Understanding the Tax Levy and Mill Rate
Property taxes are one of the most visible — and often frustrating — costs for homeowners and businesses. Yet the way those taxes are calculated is rarely explained in plain language. Two of the most important pieces of that equation are the tax levy and the mill rate.
Understanding how these work together helps explain why tax bills rise, even when leaders say they are “controlling taxes,” and why responsible limits on levy growth are so important.
What Is the Tax Levy?
The tax levy is the total dollar amount a municipality decides to collect from property taxes in a given year.
It is not your individual tax bill. Instead, it is the collective amount needed to fund city services after accounting for other revenue sources such as:
State shared revenue
Permits and fees
Licenses
Grants
Once a city finalizes its budget and subtracts these revenues, the remaining amount becomes the tax levy.
What Is the Mill Rate?
The mill rate (sometimes called the tax rate) is the mechanism used to distribute the tax levy across all taxable property in the community.
A “mill” represents $1 of tax for every $1,000 of assessed property value.
In simple terms:
The levy is how much money needs to be collected
The mill rate determines how that amount is divided up
How the Levy and Mill Rate Work Together
Here’s how the full calculation process typically works:
The city sets its total tax levy
This is the amount that must be raised through property taxes.The total assessed value of all taxable property is calculated
This includes residential, commercial, industrial, and other taxable properties.The mill rate is determined
The mill rate is calculated by dividing the levy by the total assessed value of taxable property.Individual tax bills are calculated
Each property owner pays a share based on their property’s assessed value.
How This Affects Individual Homeowners and Businesses
Your individual property tax bill depends on three main factors:
1. The Total Tax Levy
If the levy increases, more money must be collected overall.
2. The Total Tax Base
If new development or increased property values expand the tax base, the levy can be spread across more value — potentially reducing pressure on individual taxpayers.
3. Your Property’s Assessed Value
If your property’s assessed value increases faster than the community average, your share of the levy increases.
Why Your Tax Bill Can Go Up Even If the Mill Rate Goes Down
This is one of the most confusing, and misunderstood, aspects of property taxation.
A tax bill can increase even when the mill rate decreases if:
The total levy increases
Your assessed value increases
The tax base does not grow enough to offset levy growth
This is why focusing only on the mill rate can be misleading. The levy is the driver; the mill rate is simply the tool used to allocate it.
Why Limiting Levy Increases Matters
1. Protecting Affordability
Property taxes are a fixed expense. Rising levies increase costs for:
Homeowners
Renters (through higher rents)
Small businesses
Seniors on fixed incomes
Keeping levy growth reasonable helps prevent cost burdens from compounding year after year.
2. Encouraging Responsible Budgeting
Limits on levy growth force governments to:
Set clear priorities
Evaluate programs honestly
Look for efficiencies
Align spending with long-term sustainability
Without limits, there is little incentive to control spending growth.
3. Supporting Economic Balance
Communities with a strong commercial and industrial tax base can spread the levy across more value, reducing reliance on residential taxpayers. Economic development plays a critical role in keeping both mill rates and individual tax bills in check.
4. Providing Predictability
Stable levy growth allows homeowners and businesses to plan ahead. Predictability builds trust and confidence in local government decision-making.
The Bottom Line
The tax levy determines how much money is collected
The mill rate determines how that amount is distributed
Your assessed value determines your share
Responsible management of all three is essential to maintaining affordability, fairness, and long-term community health.
Understanding these mechanics allows residents to engage more meaningfully in budget conversations, and ensures leaders are accountable not just for what they spend, but how those decisions affect the people paying the bill.
