Mill Rate

What Is a Mill Rate?

A mill rate is a way of expressing a property tax rate. The word "mill" comes from the Latin for "thousand," and one mill equals one dollar of tax for every $1,000 of a property's assessed value. A mill rate of 20, for example, means $20 of tax per $1,000 of assessed value, which is the same as 2 percent. Local governments such as school districts, cities, counties, and special districts each set their own rate. The total property tax on a home is usually the sum of all those rates applied to the same assessed value.

How It Works

The calculation is straightforward. Multiply the assessed value by the mill rate, then divide by 1,000:

Tax = (Assessed Value × Mill Rate) ÷ 1,000

Each year, a local governing body estimates how much revenue it needs for its budget and divides that amount by the total taxable assessed value in its area to arrive at a rate. Because the rate depends on the total value of all property, it can rise or fall even when a tax bill stays the same. A bill can also change when the rate does not, if a property's own assessed value changes. Assessed value is set by a local tax assessor and may be a fraction of market value, with the exact rules varying by location.

Example

Suppose a home has an assessed value of $200,000, and three taxing authorities levy 18, 7, and 5 mills. The combined mill rate is 30, so the annual tax is:

$200,000 × 30 ÷ 1,000 = $6,000

These figures are hypothetical and only show the arithmetic.

Why It Matters to Investors

For real estate investors, the mill rate is one of several recurring costs that affect the net rental yield on a property. A rising rate can reduce returns if rents do not rise to match. Mill rates also matter to municipal bond investors, because many local governments sell general obligation bonds backed by property tax revenue, and the size of the tax base and the rates affect a government's ability to repay them. Some jurisdictions limit how quickly rates or assessments can rise. These rules differ widely, so the specifics depend on where the property or bond issuer is located.