The Lincoln Institute of Land Policy released the annual 50-State Property Tax Comparison Study, a comprehensive analysis of effective property tax rates in each state’s largest city, one rural area in each state, and the District of Columbia.
The study, produced in partnership with the Minnesota Center for Fiscal Excellence, tracks the property tax as the primary revenue source to fund local government to provide basic services. The Northeast and Midwest generally have higher property tax burdens as compared to the West and Southwest.
In part because the study measures effective property tax rates – that is, the actual tax payment as a percentage of market value – many struggling post-industrial cities, where property values have dropped, show up at the top of the rankings.
"The property tax remains the foundation of sound municipal fiscal health," said George W. "Mac" McCarthy, president of the Lincoln Institute. Cities such as Detroit are working hard to make adjustments in valuations to bring balance back to this essential covenant, McCarthy said.
Bridgeport, Connecticut continues to impose the highest taxes on homes worth $150,000 to $300,000, followed by Detroit, Aurora, Ill., Newark, and Milwaukee. Cities with the lowest effective residential property tax rates include Denver, Birmingham, Washington, DC, Honolulu, and Boston.
Cities with the highest apartment property tax rates – in contrast to "homestead" or owner-occupied housing – include New York, Detroit, Des Moines, Aurora, and Bridgeport. The lowest in the rankings are Salt Lake City, Washington, DC, Denver, Cheyenne, and Honolulu.
In terms of commercial property taxes, cities with the highest effective commercial rates include Detroit, New York, Chicago, Providence, Des Moines, and Bridgeport. The lowest taxes can be found in Wilmington, Del., Virginia Beach, Seattle, Honolulu, and Cheyenne.
Cities with the highest industrial property taxes are Columbia, South Carolina., Memphis, Jackson, Miss., and Houston. Cities with the lowest industrial property taxes are Cheyenne, Wilmington, Honolulu, and Virginia Beach.
The study is most useful when analyzed alongside other information about state and local tax structures, said Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence. Some jurisdictions are more dependent on the property tax and have limited alternative options; some have higher income and sales taxes to finance a greater share of the cost of local government.
There are also many policies to redistribute property tax burdens across the classes of property through exemptions, differential assessment rates, or other classification schemes.
Median-valued homes (urban)
- Rates range from high of 4.0 percent (Bridgeport) to low of 0.3 percent (Honolulu)
- Burdens range from high of $6,601 (Bridgeport) to low of $529 (Birmingham)
Effects of parcel-specific assessment limitations:
- The economic recovery appears to be creating additional amounts of excluded homestead value benefiting long time property owners
- The effects can be very large –a new owner of the median valued home in New York City, Los Angeles and San Francisco pays 30 to 40 percent more in property taxes than the average tenured resident of the same home.
Business property vs residential property taxes:
- Most property tax systems (42 of 53 in total) give residential property "preferred" status by imposing higher effective tax rates on business property through differential rates, differences in the proportion of value that is taxable, and/or credits or exemptions for homeowners
- When comparing effective tax rates on land and buildings for commercial property valued at $1 million versus median-valued homes for 53 property tax systems, the effective tax rates on business property are 71 percent higher.
- New York City and Boston are at the high end – each with effective tax rates for business property that are at least 4 times higher than those for residences.
- States that tax homestead properties more heavily only do so because commercial properties are under-assessed relative to residences
- States with no parcel-specific assessment limitations and low differentials between residential and business effective tax rates have had slower growth in property taxes.
The Lincoln Institute and the Minnesota Center for Fiscal Excellence have co-produced the 50-state comparison study for the last four years. The report released today, based on 2014 data, is available at the Lincoln Institute subcenter Significant Features of the Property Tax, which offers detailed data on the property tax in 50 states and the District of Columbia.
The study can be used for further research on the dynamic impacts of property taxation, such as the extent to which commercial or industrial tax rates have an influence on locational decisions of businesses, or the relationship between tax rates and the proportion of untaxed or untaxable land in cities.