Problem # 1
The town of Wolfeboro determines that it requires $11.25 million in property tax revenues to balance its budget. According to the town’s property tax assessor, the town contains taxable property that it assessed at $450 million. However, the town permits discounts for early payment, which generally average about 1 percent of the amount levied. Further, the town grants homestead and similar exemptions equal to 1.5 percent of the property’s assessed value.
1. Calculate the required tax rate, expressed in mils.
2. A resident’s home is assessed at $150,000. He is permitted a homestead exemption of $5,000 and a senior citizen’s exemption of $2,500. What is the resident’s required tax payment prior to allowable discounts for early payment?
3. Wolfeboro assesses property at 100 percent of its fair market value. New Durham, a nearby town in the same county, assesses property at only 80 percent of fair market value. The county bases its own tax assessments on the assessments of the individual towns. However, the county grants no exemptions or discounts. Its tax rate is 4 mils.
a. A tax payer in New Durham owns a home with a market value of $150,000—the same as that of the Wolfeboro resident. Compute and compare the amount of county tax that would be paid by each resident.
b. Comment on why governments find it necessary to ‘‘equalize’’ tax assessments based on assessments of other governments.
Problem # 2
A city levies property taxes of $2 billion in June 2015 for its ?scal year beginning July 1, 2015. The taxes are due by January 31, 2016. The following (in millions) indicates actual and anticipated cash collections relating to the levy:
June 2015 $ 50
July 2015 through June 2016 $1,800
July 2016 through August 2016 $ 40
September 2016 through June 2017 $ 75
The city estimates that $15 million will eventually have to be refunded, owing to taxpayer appeals of the assessed valuation of their property, and that $35 million will be uncollectible.
1. Prepare a journal entry that summarizes the city’s property tax activity for the fiscal year ending June 30, 2016, based on:
a. The modified accrual basis (i.e., for fund statements)
b. The full accrual basis (i.e., for government-wide statements)
2. Indicate the differences in amounts that would be reported on both the statement of net position and the statement of activities on a full accrual basis.
3. Suppose that in the following year the tax levy and pattern of collections were identical to those of the previous year. What would now be the difference in amounts reported on the statement of net position and the statement of activities on a full accrual basis?