Ranking Property Taxes on the 2020 State Business Tax Climate Index

Today’s map shows states’ rankings on the property tax component of the 2020 State Business Tax Climate Index. The Index’s property tax component evaluates state and local taxes on real and personal property, net worth, and asset transfers. The property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. component accounts for 16.6 percent of each state’s overall Index score.

Property taxes matter to businesses for several reasons. First, businesses own a significant amount of real property, and taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rates on commercial property are often higher than the rates on comparable residential property. Many states and localities also levy taxes not only on the land and buildings a business owns but also on tangible property, such as machinery, equipment, and office furniture, as well as intangible property like patents and trademarks. Across the nation, property taxes impose one of the most substantial state and local tax burdens most businesses face. In fiscal year 2018, taxes on real, personal, and utility property accounted for 38 percent of all taxes paid by businesses to state and local governments, according to the Council on State Taxation.

Although taxes on real property tend to be unpopular with the public, a well-structured property tax generally conforms to the benefit principle (the idea in public finance that taxes paid should relate to benefits received) and is more transparent than most other taxes.

Taxes on intangible property, wealth, and asset transfers, on the other hand, are harmful and distortive. States that levy such taxes—including capital stock taxes, inventory and intangible property taxes, and estate, inheritance, gift, and real estate transfer taxes—are less economically attractive, as they create disincentives for investment and encourage businesses to make choices based on the tax code that they would not make otherwise. Businesses with valuable trademarks may seek to avoid headquartering in states with intangible property taxes, and shipping and distribution networks might be shaped by the presence or absence of inventory taxes.

States are in a better position to attract business investment when they maintain competitive real property tax rates and avoid harmful taxes on tangible personal property, intangible property, wealth, and asset transfers. This year, the states with the best scores on the property tax component are New Mexico, Indiana, North Dakota, Idaho, Utah, and Delaware. States with the worst scores in this component are Connecticut, Vermont, Massachusetts, New Jersey, New York, and Rhode Island, plus the District of Columbia.

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To gauge whether your state’s property tax structure has become more or less competitive in recent years, see the table below.

Property Tax Component of the State Business Tax Climate Index (2017–2020)

Note: A rank of 1 is best, 50 is worst. All scores are for fiscal years. DC’s score and rank do not affect other states. Source: Tax Foundation.
State	2017 Rank	2018 Rank	2019 Rank	2020 Rank	Change from 2019 to 2020
Alabama	18	12	16	15	1
Alaska	24	38	25	25	0
Arizona	6	6	6	8	-2
Arkansas	25	22	29	29	0
California	17	13	15	16	-1
Colorado	16	14	14	14	0
Connecticut	50	49	50	50	0
Delaware	11	20	7	6	1
Florida	13	10	13	13	0
Georgia	23	23	27	28	-1
Hawaii	9	16	11	11	0
Idaho	3	3	5	4	1
Illinois	41	45	40	40	0
Indiana	4	4	3	2	1
Iowa	35	39	35	35	0
Kansas	21	19	20	20	0
Kentucky	37	36	36	36	0
Louisiana	32	30	33	33	0
Maine	43	41	42	43	-1
Maryland	44	42	43	42	1
Massachusetts	47	46	48	48	0
Michigan	26	21	24	24	0
Minnesota	29	28	26	26	0
Mississippi	36	35	37	37	0
Missouri	7	7	8	7	1
Montana	12	9	12	12	0
Nebraska	40	40	41	41	0
Nevada	10	8	10	10	0
New Hampshire	42	44	44	44	0
New Jersey	49	50	47	47	0
New Mexico	1	1	1	1	0
New York	45	47	46	46	0
North Carolina	33	32	34	34	0
North Dakota	2	2	2	3	-1
Ohio	8	11	9	9	0
Oklahoma	14	15	19	19	0
Oregon	19	18	17	18	-1
Pennsylvania	22	33	22	21	1
Rhode Island	46	43	45	45	0
South Carolina	27	24	30	30	0
South Dakota	20	25	21	22	-1
Tennessee	31	29	31	31	0
Texas	38	37	38	38	0
Utah	5	5	4	5	-1
Vermont	48	48	49	49	0
Virginia	30	31	32	32	0
Washington	28	27	28	27	1
West Virginia	15	17	18	17	1
Wisconsin	34	26	23	23	0
Wyoming	39	34	39	39	0
District of Columbia	48	46	49	49	0

To learn more about how we determined these rankings, read our full methodology here.

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