Friday, April 24, 2009

Fire Tax Rate

Fire tax rate — in dollars per thousand dollars of market value — plays a central role in understanding fire taxes. If you understand this key concept, you should know how to answer each of the following questions:
  1. Owners of taxable property in the Fairview Fire District pay a lot in fire taxes. What does “a lot” really mean?
  2. Our fire taxes are higher than in any other fire district in Dutchess County. What does “fire taxes are higher” really mean?
  3. It has been said that Fairview's fire taxes may be the highest in New York State. At least one other fire district has made the same claim. How can we tell which district is right?
  4. Properties in the Hyde Park and Poughkeepsie portions of the Fairview Fire District are taxed equitably in 2009. What does “taxed equitably” mean here?
  5. A few months ago, Dutchess County Executive Bill Steinhaus announced that he would not increase (County) property taxes. What did he really mean by “not increase property taxes”? Did he mean that property owners would pay no more tax dollars than before?
  6. Fairview fire taxes are said to have been increasing dramatically in recent years. In what sense is this true? In what sense is this not true?
The question that is central to all the above questions is, “How can we measure fire taxes in a way that lets us fairly and objectively compare fire taxes across different jurisdictions and/or different times?” Answer: Fire tax rate, as measured in dollars per thousand dollars of market value.

According to New York State real property tax law, fire taxes and other ad valorem (according to value) property taxes are proportional to the market value of the property. The fire tax rate in dollars per thousand dollars of market value is the proportionality constant. In other words, a property's fire tax in dollars is equal to the property's market value multiplied by the fire tax rate. This is considered a fair way of apportioning fire taxes among properties, because each property owner pays according to his property's value. For example, if property A has twice the market value of property B, then property A pays twice the tax of property B.

So, is this fire tax rate the number appearing on the property tax bill? Unfortunately, no. Tax bills show fire tax rate measured in dollars per thousand dollars of assessed value, not market value. The concepts of assessed value and equalization rate have been used historically to record tax data, but they play no role in understanding any of the above questions. Indeed, they have the opposite effect, and are the source of much confusion. Equalization rate is a fudge factor used to convert market value to assessed value. Similarly, the equalization rate converts fire tax rate in dollars per thousand dollars of assessed value to fire tax rate in dollars per thousand dollars of market value. This fudge factor and the assessed value have no intrinsic meaning, and only confound any attempt to analyze the above questions. That's why it's necessary to convert all data from assessed value units to market value units before any meaningful comparisons can be made. Only if the equalization rate is 100 percent (which New York State is encouraging all towns to adopt), does assessed value equal market value.

Here's how the concept of fire tax rate — as measured in dollars per thousand dollars of market value — can be used to make sense of the above questions:
  1. “a lot” means a high fire tax rate.
  2. “fire taxes are higher” means that the fire tax rate is higher.
  3. Compare the fire tax rates of the two districts.
  4. “taxed equitably” means that the fire tax rates are equal.
  5. By “not increase property taxes”, Steinhaus meant that he would not increase the property tax rate. Property owners would still pay more taxes than in the previous year if the market values of their properties increased from the previous year.
  6. Fairview fire taxes have been increasing dramatically in recent years only in the sense that the number of tax dollars paid by each property owner has been increasing. However, this increase is due entirely to increases in property market values, which have doubled in this decade. Fairview's fire tax rate — which gives a fair measure of the size of the taxes — has not increased at all this decade (except for a small increase in 2008). In fact, the trend this decade has actually been slightly downward.
This last answer should not be taken to mean that Fairview's fire taxes are not high. On the contrary, it should be taken to mean that they've been high for a long time. To illustrate, note the trend of Fairview's market value:

By comparison, Fairview's fire tax rate is trending downward:

Thus, rather than complaining that Fairview fire taxes are increasing, it may be more accurate to congratulate yourself that your property value is increasing.


The purpose of this post has been to explain the key role that fire tax rate in dollars per thousand dollars of market value (not assessed value) plays in understanding fire taxes. The Fairview Fire District is mentioned only because it's a familiar example. For additional discussion about fire tax rates, see pages 3—7 of Document #5 on my Fairview Fire Tax website. The above charts are from Document #7.

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