When assessed value differs from market value, what happens to the nominal tax rate compared to the effective tax rate?

When assessed value differs from market value, the nominal tax rate and the effective tax rate will differ due to the relationship between how property values are assessed and the resulting tax calculations.

The nominal tax rate is the rate set by taxing authorities to determine what taxpayers owe based on the assessed value of their property. This rate is typically expressed as a percentage and does not account for how accurately the assessed value reflects true market conditions.

On the other hand, the effective tax rate pays attention to the actual property tax burden relative to the market value of the property. It is calculated by comparing the taxes paid to the property’s market value, which can give a different perspective depending on how assessed values are determined.

When assessed values do not align with market values, discrepancies can create a situation where the effective tax rate diverges from the nominal tax rate, as the effective tax rate reflects the relationship between the taxed amount and what the property would sell for in the current market. As a result, one can expect varying outcomes for these rates based on the specifics of property assessments and market conditions.

This complexity helps clarify why the correct answer indicates that the nominal tax rate will differ, showing that the mismatch between assessed and market values directly impacts the taxation experience for property owners.