Oklahoma’s property taxes are among the lowest in the nation. The property tax, the oldest form of taxation in this country, is a tax on wealth rather than on income or sales. The property tax comprises 17 percent of total state and local tax revenue in Oklahoma. This is less than in most other states. Only local governments use property taxes in Oklahoma. Property taxes in Oklahoma were stagnant in the 1980s but have increased steadily since 1992. Property tax revenue has grown at a healthy average annual rate of 4.7 percent since 1998 due to substantial new building and increasing value of existing properties.
Oklahoma levies property taxes only on tangible personal property. All intangible property – such as trademarks, copyright, and intellectual property – is exempt from taxation as a result of the passage of SQ 766 in 2012.
The property tax has several advantages as a source of revenue:
- The tax is stable, with a generally reliable rate of growth in most economic conditions. This helps taxpayers know what they will pay and it helps governments keep their budgets steady;
- The tax is generally fair to all income levels, since higher income families usually have higher value homes. The fairness is improved in Oklahoma and other states that have programs to lower property tax costs to seniors and disabled taxpayers; and
- There is a close tie between who pays the tax and who benefits from it. Property values are higher where there are effective public services like education, safety, and transportation.
There are disadvantages to the property tax as well, including:
- It is generally the least popular tax among citizens, especially among owners of agricultural property;
- It requires a complex, costly and error-prone administrative system to assess property values; and
- Properties of the same value may be taxed differently, either because state law and local practice treat some types of property or some categories of property-owners differently or because assessment practices differ.
Property taxes have traditionally been the main source of revenue for local governments, though this has been less true in Oklahoma than other states. Property taxes are the main source of non-grant revenue for school districts, counties, and career-tech systems. Cities may use property taxes only to pay the debt on bonds approved by voters. Under the Oklahoma Constitution, property tax rates are limited for each government and purpose, and most rate increases require a vote of the people.
Property taxes are paid by most property owners, including homeowners, owners of rental property, commercial enterprises, and farmers. While renters do not pay the tax directly, economists agree that rents typically include at least some of the landlord’s cost of property taxes.
With the exception of certain property, such as railroads and utilities, that are “centrally assessed” by the state Tax Commission, property taxes are administered by county assessors and treasurers, who are elected officials. They must comply with state constitutional and legal provisions that attempt to keep taxes low and somewhat uniform among the 77 counties.
Setting the taxes is a two-step process.
- The assessor determines an assessed value for each property. Assessments are adjusted each year based on sales of similar properties and each property is physically inspected every few years. Assessments for most properties cannot increase more than 3 percent per year unless the property is sold.
- The treasurer determines the tax rate on each dollar of assessed value; this rate is the total of taxes levied by all local governments that serve the property and are authorized to collect a property tax. The county treasurer bills all property owners annually and taxes are paid in one or two installments early each calendar year. The County distributes revenues to the local governments that levy the tax.
Property taxes begin with the annual assessment, which is an estimate of the property’s value. County assessors estimate the assessed value based on the market value of property. Market value is estimated from recent sales of similar property and from occasional physical inspections of the property. Regardless of market conditions, however, the assessed value on one’s primary dwelling (homestead) and agricultural property cannot increase more than 3 percent each year unless the property is sold. Assessed value of properties owned by low-income seniors (those with households incomes below the median county income) is frozen at the 1997 level.
A property’s taxable value is determined by multiplying the assessed value times an assessment ratio. Counties can set assessment ratios for different types of property within limits set by the state. Assessment ratios must be between 10 and 15 percent, except for public utilities.
People who live in the property as their primary home may deduct a $1,000 homestead allowance from the taxable value before the tax is determined. Seniors, disabled persons and, beginning in 2009, veterans may qualify for extra homestead allowances and thus a lower tax bill.
Property tax rates are set in mills. A mill is $1 in tax for every $1,000 in taxable value. Each government sets its mill rate based on budgetary needs, subject to constitutional limits on mill rates and voter approval in most cases. County officials review and approve the mill rates and prepare property tax bills that add up all the mill rates for each government serving a property to determine an overall mill rate for each property. Mill rates are commonly in the range of 90 to 110. These rates would result in a yearly tax bill of $900 to $1,100 on a $100,000 owner-occupied home.
See OK Policy’s fact sheet on the property tax in Oklahoma (2011; note that some of this information has been superseded by passage of SQ 758)