While the term "reduction factor" is commonly used in reference to an Ohio law, the underlying concept of controlling property taxes is common across the country. Ohio's reduction factor limits the ability of local governments to benefit from growing real estate values. Other states use other means to limit the growth of property taxes as well as to blunt their impacts.
Ohio Reduction Factors
The reduction factor in Ohio dates back to a law passed in 1976. That law froze property tax assessed values on existing properties at that year's level. Every year, the property assessor applies a tax reduction factor to reduce the taxes due on the new market values to produce the same revenue as was received in the previous year. The only way for communities to increase taxes is to build more taxable property, raise emergency levies or taxes to repay debt or have the voters approve a property tax increase.
Calculating Ohio Property Tax
Given the reduction factor, calculating Ohio property taxes is a complicated multi-step process. Properties are assessed at 35 percent of their market value. The assessed value is multiplied by the millage, or tax, rate, and then it's reduced by the reduction factor and by credits. Property owners get an additional 10 percent rollback, then another 2.5 percent rollback reduction off that rolled-back tax rate. After that is calculated, Ohio's homestead reduction exemption for some homeowners is subtracted. Finally, any special assessments are added to find the property's total tax for the year.
Limits on Assessment Growth
One reduction factor that some states use is to restrict the rate at which assessed values can grow. In California, for instance, property taxes go up at a rate of 2 percent per year or the rate of actual growth in the property's value, whichever is less. Usually, the only time that the property's taxable value returns to market level is when it changes hands. Oklahoma only reassesses once every four years, meaning that if your property's value increases, you get a few years before you have to pay higher taxes on it.
Reducing Assessed Values
Some states also reduce property tax values or property tax bills. One common exemption is the homestead exemption for personal residences that qualify for it. In Georgia, homesteads get a $2,000 exemption off their value, which is assessed at 40 percent of the property's market value to begin with. Senior citizens, disabled veterans or family members of deceased service members, peace officers or firefighters may qualify for additional reductions. Maine reduces your assessed value for property tax purposes by $10,000 if you have a homestead. Some states will reduce the proportional value of your property that comes from an installed solar-power system down to zero.
- Lucas County: Real Estate Tax Information
- California Tax Data: What Is Proposition 13?
- The Tax Foundation: State Provisions for Property Reassessment
- Georgia Department of Revenue: Property Tax Guide for the Georgia Taxpayer -- Property Tax Exemptions and Deferrals
- Pine Tree Legal Assistance: The Maine Homestead Exemption -- Tax Relief for Maine Homeowners
- Solar Energy Industries Association: Solar Tax Exemptions
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