Understanding Proposition 21/2, It’s Your Tax Dollars

PROPOSITION 2 ½ PRIMER*

  1. What is a Levy Ceiling? What is a Levy Limit?
  Proposition 21⁄2places constraints on the amount of the levy raised by a city or town and on how much the levy can be increased from year to year.

A levy limit is a restriction on the amount of property taxes a community can levy. Proposition 21⁄2 established two types of levy limits:

          First, a community cannot levy more than 2.5 percent of the total full and fair cash value of all taxable real and personal property in the community. In this primer we will refer to the full and fair cash value limit as the levy ceiling.

          Second, a community’s levy is also constrained in that it can only increase by a certain amount from year to year. We will refer to the maximum amount a community can levy in a given year as the levy limit. The levy limit will always be below, or at most, equal to the levy ceiling. The levy limit may not exceed the levy ceiling.

2What is a Levy?
The property tax levy is the revenue a community can raise through real and personal property taxes. We will refer to the property tax levy simply as the levy. In Massachusetts, municipal revenues to support local spending for schools, public safety and other public services are raised through the property tax levy, state aid, local receipts and other sources. The property tax levy is the largest source of revenue for most cities and towns.

  1. How is a Levy Limit Increased?
 The levy limit is increased from year to year as long as it remains below the levy ceiling. Permanent increases in the levy limit result from the following:

          a.   Automatic 2.5 percent increase. Each year, a community’s levy limit automatically increases by 2.5 percent over the previous year’s levy limit.

 

PROPOSITION 2 ½ PRIMER EXCERPTS*

  1. What is a Levy Ceiling? What is a Levy Limit?
  Proposition 21⁄2places constraints on the amount of the levy raised by a city or town and on how much the levy can be increased from year to year.

A levy limit is a restriction on the amount of property taxes a community can levy. Proposition 21⁄2 established two types of levy limits:

          First, a community cannot levy more than 2.5 percent of the total full and fair cash value of all taxable real and personal property in the community. In this primer we will refer to the full and fair cash value limit as the levy ceiling.

          Second, a community’s levy is also constrained in that it can only increase by a certain amount from year to year. We will refer to the maximum amount a community can levy in a given year as the levy limit. The levy limit will always be below, or at most, equal to the levy ceiling. The levy limit may not exceed the levy ceiling.

2What is a Levy?
The property tax levy is the revenue a community can raise through real and personal property taxes. We will refer to the property tax levy simply as the levy.

  1. How is a Levy Limit Increased?
 The levy limit is increased from year to year as long as it remains below the levy ceiling. Permanent increases in the levy limit result from the following:

          a.   Automatic 2.5 percent increase. Each year, a community’s levy limit automatically increases by 2.5 percent over the previous year’s levy limit.

          b.  New Growth. A community is able to increase its levy limit each year to reflect new growth in the tax base.

          c.  Overrides. A community can permanently increase its levy limit by successfully voting an override. The amount of the override becomes a permanent part of the levy limit base.

4.   Levy Increases:Once a community’s levy limit is established for a particular year, the community can determine what its levy will be. The community may set its levy at any amount up to the levy limit. (Or, if it has voted a debt exclusion or capital outlay expenditure exclusion, it may levy up to the levy limit plus the additional temporary capacity resulting from the exclusion.)

Proposition 21⁄2restricts increases in the levy limit, not the levy. A community is permitted to tax up to its levy limit, even if it must raise its levy by a large percentage over the previous year’s levy. 

*for more complete and detailed information see http://www.mass.gov/dor/docs/dls/publ/misc/levylimits.pdf

 

April 2014

 

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