Housing costs have been rising due to higher interest rates, increased property insurance, utility rates, and maintenance expenses. However, taxes and fees levied by state and local governments as well as Special Purpose Government Entities (SPGEs) with taxing authority, also impact housing costs.
Many people don't see these costs directly because homeowners often escrow their taxes with their mortgages, sending the tax bill directly to the bank. Other fees are added to insurance premiums, which can also be escrowed, and utility bills, which are often lengthy and complex, making it hard to understand the details.
You might think, “I rent, so how does this affect me?” It's logical, but if landlords' costs rise, they will increase rent to offset those costs. Therefore, these fees affect all housing costs.
The Insurance Premium Tax
The first hidden tax is the insurance premium tax. Established by KRS in 1982 and amended over the years, this law allows cities and counties to tax insurance policies through local ordinances. While some exemptions exist, home and auto premiums are not exempt. For example, unincorporated Boone County does not have this tax, but other municipalities in the region have rates as high as 18%. If you live in such an area and have a $1,000 insurance policy, you'll pay an additional $180 annually. Since about 80% of mortgage holders escrow their payments, many never see a detailed breakdown of their insurance bill, which can be complex and difficult to understand.
School Board Tax
The next hidden tax is the school board tax. In Boone County, school taxes make up about 58% of the total property tax bill. Many homeowners and renters don't realize that the school board is a separately elected body that sets its own tax rates, and their taxes appear on the same bill as other taxing entities. With multiple entities on the tax bill and the common practice of escrowing taxes and insurance, many people may not notice rate changes. This leads to my next hidden tax.
Special Purpose Government Entities (SPGEs)
The third hidden tax, or rather a collection of taxes, comes from Special Purpose Government Entities (SPGEs). These include local fire districts, the Extension office, the health department, and the library board. While partially appointed by local governing bodies, there are restrictions on board appointments. Each entity sets its own tax rates, and individually they may seem minimal, but combined, they significantly impact your tax bill and overall housing and renting costs.
Kentucky Property Tax Rate
The fourth hidden tax impacting your housing cost is the state of Kentucky's tax bill. Kentucky imposes a property tax rate of 0.114, compared to the county fiscal court's rate of 0.0960. This state property tax is in addition to all the other taxes imposed by the state.
Conclusion
Many factors, including hidden taxes, affect your housing costs. Rate increases from water, sewer, gas, and electric companies, as well as special assessments from condo associations, also play a role. Whether you rent or own, it's important to stay informed about current rates and engage with local taxing authorities, as they can adjust their rates annually.
**A quick note to reader, by no means do I endorse any of these taxes, but aim to bring clarity to housing costs for both owners and renters.
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