The property tax is the largest source of local revenue for Maryland’s county governments. Counties rely on this revenue to fund schools, public safety, infrastructure, public health, and other essential services.
Property taxes directly or indirectly impact almost everyone whether residents rent or own. But the assessment process is often confusing. Here’s a primer.
Maryland Property Tax Assessment Overview
Article 15 of the Declaration of Rights of Maryland’s Constitution requires uniform assessment and taxation of all real property. In addition, State law requires all taxable property to be evaluated based on its fair market value.
The State Department of Assessments and Taxation (SDAT) is responsible for assessing property in Maryland. Assessments conducted by the State, rather than the local governments, help assure taxpayers that the assessing body provides objective, unbiased analysis.
Maryland splits more than two million property accounts into three groups, each appraised once every three years by the State Department of Assessments and Taxation (SDAT). There are 24 local State assessment offices, one in each county and Baltimore City.
When property values increase, the increase is phased-in equal increments over the next three years. The triennial process and its three-year phase-in schedule deliberately offer some cushion for taxpayers during periods of swift and considerable increases in property values.
Determining Fair Market Value
Assessments are certified by the SDAT to local governments, which turn into property tax bills by applying the appropriate property tax rates. Assessments are based on an appraisal of a property’s fair market value. An appraisal is an estimate of value.
There are three accepted approaches to market value:
- The sales approach
- The cost approach
- The income approach
While differing in the method of calculation, each approach is designed to indicate the property’s fair market value. Learn more about these approaches here.
Property Tax Relief
SDAT administers several property tax relief programs that provide needed relief to eligible property owners. In addition, many counties and municipalities also offer additional tax relief.
Homestead Property Tax Credit
The Homestead Property Tax Credit acts to essentially cap assessments of owner-occupied residences so that a resident’s property tax burden does not increase too substantially over the prior year. It provides consistency for taxpayers who live in and own their homes.
Every county and municipality in Maryland is required to limit taxable assessment increases to 10 percent or less each year. However, nearly every county has exercised its authority to lower its cap, providing security to homeowners beyond what the State requires.
Technically, the Homestead Credit does not limit the property’s market value as determined by SDAT. Instead, it is a credit calculated on any assessment increase exceeding 10 percent (or the lower cap enacted by the local governments) from one year to the next.
The Homeowners’ Property Tax Credit Program
The Homeowners’ Property Tax Credit Program, known to many as the Circuit Breaker Program, provides tax relief for eligible homeowners by setting a limit on the amount of property taxes owed based on their income. The initial July tax bill includes applications received and approved by May 1. Eligible residents who have already paid their property taxes and submitted an application by October 1 can expect a refund from their county finance office. In fiscal 2021, 42,272 eligible homeowners received an average credit of $1,451.
Several counties and municipalities also provide supplemental homeowners credits, which provide additional tax relief. If a resident is approved to receive the state credit, they will automatically receive any local credit for which they are eligible.
Renters’ Property Tax Credit Program
The Renters’ Property Tax Credit Program similarly provides tax relief for eligible renters who pay high monthly rent relative to their total income. The majority of recipients of this credit are Marylanders aged 60 or older. The program is also available to the 100% disabled and renters under age 60 with at least one dependent child. This credit has a maximum value of $1,000. In fiscal 2021, 7,525 eligible renters received an average credit of $446.
Property Tax Assessment Appeals Boards (PTAAB) across the state hear appeals relating to the assessment of property. There is one board in each county and Baltimore City, all of which are supported by a central office and executive director. Each board has four or six members (three members and one or three alternates) who are appointed by the Governor for five-year terms.
The first appeals of assessments are conducted by SDAT, which also makes those initial assessments. PTAAB hears second-tier appeals from SDAT decisions, and PTAAB decisions are appealed to Maryland Tax Court. Further appeals may be made through the judicial system.
Stay tuned to Conduit Street for more information.