PROJECTState and Local Backgrounders

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  • Property Taxes

    State and Local Backgrounders Homepage

    A property tax is a tax levied on "real property" (land and buildings, both residential and commercial) or personal property (business equipment, inventories, and noncommercial motor vehicles).

    Taxpayers in all 50 states and the District of Columbia pay property taxes, but the tax on real property is primarily levied by local governments (cities, counties, and school districts) rather than state governments. With a few exceptions, state property taxes are typically levied on personal property. 

    How much revenue do state and local governments raise from property taxes?

    State and local governments collected a combined $577 billion in revenue from property taxes, or 17 percent of general revenue, in 2019. Property tax revenue as a percentage of state and local general revenue was higher than general sales tax revenue, individual income tax revenue, and corporate income tax revenue in 2019.

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    Property taxes are a very small source of revenue for states because states typically tax personal property but not real property. (Census does not provide a separate count for each type of property tax.) State governments collected $18 billion from property taxes in 2019, or 1 percent of state general revenue. In contrast, property taxes are one of the largest sources of revenue for local governments. Local governments collected $559 billion in property taxes in 2019, or 30 percent of local general revenue.

    School districts, counties, municipalities, and townships all collect property tax revenue, and it typically accounts for a significant portion of general revenues in those jurisdictions—particularly for school districts. The remaining local government property tax revenue is collected by special districts that are specific-purpose units such as water and sewer authorities that typically get most of their revenue from taxes related to those services. (Census only publishes revenue totals for these levels of government for years ending in 2 and 7.)

    Local Property Tax Revenue, by Level of Government, 2017

     

    Revenue ($ billions)

    Percentage of general revenue

    School district

    $212

    37%

    County

    $120

    28%

    Municipality

    $121

    24%

    Township

    $34

    62%

    Special District

    $22

    11%

    Note: The US Census Bureau only publishes local-level data for years ending in 2 and 7.

    Which states are most reliant on property tax revenue?

    All states have property taxes (at least at the local level). New Hampshire was the most reliant on property tax revenue in 2019, as the tax accounted for 36 percent of its combined state and local general revenues. (New Hampshire does not have a broad-based individual income tax or general sales tax). The next most reliant states were New Jersey (29 percent), Maine (27 percent), and Connecticut (26 percent). Overall, 10 states collected 20 percent or more of their state and local general revenues from property taxes in 2019.

    map display

    Data: View and download each state's general revenue by source as a percentage of general revenue

    In contrast, Alabama, Arkansas, Delaware, Kentucky, Louisiana, New Mexico, Oklahoma, and West Virginia collected less than 10 percent of their state and local general revenue from property taxes.

    Property taxes accounted for nearly half (46 percent) of own-source local general revenue (i.e., excluding transfers from the federal and state government). In Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, and Rhode Island, property tax collections were more than three-quarters of local own-source general revenue  in 2019. In contrast, Alabama’s local governments collected just 21 percent of their own-source revenue from property taxes, the lowest percentage in any state.

    At the state level, property taxes accounted for 1 percent of state own-source general revenue in 2019. However, Vermont’s property taxes contributed 25 percent of its state own-source general revenue that year, far and away the highest percentage in any state. Nearly all of Vermont’s education spending is financed at the state level, and the state's property tax on real property is the largest source of that funding. The next-highest percentages were in New Hampshire and Washington (9 percent in both states), in part because these states also use property taxes to fund their state-level K-12 education spending. 

    Property taxes were also 7 percent or more of state own-source revenue in Arkansas, Montana, and Wyoming. In addition to business equipment and cars, state personal property taxes are sometimes levied on land that is used for utilities. Fourteen states did not levy a state-level property tax in 2019.

    The percentage of state and local general revenue from property taxes in a state reflects several factors, including:

    • the property tax rates in a state’s local jurisdictions
    • the value of the property in the state
    • the relative amount of tax revenue in the state from other sources

    How much do real property tax rates differ across the country?

    Real property tax rates differ widely both across and within states, making it difficult to compare states against each other. Further, local governments use different methods to calculate their real property tax bases and assessment levels.

    Every jurisdiction’s property tax requires at least three steps:

    1. Assess the value of each property in the jurisdiction.
    2. Determine the taxable value of each property.
    3. Apply the tax rate to the taxable value of each property.

    The government levying the property tax typically assesses the real property value by estimating what the property would sell for in an arms-length transaction (that is, a transaction between unrelated parties). However, there are other calculations for assessing a property’s value. Some jurisdictions base their assessed value on the last sale price or acquisition value of the property, the income a property could generate (e.g., hotels), or solely on the size or physical attributes (e.g., design or location) of the property. The timing of assessments also varies, with some jurisdictions assessing annually and others going multiple years between assessments.

    Further, some jurisdictions impose their tax on the entire assessed value of the property while others tax only a fraction of the assessed value. For example, South Carolina counties impose tax on only 4 percent of an owner-occupied property’s assessed value, while the District of Columbia taxes 100 percent of a property's assessed value. Thus, the tax rate in South Carolina counties is higher than the tax rate in the District of Columbia but that is not an apples-to-apples comparison.

    Some local jurisdictions also impose different tax rates—or classifications—for different types of property, most commonly distinguishing between residential and business property.

    And while property tax rates can vary considerably within states, some states impose a statewide limit on the maximum rate.

    States and local governments also often use other limits, exemptions, deductions, and credits to lower a real property’s taxable value or the taxpayer’s payment for some or all owners. A few major examples are as follows:

    • Assessment limits prevent a property’s assessed value from increasing by more than a fixed percentage between assessments. These limits generally reduce a property’s assessed value below its actual market value and thus prevent rapid property value increases from raising the owner’s tax burden. When the property is sold, its assessed value is reset at its market value. Seventeen states and the District of Columbia offered some type of limitation on a property's assessed value in 2020. The property eligible for an assessment limitation and the calculation of the limit (i.e., the percentage increase in assessment allowed over a time period) varies across states.
    • Homestead deductions or exemptions decrease the taxable value of real property by a fixed amount (much the same way a standard deduction decreases taxable income). While every state has residency requirements for claiming a homestead exemption, some states have further eligibility qualifications based on age, disability, income, or veteran status. Nearly every state and the District of Columbia broadly offered some type of homestead exemption or credit in 2018.
    • Circuit breaker programs provide relief for elderly and low-income residents with property tax liabilities above a specified percentage of their income. Although the tax relief is based on property tax payments, it is typically provided via an individual income tax credit. Unlike the other approaches described here, circuit breakers can benefit renters as well as homeowners in some jurisdictions. Thirty-three states and the District of Columbia offered some form of circuit breaker program in 2020. In 18 of these states and the District of Columbia, renters were eligible for the circuit breaker program.
    • Property tax deferrals allow elderly and disabled homeowners to defer payment until the sale of the property or the death of the taxpayer. Twenty-three states and the District of Columbia allowed such deferrals in 2020, but they are not widely used.

    These relief programs can create significantly different tax burdens within a jurisdiction even among taxpayers who have homes of similar vintage and pay the same tax rate.

    Further, while these policies can help individual homeowners reduce their property tax payments, various studies have shown that property tax assessments and appeals outcomes can disproportionately help white homeowners and disproportionally burden Black and Latino households. This can make a locality's property tax system more regressive than it appears.

    More detailed information on property tax relief and incentive programs, for all 50 states, can be found at the Lincoln Institute's Property Tax Database.

    Interactive data tools

    State and Local Finance Data: Exploring the Census of Governments

    State Fiscal Briefs

    Further reading

    Significant Features of the Property Tax
    Lincoln Institute of Land Policy (2018)

    Critics Argue The Property Tax Is Unfair. Do They Have A Point?
    Tracy Gordon (2020)

    The Assessment Gap: Racial Inequalities in Property Taxation
    Carlos Avenancio-León and Troup Howard (2020)

    Note

    All revenue data are from the US Census Bureau’s Annual Survey of State Government Tax Collections. All dates in sections about revenue reference the fiscal year unless explicitly stated otherwise.

    Research Areas State and local finance
    Policy Centers Urban-Brookings Tax Policy Center