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Property Taxes and Home Values

Written by Dr. Isabel Warner
Published on January 19, 2024
Research Highlights

Property taxes are determined by a percentage of the home’s market value.

States can institute caps at several points to limit the overall increases in property taxes.

In MO, the Hancock amendment typically results in property tax rate decreases, but this does not translate to lower property taxes.

Property taxes are determined using a percentage of the home’s market value.  

In MO, as in most states, property taxes are calculated using the “assessed value” of a home. The assessed value is a percentage of the market value, or the dollar amount for which the house could reasonably be sold. Some states and localities set the assessment percentage as high as 100% of the market value (WA State Dpt of Revenue, 2022). In Missouri, assessment values are 19% of the home’s market value (MO State Tax Commission, 2023). The assessment value is then multiplied by the local tax rates levied by entities like school districts, fire protection services, and other local public services to determine the property taxes owed (Fig 1). Typically, most taxes go to the local school district (Galloway, 2022).

Homeowners may see large spikes in property taxes in one of three scenarios:

  • their local taxing entities significantly raise rates,
  • the state changes the percentage of the home value that can be taxed as the assessment value,
  • or the property’s market value is assessed at a significantly higher rate.

All scenarios are technically accountable to voters, except in Jackson County and St. Louis City where the property assessor is not an elected office (MO Constitution, VI§18(b)).

States use a variety of capping mechanisms to limit property tax increases.

States can impose restrictions on rate increases at any point in the process:

  • an assessment limit caps how much the assessment value can increase, regardless of the market value of the property;
  • a rate limit sets a cap on the increases a taxing entity or jurisdiction can impose;
  • a levy limit caps how much total property tax revenue a taxing entity or jurisdiction can collect, across all properties under its control (Fig 1).

These limits vary between states and can have significant impacts on the amount of property taxes collected (Supplementary Fig 1).

Capping the percentage of the market value that can be used to determine the assessed value, as discussed above, or decreasing the frequency of property assessments are other strategies for controlling property tax increases. In addition, states can create relief programs or exemptions for seniors, individuals with disabilities, and homeowners under an income or home value threshold. (TX Constitution, art. 8, §1-b(c)).

In some states, the cap on property taxes has significantly decreased school funding relative to inflation. To combat this, states have created a centralized education fund, which allocates collected revenue from income and sales taxes (LAUSD Superintendent, 2019). Because these funds are more variable than property taxes, education funding is less stable. In addition, the state typically imposes restrictions on use, for example that only a specific percentage can be allocated for salaries or building maintenance. In states with caps on assessment value increases, but not on local rates or levies, residents can opt to increase local taxes to fund schools. However, this creates funding disparities between affluent and impoverished areas that these initial caps were introduced to solve (Baker et al., 2024).

The Hancock amendment does not explicitly limit property taxes.

In Missouri, what is commonly known as the Hancock amendment stipulates that local governments must adjust their property tax rates to avoid windfall revenues resulting from increased home values (MO Constitution, X§18). This does not limit the property taxes homeowners pay but does cap the budget of local government. Local districts must calculate how much the assessed values of homes in their district will increase overall, and how much excess money would be raised by the previous year’s tax rate. If the revenue exceeds the previous year’s budget, the local tax rates are reduced.  and the calculation is based on the average across a district, homeowners whose property value increases are larger than the average will see their property taxes increase, despite paying a lower tax rate (Fig 1).

Kansas City Public School (KCPS) districts are the exception to the Hancock amendment and are not required to lower their rates to adjust for revenue increases as the result of increased property values (MO Constitution, X§11(g)). However, the districts cannot raise their rates to maintain revenue when property values decrease. This is the result of desegregation litigation that imposed a set tax rate for Kansas City schools. Voters can and have approved increases for other Kansas City districts, but KCPS has not increased its tax rate since it was set 25 years prior.

Figure 1. Property tax calculations for MO. The property value, determined by the county assessor, is variable, while the assessment rate (19%) is set in MO. By multiplying these values, the assessment value is determined. That value is then multiplied by local tax rates, due to the Hancock amendment, to determine the property taxes.

 

Supplementary Figure 1. Median property tax bills (blue) and median home sale prices (yellow) for each state and Washington D.C. The table depicts whether the states have set (yellow) assessment limits (percentage of the property’s value that can be taxed), rate limits (tax increases that can be set by the taxing entity), or levy limits (total amount the taxing entity can collect) and where they have not (blue).

 

References

Baker, B. D., et al. (2024). The Adequacy and Fairness of State School Finance Systems. V6. https://www.schoolfinancedata.org/wp-content/uploads/2024/01/SFID2024_annualreport.pdf

Galloway, N. (2022). Missouri State Auditor: 2022 Property Tax Rates. Report No. 2022-121. https://auditor.mo.gov/AuditReport/ViewReport?report=2022121&token=0268491580

Los Angeles Unified School District (LAUSD) Superintendent. (2019). 2019-2020 Superintendent’s Final Budget: How Education is Funded in California. https://www.lausd.org/cms/lib/CA01000043/Centricity/Domain/123/25_2019-20%20Superintendents%20Final%20Budget%20Online%20Combined_nopg.pdf

Missouri State Constitution. VI, Section 18(b). Provisions required in county charters – exceptions. https://www.revisor.mo.gov/main/OneSection.aspx?section=VI++++18(b)&bid=31948&constit=y

Missouri State Constitution. X, Section 11(g). Operating levy for Kansas City school district may be set by school board. https://revisor.mo.gov/main/OneSection.aspx?section=X++++11(g)&bid=32046&constit=y

Missouri State Constitution. X, Section 18. Limitations on taxes which may be imposed by general assembly – exclusions – refund of excess revenue – adjustments authorized. https://revisor.mo.gov/main/OneSection.aspx?section=X++++18&bid=32054&constit=y

Missouri State Tax Commission. (2023). State Tax Commission Definitions. https://stc.mo.gov/definitions/

Texas Constitution. Article 8, Section 1-b(c). https://tlc.texas.gov/docs/legref/TxConst.pdf

Washington State Department of Revenue. (2022). Personal Property Tax. https://dor.wa.gov/sites/default/files/2022-02/PersProp.pdf

 

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