Property Taxes

State and Local Backgrounders Homepage

A property tax is a tax on “real property” (land and buildings) or personal property (e.g., business equipment, inventories, and noncommercial motor vehicles).

Taxpayers in all 50 states and the District of Columbia pay property taxes, but the tax is primarily levied by cities, counties, and school districts rather than states.

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

State and local governments collected a combined $503 billion in revenue from property taxes, or 17 percent of general revenue in 2016. Property tax revenue as a percentage of general revenue were higher than general sales tax, individual income tax, and corporate income tax revenue.

Property taxes are a very small source of revenue for states, in part because states typically tax personal property but not real property. State governments collected $16 billion in revenue from property taxes in 2016 or 1 percent of state general revenue. In contrast, property taxes were one of the largest sources of revenue for local governments. Local governments collected $487 billion in property taxes or 30 percent of local government general revenue.

State and Local Property Tax Revenue, 2016

 

Revenue ($ billions)

Percentage of general revenue

States and local governments

$503

17%

States

$16

1%

Local governments

$487

30%

School districts, counties, municipalities, and townships all collect property tax revenue. Property tax revenues typically account for a significant portion of general revenues in those jurisdictions, particularly for school districts. The remaining local government property tax revenue was collected by “special districts,” which are specific-purpose units such as water and sewer authorities.

Various Local Governments Property Tax Revenue, 2012

 

Revenue ($ billions)

Percentage of general revenue

School district

$181

37%

County

$104

28%

Municipality

$102

24%

Township

$29

60%

Special District

$19

12%

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 2016; with the tax accounting for 37 percent of its combined state and local general revenues (New Hampshire does not have an individual income tax or general sales tax). The next most reliant states were New Jersey (29 percent) and Connecticut (27 percent). Overall, 10 states received 20 percent or more of their state and local general revenues from property taxes in 2016.

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

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

Looking only at local governments, property taxes provided more three-quarters of own-source general revenue in Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, and Rhode Island in 2016. Alabama’s local governments received 19 percent of their own-source revenue from property taxes, the lowest percentage in any state.

At the state level, Vermont’s property taxes contributed 27 percent of state own-source general revenue in 2016, 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 property tax is the largest source of that funding. The next-highest percentage was in Wyoming, where property taxes were 11 percent of state own-source general revenue. Wyoming’s revenue is relatively high in part because the state levies its tax on mineral production.

Property taxes were also 5 percent or more of state own-source revenue in Arizona, Arkansas, Kansas, Michigan, Montana, New Hampshire, and Washington. State property taxes are often on personal property and taxes on land that is used for utilities. Fourteen states did not levy a state-level property tax.

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

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

How much do 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. Various 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 (before deductions and credits), 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.

However, while property tax rates can vary considerably within states, some states impose a statewide limit on the maximum rate. And some local jurisdictions impose different tax rates—or classifications—for different types of property, most commonly distinguishing between residential and business property.

States and local governments also often use 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 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.
  • 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) for residents who occupy the property (some states have further qualifications such as age). Forty-five states and the District of Columbia offered a homestead exemption that reduced the amount of the assessed property value subject to tax for eligible taxpayers in 2017.
  • Circuit breaker programs provide relief for elderly and low-income residents with property tax liabilities above a specified percentage of their income. Although 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 2017. In 22 of these states and the District of Columbia, renters were eligible for the circuit breaker program (some states offer multiple programs for different types of residents).
  • Property tax deferrals allow elderly and disabled homeowners to defer payment until the sale of the property or the death of the taxpayer. Twenty-six states and the District of Columbia allowed such deferrals in 2017, 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.

Interactive data tools

State and Local Finance Initiative Data Query System

Further reading

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

Residential Property Taxes in the United States
Benjamin H. Harris and Brian David Moore (2013)

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.