How Newton Sets its Tax Rate
An explanation for those looking for more by Proposition 2 1/2, property values and the related taxes.
The tax money collected in the city of Newton to fund municipal services and salaries is paid based on property value, according to the city assessor's office.
- Residential, commercial, industrial, and open space properties are all taxed at different rates, and the rates are adjusted annually.
- The two main tax classifications–residential and commercial–were taxed at $10.41 and $19.93 per thousand of assessed value in 2010. This means a home worth $500,000 would have been assessed $5,205 in taxes, and an office building worth $800,000 would have been assessed $15,944 in taxes.
When calculating taxes for a new year, the city looks at its tax rate as one sum, and starts by considering its prior year's tax rate. In 2010, Newton raised $233,388,825 in property taxes.
Prop 2 1/2
Newton, like all cities and towns in Massachusetts, is bound by Proposition 2 ½, a state law passed in 1980 that limits the total amount of taxes municipalities can demand.
Prop 2 ½ has two main provisions:
- Without special approval from voters, no city or town can tax more than 2 1/2 percent of the total assessed value of the town.
- No city or town can raise its total tax levy by more than 2 1/2 percent on existing property every year.
Therefore, in Newton, the city can only raise its tax levy on existing property by $5,834,721 in 2011.
The law's limits apply even when the city's overall property value increases.
- Therefore, if the city's overall property value increases by four percent, the city will be required to lower its tax rates to comply with Prop 2 ½.
- This limit applies to the overall tax rate, not to individual homeowners; on the individual level, if a home's assessed value is increased significantly, it will still be taxed at the city's overall rate, and the homeowner's taxes will rise significantly.
Any new growth in the town–-new buildings or expansions/renovations of existing buildings – are not considered when calculating the maximum increase in taxes allowed under Prop 2 ½. The city is allowed to tax that new growth an additional $2,501,206 in 2011.
The determination made at the annual tax rate hearing will be to set the city's residential tax rate based on a "shift" of the tax burden. Traditionally, taxes are assessed at a higher rate on commercial property to shift some burden off residential taxpayers, since those taxpayers make up the highest proportion of taxpayers. This shift is limited under state law, and is based on the proportion of commercial to residential property in the city.
In 2011, residential property will make up 89.53 percent of the city's value, and commercial property will make up 8.32 percent of the city's value, according to the assessor's office. Under a single tax rate, residential property owners would assume 89.53 percent of the city's tax burden.
State law allows aldermen to shift the tax rates so that commercial property holders pay up to 175 percent of the proportional burden they would pay based on the ratio of their property value to the city's total value. Under this shift, commercial property holders would pay 14.56 percent of the city's tax burden, and residential property holders would pay 81.68 percent of the city's tax burden. Those proportions are used to determine the individual tax rate.
For more information: the actual text of Prop 2 ½ can be found here on the state's website, a great primer can be found here at the Massachusetts Municipal Association's website; and the city assessor's 2011 tax classification report is posted on the city's website.