Under Proposition 2 1/2, a municipality is subject to two property tax limits:
- Ceiling: The total annual property tax revenue raised by a municipality shall not exceed 2.5% of the assessed value of all taxable property contained in it.
- Increase limit: The annual increases of property tax cannot exceed 2.5%, plus the amount attributable to taxes that are from new real property (new growth).
These limits refer to the entire amount of the annual tax levy raised by a municipality. The property taxes are the sum of: (a) residential real property; (b) commercial real property; (c) industrial real property; and (d) business-owned personal property.
In practice, it usually limits the tax bills of individual taxpayers, but only as an indirect result.