Property Tax

In Miami, Florida, someone who has owned a home for 13 years—the average duration in the city—paid about $2,800 in property taxes last year, roughly half the tax bill for a new owner of an identical home, who paid about $5,200. This discount, the result of state tax breaks for longtime homeowners, was about $450 higher in 2018 than in 2017, according to the annual 50-State Property Tax Comparison Study by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence.

Florida is one of 10 states where local governments are required to assess parcels differently based on when they were last sold, a policy that favors longtime homeowners by limiting growth of the assessed values used to calculate tax bills. When real estate prices rise, these assessment limits shift more of the tax burden to newer homeowners, whose properties are assessed closer to the market value. Overall, in the 10 states requiring these tax breaks, and in two cities with similar policies, those who have owned their homes for the average duration within their city paid 29 percent less in taxes than new homeowners, up from a 19-percent discount percent a year earlier.

Assessment limits are one of many factors that influence property taxes in the United States. The report explores all of the major factors, providing a comprehensive analysis of effective property tax rates—the tax paid as a percentage of market value—in more than 100 cities in every U.S. state and Washington, DC.

Drawing on data for 73 large U.S. cities, the study explains why property taxes vary so widely from place to place.

Reliance on the property tax is chief among the reasons. Cities with high local sales or income taxes do not need to raise as much revenue from the property tax and thus have lower property tax rates on average. For example, Bridgeport, Connecticut, has one of the highest effective tax rates on the median-valued home, while Birmingham, Alabama, has one of the lowest. But the average Birmingham resident pays 36 percent more in total local taxes when accounting for sales, income, and other local taxes.

Property values are the other crucial factor explaining differences in tax rates. Cities with low property values need to impose a much higher tax rate to raise the same revenue as cities with high property values. For example, the effective tax rate on the typical home in Detroit, which has the lowest median home values in the study, is nearly four times higher than in San Francisco, which has the highest. In Detroit, to raise $3,105 per home—the national average tax bill on a median-valued home—would require an effective tax rate 22 times higher than in San Francisco.

The other drivers of variation in property tax rates include the different treatment of various classes of property, such as residential and commercial, and the level of local government spending.

The average effective tax rate on a median-valued home was 1.44 percent in 2018, with wide variation across cities. Four cities have effective tax rates that are at least double the national average—Aurora, Illinois; Bridgeport; Detroit, and Newark, New Jersey. Conversely, six cities have tax rates less than half of the study average—Honolulu; Charleston, South Carolina; Boston; Denver; Cheyenne, Wyoming; and Birmingham.

Commercial property tax rates on office buildings and similar properties also vary significantly across cities. The effective tax rate on a $1 million commercial property is about 2 percent, on average, across the largest cities in each state. The highest rates are in Providence, Detroit, Chicago, Bridgeport, and Aurora, where rates are at least two-thirds higher than average. Rates are less than half of the average in Fargo, North Dakota; Virginia Beach, Virginia; Honolulu; Seattle; and Cheyenne.

The report is available for download on the Lincoln Institute website:
https://www.lincolninst.edu/publications/other/50-state-property-tax-comparison-study-3

Will Jason is associate director of communications at the Lincoln Institute. 

Photograph Credit: iStockphoto/Aneese.