"Buying a Home in Arkansas: What Is the Improvement District Levy on My Property Tax Bill?"

Somewhere in the records of a newer Arkansas subdivision is a ledger with two columns for every lot. One column shows what the land was worth before the streets and water lines went in. The other shows what it was expected to be worth afterward. The gap between those two numbers sets each lot's share of a charge that comes on the yearly tax bill until the district's levy is paid off.

An Arkansas improvement district levy is a yearly charge that pays for the streets, water, sewer or similar improvements serving your property, and the county collector collects it along with your property taxes. The amount is based on how much the improvement benefited each lot rather than on what the home is worth today. It stays with the land until the district's levy is paid off.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation, licensed in fifteen states, including Arkansas. This is one of the lines I want to see on paper before an Arkansas offer goes in, because it belongs in your monthly payment from the first day.

What is an improvement district tax in Arkansas?

The kind you are most likely to meet on a home purchase is a municipal property owners' improvement district. Arkansas created this type in 1987, and the law now lives at Ark. Code Ann. § 14-94-101 and the sections that follow. The original Act 113 of 1987 describes its purpose as letting a district be formed with the unanimous approval of the owners of the land.

The 1987 act built it around a petition signed by every owner of record. So a district can be formed and approved while a single developer still owns the whole tract, before any home buyer is involved and long before the first family moves in.

Cities across the state use these districts for ordinary neighborhood infrastructure. North Little Rock's petition form for a new district lists the kinds of work the law allows: waterworks, sewers, gas lines, grading and paving streets, curbs and gutters, and sidewalks. A district is run by its own board of commissioners.

The charge follows the benefit to your lot

Ordinary property tax in Arkansas starts from the county's appraisal of what your home is worth. An improvement district levy starts from the benefit the improvement brought to each lot.

Under § 14-94-115 of the Arkansas Code, the board appoints an assessor who takes an oath to assess the benefits the improvement will bring to each property in the district. That assessor records every tract in a book with two columns: its value before the improvement and its estimated value after. The difference is the assessed benefit for that lot.

The board then enters a levy order. According to § 14-94-118, it levies a tax on the real property of the district that is sufficient to pay the estimated cost of the improvement, with ten percent added for unforeseen contingencies. Each owner pays in proportion to the lot's assessed benefit, in annual installments set by the order.

So two homes on the same street can carry different levies if their lots were assessed differently. And a home that has risen in value since the district was formed does not pay more for that reason. The figure was tied to the benefit when the assessment was made.

The benefit can be revisited. Section 14-94-117 lets the board order a reassessment no more than once a year. If the district has borrowed money or issued bonds, the statute says the total of the assessed benefits can never be reduced.

The levy reaches you through the county tax bill

The statute routes this charge through the same county offices that handle your property taxes. Section 14-94-120 has the assessor enter the yearly amount beside each assessed benefit. The column is marked "Annual Collection." The county clerk then extends it onto the county tax books every year until the levy is used up, and the county collector collects it with the other taxes.

That is why it can be easy to miss. It arrives on the same yearly collection as your real estate taxes, and it is not a tax on your home's value. A millage rate is the property tax rate, counted in mills, or dollars per $1,000 of taxable value. If you only multiply a purchase price by a millage rate, you can get the property tax right and still come up short on what the county actually collects.

The exact wording on a bill, and whether the district appears as its own line, is up to each county's system. I would not count on a particular label. You can look at the most recent tax statement for the specific parcel and ask the county collector's office to walk you through every charge on it.

A lien that stays with the land

Section 14-94-118 makes the levy a lien on the real property of the district from the date of the levy, and it continues until the assessment and any penalties are paid. The levy belongs to the lot. Once the home changes hands, the remaining installments stay with the land, and you are the owner the collector bills next year.

The same section also describes the way out. With the board's prior written approval, the county clerk releases a lot from the lien once its assessment has been paid or prepaid. If you want to know whether a remaining balance can be paid off early, the district's board is the one to ask.

The levy is also enforced differently from your ordinary property tax. Under § 14-94-122, an unpaid installment is reported to the district's board. The board adds a penalty and goes to court to collect it. The judgment runs against the land itself, and the court can order the property sold.

If the home you like is inside a district, you will want to know the levy before you buy, put it in your budget, and keep it paid on time.

How do I find out if a property is in an improvement district?

You can do most of this before the offer and the rest during the contract period, in this order.

1. The most recent tax statement for that parcel comes first. The county collector's office can pull it by address or parcel number. Please ask them to explain each charge on it, including anything that is not the county, city or school millage.
2. Your agent can ask the listing agent directly. Arkansas has no law requiring an owner to complete a property condition disclosure form, as I explain in getting the seller's property condition in writing in Arkansas. A question asked in writing gets you a written answer.
3. The district itself is the next call, once you know its name. You will want the lot's current annual installment, how many years remain, and whether the remaining balance can be prepaid, and for how much.
4. Your title commitment is worth a close read when it arrives. That is the title company's written statement of what it will insure and what liens it found. The levy is a lien under § 14-94-118. You can ask your title company whether the commitment shows an improvement district for that lot, and what it shows as paid.
5. Your closing agent can tell you how the current year is handled. Whether this year's installment is split between you and the seller is a closing statement question, and it is worth settling in writing.

The levy and your mortgage payment

The agencies that set the rules for most home loans count this kind of charge in your housing payment. Fannie Mae's guide, section B3-6-03, lists special assessments along with real estate taxes as part of the monthly housing expense. Freddie Mac's section 5401.1 includes special assessments with more than 10 monthly payments remaining. For FHA loans, HUD's Handbook 4000.1 lists special assessments in the total mortgage payment.

In plain terms, the yearly levy divided by twelve is part of the payment your debt-to-income ratio gets measured against. I put it in from the start. If it shows up late in the process, every ratio built on the payment has to be redone.

If your loan has an escrow account for taxes and insurance, please ask how the escrow estimate was built and whether it includes the district levy. An escrow account pays what it was set up to pay. If the actual bill comes in higher than the estimate, the servicer can collect the shortage and your monthly deposit goes up. I walk through that cycle in what happens to your property taxes after you buy.

Mistakes worth avoiding

Pricing the taxes from a millage rate alone. That gives you the tax based on the home's value. It leaves out a fixed yearly installment that has nothing to do with millage.

Assuming the seller's paperwork will mention it. Arkansas does not hand you a required disclosure form, so the tax statement and your own questions do that job.

Treating the levy as part of the homestead credit picture. The Arkansas homestead tax credit reduces the property tax on your principal residence. It is a separate piece of the bill, and I would not count on it to touch the district installment.

Borrowing another state's rule. Kansas runs its special assessments under a different statute, through its cities and county treasurers. Arkansas's municipal property owners' districts work under chapter 14-94, with their own board and their own collection in court.

Leaving the payoff question until closing week. If prepaying the remaining balance makes sense for you, the district needs time to give you a figure in writing, and that cash comes from the same pile as your down payment.

An example with made-up numbers

Numbers below are made up to show the mechanism. They are not a quote, not a real district, and not anyone's actual bill.

Say a district's assessor recorded a total of $3,000,000 in assessed benefits across all its lots. The lot you are considering was assessed a benefit of $30,000, which is one percent of the district total. This year's installment for the whole district is $150,000.

Total assessed benefits, whole district    $3,000,000
Your lot's assessed benefit                   $30,000
Your lot's share of the district                 1.0%
District installment this year               $150,000
                                             --------
Your lot's installment this year               $1,500
Added to the monthly payment                     $125

The home's market value appears nowhere in those numbers. A neighbor's home could be worth more than yours and still owe the same $1,500, because the benefit to the lot is what drives the number. That $125 a month belongs in the payment you plan around, right next to principal, interest, taxes and insurance.

Planning your Arkansas purchase

You can see rates, payment and closing costs for your own Arkansas scenario with the levy added to the taxes, and adjust the figure once the district confirms it. No credit pull and no account are needed to look.

Once you are ready for a letter a seller will take seriously, I can help you get pre-approved for an Arkansas mortgage with your income, debts and credit actually reviewed. The Arkansas mortgage page covers the rest of what is unusual about buying here, including title pricing that the state does not regulate.

Nothing here is a loan approval, a denial, a commitment to lend, or legal or tax advice. The levy and any payoff figure come from the district and the county offices that keep its records.

Common questions

What is an improvement district tax on an Arkansas property tax bill?

It is a yearly installment charged by an improvement district to pay for the streets, water, sewer or similar improvements serving the property. For a municipal property owners' improvement district, Ark. Code Ann. § 14-94-120 has the county clerk extend the yearly amount onto the county tax books and the county collector collect it with the other taxes until the levy is used up. It is based on the lot's assessed benefit, so it does not rise or fall with your home's market value.

How is an Arkansas improvement district levy calculated?

The district's assessor records each tract's value before the improvement and its estimated value after, and the difference is the assessed benefit, under Ark. Code Ann. § 14-94-115. The board then levies a tax sufficient to pay the estimated cost of the improvement, plus ten percent for unforeseen contingencies. Each owner pays in proportion to the lot's assessed benefit, in the annual installments set by the levy order under § 14-94-118.

Does an Arkansas improvement district levy transfer to the buyer?

Yes. Under Ark. Code Ann. § 14-94-118, the levy is a lien on the real property of the district from the date of the levy, and it continues until the assessment and any penalties are paid. The remaining installments stay with the land when it sells, so the new owner receives the following year's bill. Whether the current year's installment is split between you and the seller is something to settle in the purchase contract and on the closing statement.

Can I pay off an Arkansas improvement district assessment early?

The statute contemplates it. Ark. Code Ann. § 14-94-118 lets the county clerk release a lot from the district's lien once its assessment has been paid or prepaid, with the board's prior written approval. Whether a payoff is available on a given lot, and for how much, is a question for that district's board. You will want that figure in writing, so you can weigh it against the other uses for your cash at closing.

Does a lender count an improvement district levy in my mortgage payment?

Yes, in the guidelines most loans follow. Fannie Mae's Selling Guide section B3-6-03 lists special assessments alongside real estate taxes in the monthly housing expense, and Freddie Mac's section 5401.1 includes special assessments with more than 10 monthly payments remaining. HUD's Handbook 4000.1 includes special assessments in the total mortgage payment on an FHA loan. That makes the yearly levy, divided by twelve, part of the payment your debt-to-income ratio is measured against.

What happens if an Arkansas improvement district tax goes unpaid?

Under Ark. Code Ann. § 14-94-122, an unpaid installment is reported to the district's board, which adds a penalty and goes to court to collect it. The judgment is enforced against the land itself, and the court can order the property sold to pay what is owed. That is a separate track from ordinary delinquent property tax, which is one more reason to confirm the levy is current before you close.