Thursday, September 19, 2013

Where My Property Taxes Go

As we paid off our home this summer, we are now paying property taxes directly for the first time next month, or so says the bill that came in the mail last week. Along with the preposterously low bill ($762 for one year), the good people from the City of Scottsdale provide a breakdown showing where our tax dollars go. And along with each individual charge, they also included a phone number to call if you wanted to ask questions about how that portion of your property tax was spent. So, naturally, I called around, if only to get more grist for the mill here at the blog.

I was completely amazed at how little we have to pay to get world class amenities in our little city. Below is a full outline of what we pay, and where those dollars go (rounded to the nearest dollar). All the information comes from the pleasant & helpful county & city workers who picked up the phone when I called, and who were probably a little surprised that some random taxpayer wanted to ask about every single line item on his tax bill.

Tax Districts


County Primary Tax: $116. These funds are used to run the county government, including courts & jails.

State Equalization Tax: $46. This tax is used to run state government, including the education department.

City of Scottsdale: $48. These go into the city's general fund, to pay general expenses for police, fire, parks, libraries, etc. This is easily my favorite tax, as I use these amenities the most often.

State Aid Credit: [-$125]. Apparently the three items above are just too much for the average homeowner to pay, so instead of paying a total of $211, we only have to pay $89. Thanks, state legislators!

School Districts

Scottsdale Unified District: $304. By far the largest portion of our our property tax goes to educate our city's youth. Having no children of my own, I suppose I could view this negatively. But, hey, it's still a good feeling to know that the lion's share of our taxes are going to pay teachers, maintain schools, and, sure, educate the neighborhood kids.

Community College District: $117. Now we're talking. I love community college, and not just because of the excellent show on NBC. I can study anything from Economics to Equine Science at SCC, all for a fairly reasonable $81 per credit.

Secondary Tax Amounts

Flood control: $13. These thirteen dollars go towards the maintenance of local damns & conduits.

Central Arizona Water Conservation: $13. This is a particularly important issue in our state; it seems like money well spent.

Fire: $1. One flipping dollar. Maybe the most curiously low amount on the entire list, this dollar goes towards county firefighting that's above and beyond that provided by the city.

Library: $4. Just as with the fire tax above, this library tax is assessed county wide and fund libraries in adjacent cities that I often frequent (Tempe, Phoenix, Mesa).

Health Care: $18. This money funds the county hospital, as voters chose to keep it open. Sounds like a good deal to me.

Unified School Overrides: $46. A special tax was voted in by citizens, to both update schools & build new schools.

Various Bonds: $156. This amount covers City Bonds ($69), Unified School Bonds ($65), and Community College Bonds ($22).  These also are voted on by citizens; if an override doesn't pass then bonds can be used to continue the work originally intended to be covered by an override. (Note, I don't really understand what this means, but apparently we chose this tax, so that's nice.)

East Valley Institute of Tech: $5. I didn't even know this school existed, but when I look at their website, I feel really glad that it does exist. Cool stuff for the kids in the valley who now might be better prepared for jobs in IT fields.

Total Annual Property Tax Bill: $762.

After talking to a particularly nice lady at the City of Scottsdale and finding our city's budget online, I learned that property taxes only make up a small percent of the total revenue for the city: about 11% total. The rest of their budget comes from sales tax (42%), shared state revenue (21%, coming from state sales & income tax), charges for services (17%), franchise fees & in lieu (5%), & transfers in (4%). (To see a cool pie chart of the figures, go to page 41 of the budget report.) The state, city, & county sales tax seems to play a major role in our public funding, while property taxes represent a relatively small portion of the revenue. That explains why our sales tax is relatively high in Scottsdale (7.95%) while my property taxes are so dang low.

Conclusions
First and foremost, I think the basket of services we get for our tax dollars here are a preposterous bargain. Even though I pay a good bit more than the $762 in total tax when I consider my sales taxes & income tax, compared to the beautiful parks, libraries, top notch police, fire service, & schools, it's still a great deal no matter how I slice it.

The reason the bargain is so good is that governments offer shared services & amenities. When my neighbors & I pool just a small fraction of our resources for a park, library, or fire protection, we get to share something that is thousands of times better than I could possibly purchase on my own. Because these are all things we all only use occasionally, a huge number of us can share that single park, book, & fire truck. It's also easier for us to right-size the resources for our community; adding a single new library or park for the community is a lot easier than if I try to fill a new bookcase or add 20 more square feet to my back yard. Shared public amenities provide a better basket of services than if I'd tried to make such purchases independently. And it makes me wonder what other kinds of purchases would work better in a communal set up.

The second conclusion I find is that the type of taxation in my community just happens to match up well with our frugal lifestyle. Because we purchase so little, the government's strategy to gain most of its revenue from sales tax misses a big portion of our income. A state or city that decided to get its funding from high property taxes (combined with lower sales taxes) would fit a typical consumer much better, but would pose a poor deal for our family. And because there is no state sales tax on groceries (& the city sales tax is on groceries is particularly low: something close to 1%), a lot of our budget dollars avoid such taxation altogether.

It's not like we picked Arizona because of its tax setup, but going forward when we are selecting a new place to live, we'll definitely consider the tax strategy the local government uses. As long as we are living a lifestyle that involves home-ownership but relatively few material purchases, I think we'll try to lean towards cities with low property taxes coupled with a higher sales tax. After all, even if taxation is a relatively good bargain for us as citizens, there's no reason to pay more than is necessary.

As always, thanks for stopping by and reading. Have a great weekend!

38 comments:

  1. Interesting, more interesting that everyone you spoke to was pleasant and helpful. That doesn't happen here very often. My boyfriend called once about a civil service test and they didn't even let him finish his question before answering incorrectly and hanging up.

    I just did a quick search online and can't find anything about property taxes in our town, but that's not surprising. I do know property taxes are insane here along with sales tax; overall it's just not an inexpensive place to live! Your plan sounds pretty good - something I'd be interested in as well.

    ReplyDelete
    Replies
    1. I may have just gotten lucky when I called. I'm also overly nice on the phone, that often rubs off on the person on the others side.

      Where in the US are you located again?

      Delete
  2. $81 per credit? Now THAT's a deal! It is pretty cool to see all these things broken down like this. Having never gotten a property tax bill, I have no idea if they provide this kind of information as freely up here in MA. And I also really like your conclusion about factoring taxes in when considering where to live. It's a potentially huge cost, or on the flip side a huge savings, that people rarely think about. Good stuff.

    ReplyDelete
    Replies
    1. Thanks, Matt! It's odd, but because I paid even less than that per credit the last time I took a community college class back in California, I didn't think $81 per credit was an amazing deal. Perspective's weird like that.

      Delete
  3. I agree with EM. Every time I've made a call to a city office I didn't get to speak to anyone pleasant. Property taxes here are pretty high. Which I find kind of weird seeing as I live in rural Ohio. My ex husband and I paid $1500 a year for a fairly small house in a very rural area. I've never researched to see where those property taxes go.

    ReplyDelete
    Replies
    1. Sorry to hear about your experiences with the city employees! I'm a former government employee so maybe I have the blinders on.

      $1500 a year still doesn't sound too bad, but in the context of a rural area they do sound high. Maybe the tradeoff for services in your particular area doesn't work out as well.

      Delete
  4. I have to say a big AMEN on feeling that the services we receive for our tax dollars (at least on the local level) are an enormous bargain. I am child-free by choice but still feel just fine about paying for public education. The way I see it I'm paying to live in an educated society. Just imagine what the world would look like if only the rich could learn to read.

    ReplyDelete
    Replies
    1. Good point! I often take things like universal education (as well as a lot of the other things our tax dollars provide) for granted. It wasn't all that long ago that American children only went to school when it could be paid for, and only until 5th or 8th grade, when it was off to the workforce...

      Delete
  5. Very nice to know where your tax money goes and most important, I think it's very nice to see that most of that goes towards education. In Romania, if such a "where do your money go" would be sent to tax payers, probably 50% would say "in the pockets of your leaders" :))

    ReplyDelete
    Replies
    1. Hi C! I was hoping to get your perspective on this. I suppose that's something we'll have to look into if we decide to move to Europe for a year: I have no idea how our tax situation will work. I obviously am hoping that our income is going to only be taxed by one country/jurisdiction, but that may be a pipe dream.

      Delete
    2. AFAIK, the US is the only country in the world that requires its citizens to fill out tax papers (and, yes, get taxed) when legally registered abroad.

      Delete
    3. Hmmm, that's unfortunate. But luckily the tax burden isn't terrible, so hopefully we can mitigate the impact. If we were to proceed with working abroad, we'd probably enlist the services of a CPA to make sure we optimized our approach.

      Delete
  6. Love it! We did a similar post last fall with our property taxes - you can see how we compare in FL =)

    www.plantingourpennies.com/local-tax-time-property-taxes/

    Our overall property taxes on our house are about $1000 higher than yours, but we have the added benefits of lower sales taxes (and no tax on groceries - I can't believe that was approved in AZ!), and absolutely NO STATE INCOME TAX. Not having a state income tax saves us bundles of money.

    ReplyDelete
    Replies
    1. Hi Mrs. POP!

      Florida definitely has a great tax code for those in the frugal accumulation phase, as more of your income stays in your hands & is thus available to invest. I love the idea of no state income tax coupled with a low sales tax.

      Thanks for sharing that link: I'm going to go over and check out the differences. It sounds like a great place to live & play. Who knows, maybe the Mrs. will get a professor position in Florida someday!

      Delete
    2. It really does. I like to call it the "choose your own adventure" approach to taxation since the amount of taxes you pay are really only determined by what kind of life you want to lead. Big house, lotsa cars and boats - you pay a lot! Modest house and modest spending - you pay a little! =)

      Delete
    3. Choose your own adventure. That's rad.

      ...If you choose to pay fewer taxes and achieve wealth, turn to page 163...

      Delete
  7. Our property tax is high in NC, but not near as high as it was in Alaska. Alaska offsets lack of state income tax with higher property tax rates. We picked North Carolina because we wanted to live in a laid back, affordable town on the coast and this is where we found one. I love you've done this research. I think I'll have to do the same. We just got our bill last month....

    ReplyDelete
    Replies
    1. Hi Taynia,

      I'd definitely be interested in hearing what the taxes are like in North Carolina, as that's on our short list of states in the South that we're interested in. I'd never have thought that a red state like Alaska had high tax rates, but I suppose with no income tax they need to make their money somehow...

      What was living in Alaska like? It sounds so flipping cool to me.

      Delete
  8. I think it's awesome that you took the time to call about all of the line items in your tax bill. My property tax gets paid through my escrow account, I should really look at how much I'm spending and where it's going!

    ReplyDelete
    Replies
    1. Hi Lisa,

      You know, I never really looked into it while we were paying through escrow. But as soon as the bill came to me, all of a sudden I got interested in the details. Funny how that works.

      If you end up posting about your tax bill, I'd love to see how it compares. Have a good weekend. :)

      Delete
  9. Love the breakdown and the fact that your curiosity drove you to getting even more detailed background information. While I understand that while you carry a mortgage the bank needs your property taxes paid through escrow to protect their asset, it's always frustrated me. The vast majority of folks who pay their taxes in small increments, as with escrowed property taxes and income tax withholdings in your paycheck, never really feel the pain or pay attention like you have to what they are paying for, which results in unchecked abuse by lawmakers, especially at the federal level.

    You probably shouldn't move to Utah where our property taxes and sales taxes are both fairly high. 6.85% general sales tax, 3% for food. Our home value is about average and our property taxes were proposed at $3500 this year (nearly all to the monstrous school district with pretty poor benchmarks and overcrowded schools). We are appealing because they bumped our value up $35K in a single year while sales prices have actually been falling. This is a constant battle, we file appeals and win every year as do our neighbors. The commission should be fined each time for blatantly overvaluing properties in order to quietly raise taxes.

    Even if they adjust our valuation down, we will be paying around $2400 this year. It would be quite a bit higher, but we live on unincorporated county land, so no city taxes (or amenities, so I guess we still pay in the end for septic, private road maintenance, etc). Long rant finished...be even more grateful for your efficient local and state government :)

    ReplyDelete
    Replies
    1. Oh, man. That sounds like a terrible ordeal with property taxes...which borders on corruption. I suppose I shouldn't be terribly surprised that an unchecked local government might try to quietly line the coffers, but my optimistic (naive?) worldview makes me want to believe it's an oversight rather than a deliberate tactic.

      $3500 (or even $2400) is definitely not chump change. Thanks for the reminder to be grateful. It's always a good response!

      Delete
  10. Wow, I doubt they would give us a breakdown here. I think I'd need to file a FOIL request or something...hmmm. Property taxes are so low out there. In NYC, the property taxes are reasonable compared to Westchester and Long Island where it is over $10,000. However, we do have an income tax in NYC...so we have federal income tax, State Income tax and NYC income tax...and property tax! Oh and sales tax.

    ReplyDelete
    Replies
    1. $10k! I guess when property values are really high, a number like that makes sense. Still, I don't know if I'll ever stop feeling sticker shock when I see the costs in the NYC area. Still, like I always say, you at least get to live in the greatest city in America. Maybe that's a really good deal when it's all said and done.

      Delete
  11. Nice post. A large part of our property tax goes to education, which we are happy to fund. The local school taxes are listed on our tax bill, but money to the state college and university systems are not. Our total property tax last year was $5,978 for a 1,370 sq. ft. house on a 6,000 sq. ft. lot.

    ReplyDelete
    Replies
    1. Thanks for the data point and comment, Bryce. It seems that property taxes have a pretty wide range, but in general most of us seem content with the deal that we get from the government.

      Delete
  12. $1 for as additional services for the fire department. That seems incredibly reasonable given the fact that they help prevent everything you own from burning to the ground.

    ReplyDelete
    Replies
    1. Yeah, I laughed out loud when I saw that amount. It's ridiculously cheap when, as you noted, you consider the value of the things they're protecting (out homes & our lives).

      Delete
  13. $762 is amazingly low; I seriously get more than $762 of value out of my public library each year! Our taxes are only about $1,000 more than yours and even at that level I consider it a huge bargain.

    Like Andrew mentioned above, Long Island taxes (where we're from originally) are easily $10,000 - $15,000 on a comparable house, and that's money just thrown away. We were so happy to come to VA and only pay $2k.

    I love your "second conclusion" that it matches so well to your lifestyle. There's no question that higher sales taxes and/or a possibly eventual VAT tax will benefit people like us.

    ReplyDelete
    Replies
    1. Thanks for stopping by the blog, Brad. I agree that our property taxes are ridiculously low and would still represent a good deal if they were many times higher. I can only imagine what it's like in the NY area to pay that much for property. I think I might just rent (though maybe the costs would still be absorbed as a renter).

      I think there may be room for a future post on tax strategies & selecting a place for an early retirement. I'd love it if there were a site you could type in your numbers (income, dividends, spending that's subject to sales tax, etc.) and figure out your total tax liability.

      Delete
  14. That's cool to see it broken down like that. I think LA has incredibly high property taxes but I don't know exactly since I rent.

    ReplyDelete
    Replies
    1. Some days I really miss being a renter. I think it gets a bad rap from a cost perspective, and it's my firm belief that renting makes you a more interesting person. Homeowners often talk about crap topics at house parties: remodeling, home maintenance, mortgages, blah! Renters talk about cool stuff going on in their lives: fun projects, books, trips. I think there's something about owning that makes life more stable and, inevitably, less interesting at a cocktail party.

      Delete
  15. My grandmother's house in central NJ, before she sold it, had property tax bill of $600 a month!!! She did have a big lot and was in a good school district but come on! The problem with NJ is they have relatively low income taxes and don't have a ton of industry outside of the oil refineries so the burden to raise income for the state really falls unfairly on the homeowner. NYC actually has lower property taxes than NJ and CT, surprisingly. I found out recently that CT has some of the highest overall taxes in the country... NY also has no sales tax on food or medicine and in NYC, no sales tax on clothing under $125 which is really nice for folks on limited budgets.

    I'm all for paying for my social services but I am not a huge fan of high property taxes, especially for folks on fixed incomes. My grandmother was lucky with her having a pension plus SSI, but not all folks could have continued paying such a high bill. I'd love to see a sort of social service net where retirees who had limited sources of income could possibly qualify for property tax rate freezes. But I guess that could get abused easily so who knows.

    ReplyDelete
    Replies
    1. $600 a month? That is bananas.

      I think basing property taxes on the value of the property is a flawed system. A spike in home values doesn't put any extra money into the pocket of the homeowner until she sells: when property taxes go up & stay up for years, they effectively push lower income residents out of neighborhoods.

      A fairer system, if taxes must be based on property values, would only be levied upon the sale of the house. A freeze like you're talking about is the norm in California now, but I'm not sure if other states do the same thing.

      I wouldn't have guessed that NYC had lower property tax rates, though with the high value of property the bottom line dollar amount owed might still be pretty high (?). Though I love the idea of not taxing food, medicine, or clothing: that's a brilliant idea. Necessities like that, which need to be purchased regularly regardless of your income, ought not be taxed.

      Delete
  16. Great writing and thank you for sharing it with us I really like that …

    ReplyDelete
    Replies
    1. Sharon, it is a real honor to have you here at the blog. Thank you so much for your comment - it made my day. God bless you for the work you do with children.

      Delete
  17. We have to go down into details to make sure that we can develop a more appropriate strategy for our property investment. We have to dominate in the property investment market to make sure that our future is well handled. Show our strength and be able to market our business well to have a better future.

    Real Estate Investment

    ReplyDelete
  18. if you need spy application how can i see someones text messages and you will read useful information about tracking

    ReplyDelete