Commercial, Industrial Property Saddled with Higher Taxes

November 21, 2012

Dozens of States Treat Property of Same Value Unevenly

Washington, D.C., November 21, 2012—State and local governments routinely target commercial and industrial property for higher tax rates than residential property, forcing owners to pay a disproportionately larger share of the bill for government services. Governments in 39 states apply discriminatory tax rates to commercial property, with owners paying a national average of 172% of what residential homeowners pay for property of the same value, according to a new analysis from the Tax Foundation.

State and local governments collected 44 percent of property tax revenue from residential property and 56 percent from non-residential property in 2010. By contrast, the U.S. Census Bureau has found that residential property totaled over 60 percent of assessed valuation, with commercial and industrial less than 25 percent. Owners of non-residential property are clearly paying more than their fair share.

Residential homeowners are a large majority of the electorate, so it is understandable why politicians would be tempted to reduce their taxes while raising taxes on commercial and industrial property owners. Because commercial and industrial property owners pass at least some of the costs of doing business on to consumers, workers, and shareholders, however, these shifts may be doing greater damage to long-term economic growth. Shifting a greater property tax burden onto commercial and industrial property could also result in residential property owners not paying the full cost of the public services they are demanding.

“Abraham Lincoln once cautioned, ‘Let not him who is houseless pull down the house of another.’” said Tax Foundation Vice President for Legal & State Projects Joseph Henchman. “By heavily taxing commercial and industrial property to benefit residential property, state and local governments are doing precisely that. A better approach would be property tax systems that tax all property alike.”

Tax Foundation Fiscal Fact No. 342, “State and Local Property Taxes Target Commercial and Industrial Property” by Joseph Henchman is available here.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

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