|
Taxpayer's Information - Proposition
2 1/2
Proposition
2 1/2
Proposition 2 1/2 is the title given to an initiative petition adopted
by the voters of the Commonwealth of Massachusetts in 1980.
Its primary
features relate to the total amount of property taxes a city or town can
raise each year. Other parts of the initiative limit state agency assessments
on cities and towns; prohibit unfunded state mandates, and repealed binding
arbitration for certain public employees. In addition, it reduced the
motor vehicle excise tax rate and has allowed renters a deduction on their
state income tax.
How Does Proposition 2 1/2 Limit Property Tax?
How is the Levy Ceiling Calculated? and How Does it Change?
How is the Levy Limit Calculated?
How Does Proposition 2 1/2 Affect My Individual Bill?
What is Classification? How Does it Work with Proposition 2 1/2?
Does Proposition 2 1/2 Allow Increases in the Tax Levy?
How Can a Community Raise Taxes in Excess of its Levy Limit or Ceiling?
Excess Levy Capacity?
How Does Proposition 2 1/2 Limit Property Tax?
Proposition 2 1/2 contains two limitations on the amount of property taxes
a city or town can raise:
The property tax levy ceiling (the amount of revenue a community can raise)
can never exceed 2 1/2% of the full cash value of all taxable property
in the city or town.
The property tax levy limit cannot increase from year to year by more
than 2 1/2%, with certain exceptions for new growth, or through overrides
and exclusions as adopted by the voters.
How is the Levy Ceiling Calculated? and How does it Change?
The tax levy ceiling is determined by calculating 2 1/2% of the total
full and fair cash value of taxable real and personal property in Berlin.
Full and fair cash value X 2.5% = LEVY CEILING
Example: If full and fair cash value = $100,000,000 multiply by 2.5% =
$2,500,000 LEVY CEILING.
The total full and fair cash value of taxable real and personal property
in Berlin changes each year as properties are added or removed from the
tax roll and market values increase or decrease. This changes the levy
ceiling.
How is the Levy Limit Calculated?
Since 1981, when Prop 2 1/2 went into effect, a levy limit for each community
has been calculated annually by the Department of revenue. It is based
on the previous year's levy limit and NOT on the previous year's levy.
Example: Take the previous year's levy limit and increase it by 2.5%.
If the FY03 levy limit was $1,000,000 and you added 2.5% (or $25,000)
to that, the levy limit would be $1,025,000. You are also allowed to addcertified
new growth added to the community's property tax base and the amount of
any authorized overrides votes. Adding those numbers to the total will
give you the FY04 levy limit.
How Does
Proposition 2 1/2 Affect My Individual Bill?
The levy limit provisions of Proposition 2 1/2 affects the total amount
of taxes to be raised by a city or town. It does not apply to an individual
tax bill.
What is Classification? How does it Work with Proposition 2 1/2?
The voters adopted the Classification Amendment to the Massachusetts Constitution
in 1978. It allowed cities and towns to categorize real estate into four
classes - residential, commercial, industrial and open space - and to
tax these classes at different rates.
Proposition
2 1/2 affects the total amount of tax that can be raised. Classification
affects, which classes of taxpayers will pay what specific share of the
total amount of tax.
Does Proposition 2 1/2 Allow Increases in the Tax Levy?
Proposition 2 1/2 contains several provisions for an increase in the tax
levy limit:
The levy
limit can be increased by 2 1/2% each year so long as the levy does not
exceed 2.5% of the full cash value of all property in the city or town.
The levy can be increased by the value of new construction and newly taxable
parcels. This provision ensures that cities and towns can recover additional
service costs resulting from new taxable projects.
The levy can also be increased by the adoption of an override. An override
provision allows the voters of the city or town to raise additional revenues
(or to reduce the levy) by the specific amount. This can be accomplished
by placing an override question on the ballot in a general or special
election, and approving the measure by a simple majority of voters. The
increase approved by the voters than becomes part of the base for calculating
future years' levy limits.
It is important to consider, however, that Proposition 2 1/2 also mandates
that the property tax levy for any given year can never exceed the property
tax levy ceiling (which is, again, 2 1/2 % of the assessed value of all
taxable properties within a city or town). An override of the Proposition
2 1/2-levy limit does not allow the levy to exceed the levy ceiling.
The levy can be increased by the adoption of an exclusion. The exclusion
provision allows the voters of the city or town to exclude bonds or debt
issued for municipal capital improvements and is in place only for the
length of the borrowing. It does not add to the base for calculating future
years' levy limits.
How Can a
Community Raise Taxes in Excess of its Levy Limit or Ceiling?
A community can only levy taxes in excess of its levy limit or levy ceiling
through a debt exclusion or capital outlay expenditure exclusion voted
at a town meeting. The amount of the exclusion does not become a permanent
part of the levy limit base, but allows a community to assess taxes for
a certain period of time in excess of its levy limit or ceiling for the
payment of certain debt service costs or for the payment of certain capital
costs.
What is New
Growth?
Proposition 2 1/2 allows a community to increase its levy limit annually
by an amount based on the increased value of new development and other
growth in the tax base that is NOT the result of revaluation. This new
growth includes properties that have increased in assessed valuation since
the prior year because of development or changes, exempt real property
returned to the tax roll and new personal property, and new subdivision
parcels and condominium conversions. It is calculated by multiplying the
increase in the assessed valuation by the prior year's tax rate.
Excess Levy
Capacity?
A community can choose to set its levy at any amount below or equal to
its levy limit. When a community sets its levy below the limit, the difference
between the levy and the levy limit is commonly referred to as excess
levy capacity. This is an important factor in municipal finance. Before
the tax rate is set, the full amount of the levy limit is available to
the community regardless of how much of the limit the community has chosen
to levy in previous years. This is true no matter what the percentage
increase in the levy would be in order to achieve this result.
|
