David Saks: June 2010

David Saks - Real Estate Broker - The Real Estate Mart of Tennessee, Inc. - 4040 North Watkins-Suite #4 - Memphis, Tennessee 38127 - Phone (901) 357-4663

Fleecing Homeowners One House At A Time : The Property Tax Caper


When the city or county, or both, decide to propose a new property tax hike for some reason, i.e., a new football stadium, street improvements, school board pay raises, safety and fire needs, pay raises for lazy government officials, etc., the hoi polloi will rant, rage, wail and grind teeth.

Well, ladies and gentleman, here's a smooth con game, and I mean a smooth con, that any crafty property tax assessor can maneuver, manipulate and scam old John Q. Public with that will fleece the wool from his breeches like a statue of liberty play on the gridiron.

It's called "Inflate the value of your house by any requested tax increase percentage and tap the increased equity for the additional tax revenue without ever increasing property taxes."

The good old city council won't even have to bring a property tax increase referendum to the bargaining table and won't have to face a posse comitatus from angry homeowners.

And at the same time, homeowners get an increase in the value of their properties, additional equity, and a cool government endorsement of appraised value that they can take to the bank, or their loan officer, and cash in for valuable cash and prizes.

Ain't that sweet ?bogus

How is this done, you ask ?

Here's an example of how this con game might work :

Let's say your pretty little pad is worth 200 thousand dollars by today's standards and the property tax base is 4.04 dollars per 100 dollars of the assessed value of the home.

The assessed value of the home is 25 percent of the county appraised value.

A healthy 50,000 of the appraised value is the assessed value to be tapped for property tax revenue based on 25 percent of the appraised value of a 200 thousand dollar home.

The school board says, "Hey, we need gourmet lunches in the city schools and we need x million bucks for the new gourmet lunches, so we want property taxes to be increased by 57 mills, or 57 cents per 100 dollars of assessed value, added to the already existing rate of 4.04, which will increase the new tax rate 4.61 bucks per 100 dollars of assessed value.

If your already being taxed 4.04 per 100 bucks of assessed value, multiply 500 (500x100=50k) one hundred dollar increments times 4.04 to see that your taxes are 2,020.00 for the tax year. You can also multiply .0404 times 50 thousand to get the same results.

Now let's add 57 cents or .57 to the formula and boost the tax rate to 4.61 per year. Now multiply the same 500 one hundred dollar increments by this number to see that the new property taxes would amount to a whopping $2305 dollars or $285 dollars a year in additional property tax assessment at the exisiting property valuation of 25% of 200k. That's an additional 285 bucks per 50,000 of assessed value that the school board gets for the gourmet lunches.

Well, if the good old school board wants to skirt the issue of higher property taxes and wailing and moaning of the homeowners they might try suggesting this scheme behind closed doors :

Let's increase the value of the 200 thousand dollar home with the help of the assessor of property.

The homeowner gets more equity,the school board get more tax money for the gourmet lunches and higher salaries, and city hall gets a reprieve from angry owners fighting higher property taxes.


Here's how the the dirty little game might pan out in all of it's glory :

Divide the required .57 tax base by 4 which represents the 4 increments of 50k of assessed value of the market value of 200k, or .57 divided by 4 which equals .1425.

Next multiply the assessed value of 50k times 1.1425 and we have a new assessed value of 57125.

Now lets multiply 57125 times 4 to get the new market value of 228500.

Let's proof our math and find that the assessed value is 25% or .25 of the market value so multiply .25 times 228500 and we now have 57125 of assessed value which is the amount which is actually taxed.

If the property tax rate of .0404 mills or 4.04 dollars per 100 dollars of assessed value is the current rate multiply 4.04 times 571.25, or 571.25 one hundred dollar increments of the assessed value, to see that the new tax is $2307.85 which gets pretty close to the .57 tax rate increase proposed by the school board.

Again, you can see that at 500 times 4.04 dollars or 50 thousand times .0404 millage rate the tax would amount to 2020 bucks for the assessment calendar.

If we add .57 to the formula and bump the tax rate up to 4.61 per 100 bucks of assessed value you can multiply 500 times 4.61 to get the higher taxes of $2305.

Now you can see, the .57 cent hike was slipped in without a whisper and most homeowners think their homes are worth lots more money; $28,500 more at that !

How's that for ingenuity, Mr. Madoff ?

The property assessor inflates the value of the home (artificially or otherwise), the property taxes aren't increased by even a millionth and stay the same, the school board gets it's money for the gourmet lunches and higher salaries, the city council doesn't have to face angry homeowners opposing a property tax increase, the homeowner believes that they benefit from the increased value of their property and the increased equity, and will further believe that they can refinance their home now with the additional equity, and once again the economy begins to spiral out of control, crashing and burning, and millions of homes end up in foreclosure because of this nasty trick when it becomes pandemic.

So here it is for all of you math wizards to goof around with :

.57 required rate hike
.25 (represents .25 or 25% of assessed value)
0.1425 which is 25% of the required tax hike rate

50000 assessed value
57125 which is the new assessed rate
divided by
.25 or 25% of the market value
228500 new market value
0.25 or 25% to proof our total
57125 new assessed value
divided by
100 dollar increments of assessed value
571.25 total 100 dollar increments
4.04 dollars per one hundred dollars of assessed value
2307.85 property taxes due

What makes a swindle like this even creepier is when it's dumped on property owners during a reassessment calendar year and endorsed by government officials who really don't know what's actually taking place.

You see how it's easier to raise the value of the property and tap the increased value for more tax revenue rather than bring another property tax debate to the table.

Do you suspect something like this might be going on in your town, county or state ?

Tell us about it !!!

David Saks

Time&Temp Memphis

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Comment balloon 16 commentsDavid Saks • June 07 2010 11:38AM
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