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 (DC) 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 $488 billion in revenue from property taxes, or 17 percent of general revenue in 2015. Property tax revenue as a percentage of general revenue was slightly below sales tax revenue and higher than individual income taxes and corporate income taxes.

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 $15 billion in revenue from property taxes in 2015 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 $473 billion in property taxes or 30 percent of local government general revenue, surpassed only by government transfers, which were 36 percent of general revenue.

State and Local Property Tax Revenue, 2015

 

Revenue ($ billions)

Percentage of general revenue

States and local governments

$488

17

States

$15

1

Local governments

$473

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

Note: The US Census Bureau only publishes local-level data in 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 2015; the tax accounted for 38 percent of its combined state and local general revenues (the state does not have an income or sales tax). The next most reliant state was New Jersey, where property taxes contributed 29 percent of state and local general revenues. Connecticut, Illinois, Maine, Massachusetts, Nebraska, Rhode Island, Texas, and Vermont also collected at least 20 percent of their general revenue from property taxes.

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

The percentage of general revenue from property taxes reflects several factors:

  • the property tax rates in the 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, some jurisdictions base value on the last sale price or acquisition value of the property, others consider the income a property could generate (e.g., hotels), and some base the assessment 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 less frequently.

Some jurisdictions impose tax on the entire assessed value of the property (before deductions and credits). In others, only a fraction of the assessed value is taxed. For example, South Carolina counties impose tax on only 4 percent of a property’s assessed value.

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.
  • 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.
  • Property tax deferrals allow elderly and disabled homeowners to defer payment until the sale of the property or the death of the taxpayer. Twenty-two states and DC allow such deferrals, 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.

Property tax rates can vary considerably within states, but some 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.

Further reading

Significant Features of the Property Tax
Lincoln Institute of Land policy (2016)

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.