Property taxes represent a major source of revenue for states and localities. In fiscal year 2015, the latest year of data available, 31.1 percent of total U.S. state and local 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. collections came from property taxes, more than any other source of tax revenue. In the same year, 25 states and the District of Columbia raised the greatest share of their tax revenue from property taxes (see Facts and Figures Table 8).
A variety of local political subdivisions have authority to set 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. rates, including counties, cities, school boards, fire departments, and utility commissions. While most tax jurisdictions levy property taxes based on the fair market value of a property, some base the property tax rate on income potential or other factors. In addition, some states place limits on the extent to which property tax rates may increase per year or impose rate adjustments to achieve uniformity throughout the state.
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In FY 2015, New Hampshire and Alaska relied most heavily on property taxes, at 65.7 percent and 57.2 percent of their tax collections, respectively, while North Dakota and Alabama raised the smallest portion of their state and local tax revenue through property taxes, at 13.3 percent and 17.2 percent, respectively.
It is important to note that a heavy reliance on property taxes does not necessarily indicate a high overall tax burden in any given state. For example, while Alaska is among the states that rely most heavily on property taxes, it is also among the states with the lowest state and local tax collections per capita (see Facts and Figures Table 6).
At the same time, states and localities that generate less revenue through property taxes tend to depend more on general sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es, individual and corporate income taxes, excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es, and others. For example, North Dakota derives much of its tax revenue from severance taxes while generating relatively little revenue from property taxes.
Note: This is the first in a four-part map series in which we will examine the primary sources of state and local tax collections.