A Mello-Roos is a special tax assessment (sometimes called a Mello-Roos tax or a Mello Roos tax) generally imposed in a special district called a Community Facilities District. In a Community Facilities District, the school district, local government, city, county, and/or state often use the revenue generated from this special assessment.
For instance, a Mello-Roos is quite often used to pay for amenities such as police departments, schools, parks, water and drainage systems, and other infrastructure public improvements.
In short, a Mello-Roos is a type of tax -- on either the property or community -- individuals pay in addition to property tax. That's right: In some communities, a property owner pays both the property tax and the taxes on the property.
Origin of the term 'Mello-Roos'
The Mello-Roos tax is named after California State Senator Henry Mello and California State Assemblyman Mike Roos, who drafted the Mello-Roos Community Facilities Act of 1982, which became a way around the tax limits imposed by Proposition 13.
Proposition 13 placed a restriction on state and local taxes and prevented special districts from accessing certain types of funding. Additionally, restrictions were placed on any new taxes, and a two-thirds vote of the qualified voters in the district was required to increase non-property taxes.
The Act enables any county, city, special district, school district, or joint powers authority to establish a Community Facilities District to finance the development of public works, public facilities, and other community needs.
Difference between a Mello-Roos and property taxes
While a Mello-Roos is similar to property taxes, there are many differences between the two. For instance, unlike property taxes, individuals who live in a Mello-Roos community do not pay the tax indefinitely. Instead, they typically pay a Mello-Roos for anywhere from 20 to 40 years. The exact payment period depends on the community and the type of project the community has financed.
Additionally, property taxes are based on the assessed value of your property, whereas a Mello-Roos can be based on a number of factors, such as the basis of density or square footage of the project being developed or the flat acreage charges of the development. This is what makes a Mello-Roos such a special tax; the tax's rate and terms hinge upon the type of public improvements or project needed in the particular Mello-Roos district.
The Millionacres bottom line
Learning your investment property is located in a Mello-Roos community and subject to a special tax assessment can be quite surprising to many homebuyers -- especially when they get their tax bill. For this reason, it is of the utmost importance to conduct a title search before moving into a new community or city.
Owning property subject to a Mello-Roos can significantly drive up the cost of owning that property. For this reason, as a buyer, never search for property alone -- always consult a qualified expert before purchasing a new home; otherwise, you could be exposed to this additional tax.