CAE CAE Tax Policy and Assessment Administration 2 — Questions and Answers
Question 1: What is the primary difference between a tax levy and a tax rate?
- A levy is set by the assessor; a rate is set by the legislature
- A levy is the total amount of tax to be collected; a rate is applied per unit of value (Correct answer)
- A levy applies to commercial property; a rate applies to residential
- A levy is expressed as a percentage; a rate is expressed in dollars
Correct answer: A levy is the total amount of tax to be collected; a rate is applied per unit of value
The tax levy is the total dollar amount a taxing jurisdiction needs to collect, while the tax rate is derived by dividing the levy by the total taxable assessed value.
Question 2: Which concept describes the shifting of the property tax burden from owners to tenants through higher rents?
- Tax capitalization
- Tax incidence
- Tax shifting (Correct answer)
- Tax pyramiding
Correct answer: Tax shifting
Tax shifting occurs when property owners pass along property tax increases to tenants through higher rental rates, changing who ultimately bears the tax burden.
Question 3: What is the role of the equalization factor (multiplier) in property tax administration?
- It adjusts assessed values to achieve a uniform assessment level statewide (Correct answer)
- It converts market value to assessed value at the local level
- It reduces taxes for qualifying low-income homeowners
- It adjusts the tax rate for inflation annually
Correct answer: It adjusts assessed values to achieve a uniform assessment level statewide
An equalization factor (state multiplier) is applied to local assessed values to bring them to a uniform percentage of market value for purposes of state aid and levy distribution.
Question 4: Which of the following best describes 'tax capitalization' in property assessment?
- The process of converting income to value
- The reduction in market value caused by high property taxes relative to comparable properties (Correct answer)
- The conversion of personal property to real property for tax purposes
- The method of spreading a tax increase over multiple years
Correct answer: The reduction in market value caused by high property taxes relative to comparable properties
Tax capitalization refers to the phenomenon where higher-than-normal property taxes reduce a property's market value, as buyers discount the price to offset future tax obligations.
Question 5: What is the typical consequence of a jurisdiction having a Price-Related Differential (PRD) greater than 1.03?
- Lower-value properties are over-assessed relative to higher-value properties (Correct answer)
- Higher-value properties are over-assessed relative to lower-value properties
- All property classes are assessed uniformly
- The jurisdiction must lower its tax rate
Correct answer: Lower-value properties are over-assessed relative to higher-value properties
A PRD above 1.03 indicates regressivity, meaning lower-value properties are assessed at a higher percentage of market value than higher-value properties.
Question 6: Which provision commonly limits the annual increase in a property's assessed value in many U.S. states?
- Homestead exemption
- Assessment cap or limitation (Correct answer)
- Circuit breaker credit
- Tax increment freeze
Correct answer: Assessment cap or limitation
An assessment cap or limitation (such as California's Proposition 13) restricts how much a property's assessed value can increase annually, regardless of market appreciation.
CAE CAE Tax Policy and Assessment Administration 2
What is the primary difference between a tax levy and a tax rate?