Real Estate Tax

In 1978, the citizens of the Commonwealth of Massachusetts adopted a constitutional amendment authorizing the General Court to classify real property into as many as four separate and distinct classes and thereafter to tax such classes differently. In 1979, the General Court adopted an act which implemented the amendment. The act enjoyed popular support as a means to prevent the shifting of taxes from business property onto residential property as a result of court-ordered revaluations. Classification does not raise additional dollars from the property tax, but serves to redistribute how much levy will be raised from each class. Preferential tax treatment for any class of property is not mandated, but the choice of distributing the levy burden among the various classes remains a local option.

The Commissioner of Revenue supervises the implementation of property classification. After the Commissioner has determined that a city or town's assessed values represent full and fair cash values, the Assessor classifies all real property according to use. Local elected officials are then permitted to determine, within limits calculated by the Commissioner, what percentage of the tax burden is to be borne by each property class.

The determination how to allocate the tax burden by class is made annually. In Worcester as in other cities, the decision to allocate tax burdens is made by the City Council, generally in November.

Massachusetts law provides for the implementation of the classification process through three phases: first, every city and town must value all taxable property at full and fair cash value; second, each city and town must classify every parcel of property according to use; third, each city and town which has revalued and classified may allocate its tax levy among the various classes of property. The first and second steps are mandatory. The third stage, determining whether to allocate the tax burden by class, is optional with each community.

The first step in implementing the Classification Act is to assign each property to the appropriate class. In most instances, the usage class has been determined in the course of the revaluation.

Assessors in Massachusetts must classify all real property in the city or town into one of the four recognized uses: residential, open space, commercial or industrial space. All other property which is not real property is considered as personal estate, or personal property. Personal property constitutes a separate class unto itself. Each parcel, both real and personal, must always be assessed at its full and fair cash value.

• Class One - Residential
  Includes all property containing one or more units for human habitation. The class includes accessory land and buildings such as swimming pools, tennis courts, garages and sheds. Single family homes are in this class, as are large apartment buildings. Hotels and motels are not included in this class.
• Class Two - Open Space
  Includes land maintained in an open or natural condition which contributes significantly to the benefit and enjoyment of the public. Such land cannot be held for the production of income.
• Class Three - Commercial
  Includes any property held for the purpose of conducting a business, such as office buildings, retail stores, etc.
• Class Four - Industrial
  Includes any property involved in manufacturing, processing or extraction, and includes utility real property used for storage and generation purposes.

Assessments for residential properties (1, 2, 3 family houses and condominium units) are typically based on the market approach to value. This approach incorporates a statistical analysis of property sales to determine market values as of January 1. This analysis takes into consideration only those transactions that are deemed "arm's length", e.g. sales that took place between a willing buyer and a willing seller, when neither party was under compulsion to make the transaction. This data is incorporated into computerized valuation models, which simulates varying market conditions in each neighborhood and form the basis for residential values.

Assessments for office, retail, apartment and industrial properties are typically derived using the income and cost approaches to value. Under the income approach, fair cash value is derived from the property's ability to generate income. The Assessor examines the rents generated by office, apartment, retail and other commercial buildings, subtract operating expenses to achieve a net income, then divide net income by an appropriate capitalization rate, in order to derive a market value for each parcel of commercial property.

The cost approach measures the estimated cost of replacing or reproducing the buildings and improvements on a property - less any depreciation - plus the value of the land on which the building stands. The cost approach is mainly employed in determining the value of special purpose properties.

Current analysis of the Worcester real estate market as of January 1, 2010 has shown a decrease to the total value of all assessed properties from FY 2010 to FY 2011. This represents an overall average for all properties and does not reflect the assessment of any individual property. Assessed values vary from neighborhood to neighborhood and from property type to property type.

If you need additional assistance or have questions about the valuation or taxation of real estate, please call (508) 799-1065 and read through our Frequently Asked Questions.