills.

In addition to the House Bill 920 reduction, the effective millages for emergency levies are also reduced in proportion to new development, so that the dollar amount collected remains the same even when the overall size of the tax base expands.  Effective millages for 
construction bonds are reduced as necessary to limit the amount collected to the principal and interest due on the construction bond.

A renewal levy extends the duration of a previously-approved levy, rather than letting it expire.  The effective millage continues to be reduced year after year as described above, so renewal levies do not generate more income for the taxing authority even if property values have risen or new development has expanded the tax base.

A replacement levy in effect resets the effective millage of a previously-approved levy to its original level.  If a levy was originally approved at 5.9 mills for example, but had been reduced to 4.0 mills over time, replacing it would set the millage back up to 5.9 and apply it to the new property values and the new size of the tax base.  After that, it would begin to be reduced again as described above.

The county auditor administers the reductions.  The following documents show the effect of those reductions over time, for Beavercreek levies:   You can look up the current effective tax rates for your property or any other property on the Greene County website.  Click on "Auditor - Real Estate Information," look up the property you want, and click on "Tax Dispersal/Levies."  For more information, contact the Greene County Auditor's Office.

 
Ohio state funding for public schools
Ohio's school funding system rests upon the principle that the state and local school districts should share the cost of public education.  The state determines the amount of its share using complex rules described in Ohio Revised Code section 3314.08.  The basic state formula is as follows:

    Formula Average Daily Membership
x
 Base Formula Amount Per Pupil
x  Cost of Doing Business Factor
=  Estimated total cost for a given school district
 
   Estimated total cost for a given school district
-  
Local contribution
= State funding for a given school district

Formula Average Daily Membership:  Student enrollment, with some weighting factors applied.  Students in regular classes each count as one.  Kindergarten students each count as one-half.  Special-needs students each count as more than one, by various degrees depending on the nature of their situation (see ORC 3317.013).
Base Formula Amount Per Pupil:  Each year the state determines a dollar figure to approximate the cost of an adequate education per student per year.  That base cost figure is the same for all school districts in Ohio.
Cost of Doing Business Factor:  Each year the state determines a multiplier for each county in Ohio, to approximate the extra cost of doing business in areas with higher costs of living.
Local Contribution:  The state's calculation of each community's ability to contribute to the total cost of public education in their school district.  The local contribution amount = (total assessed property value within the school district) x $0.023.

Phantom revenue:  The state's calculation of the local contribution amount assumes that as the total assessed property value in a community goes up, school district property tax revenues will also go up, so the state's share of the total cost can therefore go down.  But as outlined above, revenues from voted levies do not go up.  The state reduces its support by an amount of extra local tax revenue that taxpayers do not pay and school districts do not receive.  That problem is known as "phantom revenue."

Ohio Supreme Court ruling that the system is unconstitutional:   In "DeRolph vs. State of Ohio," a coalition of more than 500 local school districts sued the state, charging that the state's funding system was not "thorough and efficient" as required by Article VI, Section 2 of the Ohio Constitution. The case worked its way to the Ohio Supreme Court, which heard variations of the case four times between 1996 and 2002, with the Ohio Legislature attempting to fix the system in between each hearing.  The Court's final ruling reaffirmed its first ruling, finding that the system is still not thorough and efficient for a variety of reasons, including the following:
  • Insufficient funding for an adequate education
  • Insufficient funding for school building construction and repair
  • Insufficient funding for state-mandated programs
  • Too much reliance on local property taxes
  • Structural deficiencies, such as the phantom revenue problem
For information on the current status of the Legislature's efforts to comply with the Supreme Court's direction, contact Representative Kevin DeWine at district70@ohr.state.oh.us, or via mail at:
The Honorable Kevin DeWine
Ohio House of Representatives
77 South High Street
Columbus, Ohio 43215-6111

The school funding system and court case are more complex than I've outlined here.  See the following for additional information:


Home School Taxes City Taxes
Comments Letters to the Editor Tax Law 101
Dean Vinson
comment@beavercreektax.net