Recently the Herald informed readers about the local purpose property tax rate results from the 2023 budget cycle. In three towns, Sea Isle, Cape May and Woodbine, the report showed that the local tax rate had not gone up.
Soon after the article was published, we heard from a reader in Cape May asking why her tax bill had gone up if the rate had not changed. To understand how this can happen, we have to look closely at the total tax bill.
Doing that may lead to some added confusion at the start because the major culprit in the increased tax bill in Cape May is the rise in the county tax, which comes in a year in which the county announced its tax rate went down by 2.5%. Here is how this seemingly anomalous situation can occur.
Components of the Tax Bill
The property tax bill is made up of several components. Each year the local municipal government sets its tax levy; the school districts, local and regional, set their tax rates, and the county adopts a tax levy as part of its budget process.
To explain the largest contributor to the increase in the Cape May property owner’s bill in 2023, we also need to understand the non-intuitive way in which the county tax levy is determined and allocated to the 16 municipalities. It has little to do with the county tax rate.
Although the county adopted a 2023 budget with a 2.5% drop in its overall tax rate, the tax levy, the actual amount to be collected from taxpayers, increased by $11.7 million, or 7.8%. With the levy up, there is more money that taxpayers have to pay.
In Cape May in 2023, the local purpose tax, the tax that pays for municipal government activities, saw no increase. It stayed flat at $0.361 per $100 of assessed property value.
The city did see an increase in its regional school tax, the tax that supports Lower Cape May Regional School District, which went from $0.257 to $0.269, an increase of 4.6%.
The county tax rate, including its library and open space components, increased from $.347 to $0.377. That represents a rise for the Cape May taxpayer of 8.6% in a year in which the county said its tax rate decreased by 2.5%.
To understand, one must look at the county tax levy, the dollar amount to be raised by taxes, rather than the tax rate.
The County Tax Rate
So how can the tax rate at the county level go down and still present certain taxpayers with a higher tax liability? What is the difference between the county tax rate and the actual tax that taxpayers in the 16 municipalities pay to the county?
When the county adopts a budget and publicly announces a tax rate, that is not the tax rate the county taxpayers can expect to pay.
In 2021, the difference from the lowest to the highest county district tax rate for each of the 16 municipalities was almost eight cents per $100 of assessed value. In 2022 that difference was seven cents. The county allocates its tax levy to each of the 16 municipalities based on a formula, with no two municipalities paying the same share of the county’s total levy.
The County Tax Levy
Although the county adopted a 2023 budget with a 2.5% drop in its overall tax rate, the tax levy, the actual amount to be collected from taxpayers, increased by $11.7 million, or 7.8%. With the levy up, there is more money that taxpayers have to pay.
How can the levy rise by almost $12 million while the overall rate drops by 2.5%?
The county tax levy can go up while the county tax rate goes down because of the rising property values.
It’s because the county does not calculate its tax on the basis of assessed value of property, the way that each of the separate towns do.
The county is able to calculate its levy based on rising land values across the municipalities. Towns like Cape May on the other hand must set their tax levy based on the assessed value of the property in the municipality.
Rapidly rising property values across the county since the onset of the pandemic mean that the base the county uses for taxation, the calculated “real” value of the properties of all municipalities combined, rises, and the ability of the county to increase its levy is present.
The county tax levy can go up while the county tax rate goes down because of the rising property values.
Once the county levy is set, as in the 2023 case with an almost $12 million increase, the issue becomes how that levy is apportioned to individual taxpayers. By now you probably have guessed that the allocation has nothing to do with the county tax rate.
The county uses a formula that is based on the value of real estate sales and the number of those sales over a defined period. Communities with sales value that exceeds that of other municipalities in the county will be given a large allotment of the county tax levy.
In Short
In short, your local purpose tax to run your town depends upon the assessed value of real estate in the town.
Your share of the county tax in that same town depends upon a calculation of the true, not assessed, value of the real estate. If your town has seen rapidly rising property values as evidenced in recent property sale transactions, you are going to get a larger share of the county tax levy regardless of what formally happened with the county tax rate.
Back to the Cape May Example
For the reader in Cape May who asked about the increase in her tax bill, the county tax allocation is the primary culprit, with a supporting role played by the regional school tax.
The overall tax rate increase, reflected in Cape May tax bills, was 4.3 cents per $100 of assessed value. The rise in the county levy allocated to Cape May accounted for 70% of that increase. Another 28% was caused by the regional school tax increase, and the final 2% was a minimal increase in the local school tax rate.
For the reader looking for why her tax bill went up in 2023, look first to the county. Through the magic of the tax system, the county’s tax rate declined by 2.5% and the county tax bill for Cape May taxpayers increased by 8.6%.
This same system applies to the Sea Isle City taxpayer who wrote us regarding her increased tax bill this year when Sea Isle had no increase in its local purpose tax. In Sea Isle there is not even an operating school district.
Basically, when the calculated “true value” of property rises significantly what follows is a greater share of the county tax levy.
A useful source of information for the Cape May taxpayer is available on the website of the Taxpayers Association of Cape May, where eight years of tax rates across the tax entities is available.
Contact the author, Vince Conti, at vconti@cmcherald.com.
