Effective v. Nominal Rates

• Suppose real property tax law sets rate at 1% of assessed value (AV)

  • Assume AV = 75% of market value (MV)
    • MV = $100,000, so AV = $75,000
    • Tax = 1% of $75,000 = $750
  • Use MV as the standard base
    • ETR = T/MV = 750/100,000 = 0.75%
    • Thus, ETR is less than the nominal tax rate
  • 25% credit or 25% exemption equivalent

Previous slide

Next slide

Back to first slide

View graphic version