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Proposition 2½ is the initiative petition adopted by voters of the Commonwealth of Massachusetts in 1980. Its principal features relate to the total amount of property taxes that a city or town can raise each year. Other parts of the initiative limit state agency assessments on cities and towns, prohibit unfunded state mandates and repeal school committee fiscal autonomy and binding arbitration for certain public employees. In addition, it reduces the motor vehicle excise tax and allows renters a deduction on their state income tax. Proposition 2½ contains two limitations on the amount of property taxes a city or town can raise: The property tax levy (the amount raised) can never exceed 2½% of the full cash value of all taxable property in the city or town. This is known as the "levy ceiling." The property tax levy cannot increase from year to year by more than 2½%, with certain exceptions for new growth, or through overrides and exclusions as adopted by the voters. This is known as the "levy limit."
The levy limit provision of Proposition 2½ affects the total amount of taxes to be raised by a city or town. It does not apply to an individual tax bill.
The Classification amendment, allows cities and towns to categorize real estate into four classes and to distribute the tax burden among these classes. Proposition 2½ affects the total amount of tax that can be raised. Classification affects what classes of taxpayers will pay for what specific share of the total amount of tax
Proposition 2½ sets the maximum amount of property taxes (the levy) that a city/town can raise. Once the amount to be raised is determined, a tax rate is calculated by dividing the amount to be raised by the total valuation of the city/town. Whether the tax rate for a community will increase or decrease from the prior year will depend upon the levy decided and whether the property values appreciate, depreciate, or remain steady in a particular community.