What is the Roll-Back Rate in Property Taxes?

The roll-back rate (colloquially referred to as the rolled-back rate) is a term that applies to the property tax rate as it changes year over year, in relation to property values. It is often heard at budget time and in what, in Florida, is called the Truth in millage process, or TRIM.
(Read a definition of mills and millage.)

Under the law in Florida and a few other states, if a local government adopts the roll-back rate, that government is not increasing taxes, even if the rate itself increases. That’s because the roll-back rate calculates taxable property values in relation to the total revenue they generate for a government. If the tax rate generates the same total revenue one year as it did in the previous year, then the rolled-back rate has been applied.

When property values rise, property taxes generate more revenue. For the total revenue generated to stay the same, the tax rate must decrease. If, however, as has been the case since the Great Recession, especially in states such as Florida and Nevada, property values decrease, the tax rate must increase to keep total revenue generated at the same level, year over year. Even though the tax rate will increase, it does not mean necessarily that taxes have increased, because the typical property that has seen its property value drop will end up paying the same amount, when the roll-back tax rate is applied.

Here’s an example. Assume that a house is valued at $150,000 and has a homestead exemption of $50,000. So its taxable value in 2011 was $100,000. Assuming that the house’s combined property tax rate was $20 per $1,000 in valuation, that property owner paid $2,000 in taxes in 2011.

In 2012, the value of the house dropped by $10,000–a 6.67 percent decrease. If the same tax rate of $20 per $1,000 was applied to that house in 2012, the property owner would get a tax bill of $1,800, which amounts to a $200 tax cut, even though the rate is the same. More than likely, in light of the property value drop, the local government will raise its tax rate to keep getting the same amount of revenue. Therefore it would adopt the roll-back rate. That rate would have to be $21.32 per $1,000 in taxable value.

The rate has increased, and strictly speaking that’s a tax increase. But under Florida law, if the rate increased by 6.7 percent but property values decreased by 6.7 percent, and property owners are paying neither more nor less than they paid the previous year, it’s not considered a tax increase, and government officials can claim that they haven;t raised taxes.

Of course, that law works to the benefit of governments and their definitions of taxes better than it does to the benefit of property owners. The reason: while government’s overall revenue can be calculated to stay even year over year, and with it the property taxes it levies, it doesn’t work as neatly for property owners, whose properties are assessed individually. Theoretically, half a city’s property owners could see their property value decrease, the other half could see their property value increase. To the government, it’s a wash, and a roll-back rate can look so innocent as to mean that everyone is paying the same year over year. Not so. But to the property owners whose values have increased, the roll-back rate would very much amount to a tax increase. And to those property owners who saw their values decrease, the rate would result in a tax decrease.

Curiously, the term–roll-back or rolled-back–has a very brief and limited history. “To roll back” means to reverse or to turn back, a term first documented in 1695. But the word usually implies elimination, erasure, curtailment or annulment. It does not imply evenness or neutrality, as its use under Florida law implies, which suggests that, in its Florida tax law usages, the word is being mis-used, with a hint of deception: if to roll-back means to reverse, reduce, curtail or annul, or cut back, a reduction in one’s tax bills would fairly be assumed. That’s not the case with neutrality. The word gives governments room to roll back a little clarity about a process that has always needed more of it, rather than less, even as, in Florida, the very process is called “truth in millage.”