PSI Oklahoma Real Estate Practice Test

How is a tax rate derived?

1. By multiplying the tax base by the tax requirement

2. By dividing the tax requirement by the tax base

3. By averaging the previous year's tax rates

4. By assessing property values in the area

The correct answer is: By dividing the tax requirement by the tax base

A tax rate is derived by dividing the tax requirement by the tax base. This method illustrates how much revenue a taxing authority needs to raise (the tax requirement) and how much property (the tax base) is available to generate that revenue. By understanding this formula, one can see that if the tax requirement increases, the tax rate will also likely need to increase unless the tax base increases proportionately. This fundamental concept is essential for local governments, as it impacts budgeting, funding public services, and ultimately affects property owners and taxpayers. The other options do not accurately describe the method for deriving a tax rate. Simply multiplying the tax base by the tax requirement does not yield a tax rate; rather, it would suggest a total dollar amount of taxes. Averaging previous years' tax rates does not provide an appropriate calculation for a current tax rate since each year can have varying tax requirements and tax bases. Lastly, while assessing property values is important for determining the value of the tax base, it does not directly lead to the calculation of the tax rate itself.